How to Open a Laundromat: Qualifying and Financial Requirements

Many people around the country get the idea to start or buy a laundromat as a second income or focused career. A laundromat is a sound investment, because it’s an all cash, recession resistant business providing essential services to the public. Furthermore, laundromats give investors the opportunity to invest in a business with fast break-even returns, depreciation tax benefits, growth potential, weak competitors, no accounts receivables to collect, no skilled staff to hire, no professional license, minimal administration requirements, and can make quite a lot of money.

However, without having been through the process before, many of these entrepreneurs face an uphill battle with too many unknowns.

In this series, we will walk you through the process of opening a laundromat from scratch. We will go over capital requirements, financing, insurance, finding a suitable location, building lease guidance, equipment considerations, layout optimization, payment system mixes, customer acquisition, and more.

The first thing to consider when deciding to open or buy a laundromat is your personal financial situation and capital that may be available to you. In total, you can expect to bring 30% of the total project cost to the table in cash.

Most laundromats will cost a total of $350,000 to $1,500,000, which means you will need a minimum of about $100,000 to begin to consider opening even a small laundromat. Without this cash availability, you will not be able to afford the 20% down payment for financing, potential improvement costs, or the capital required to operate the business for 90 days.

If you do not have this amount of cash on hand, your first task will be to raise the capital needed. Most likely, you will seek investment from friends and family, but here are 11 sources of funding you may consider:

1. Crowdfunding: If you have strong convictions about a location for a laundromat and need cash to fund your store, use the power of the internet to raise the funds you need. Crowdfunding sites like GoFundMe and Start Engine have become increasingly popular with inventors and entrepreneurs in recent years. They’re easy to set up, and if you can communicate your passion, you may be able to generate support from people all over the world.

Moreover, you can ask friends and family to contribute to your crowdfunding efforts or borrow from them directly. People you know are often the best and safest way to raise money. Not only will they be more open to your proposal, but they have also likely seen your effort and dedication.

2. Angel Investors: Angel investors provide capital for a laundromat start-up in exchange for convertible debt or ownership equity. Many of the biggest tech companies today, like Google and Yahoo, were funded by “angels.” Looking for a way to raise money for your laundromat in a growth-oriented industry? Angel investors are a favorable option.

3. Bootstrapping: If you don’t want to give up any form of ownership or independence, bootstrapping is likely the best option to raise money for your laundromat. It involves using your own resources. This may mean pulling from your savings or taking out a mortgage on your assets.

4. Venture Capitalists: Like angel investors, venture capitalists provide capital to start-ups, early-stage, and emerging businesses that show high growth potential. The difference is that they generally provide financing that often has higher rates of return instead of taking a share of the company. However, some may want take an ownership share of your laundromat.

5. Microloans: There are numerous microloan options for those looking for ways to raise money for business growth or expansion. Loans remain a core option for businesses because they usually come with fewer strings attached, shorter payment periods, and in some cases, medium to low-interest rates.

6. SBA Loans: Government programs are a channel worth investigating if you’re asking yourself how to raise funds for business growth. You can turn to the SBA grants programs, but keep in mind that they are highly competitive. Another way of raising money for a business through government assistance is through SBA lending. You will still need to put money down, but it may save you up to 10% of the required capital needed to start your laundromat.

Laundromat investors look for funding anywhere they can find it.

When raising money from your preferred source, you will need to form a comprehensive, sharp case for your laundromat. Here are some best practices that may help you get organized:

1. Do your due diligence: No matter what form of fundraising you do, always make sure you practice due diligence to make sure you are not getting the raw end of the deal. This is especially so with financing, venture capitalists, or angel investors.

2. Organized your financials: Always make sure to provide detailed pro formas, whether you’re a small business or bootstrapping. The first thing financial lenders or investors look at is whether the laundromat is worth investing in. Your job is to show them the potential of your laundromat to make money and show your reasoning.

3. Practice your business pitch: You want to be supremely confident when you pitch your idea to anyone you feel is interested in investing. Refine your value proposition in your business pitch. Donors and investors want to know your impact, and how their money will help you achieve it. Make sure to showcase the things that make your business likely to be successful.

4. Be enthusiastic: When you show you are all-in, it is easier for investors to see your business plan is backed by passion and grit.

Be sure to check out our other articles on laundromats, and feel free to reach out to us anytime. We are happy to help!