Friday, October 4, 2013

Turn Key Laundromat Business Interview

Jason Baird: . If I wanted to explore the idea of opening a coin operated laundry business, how could you guys help us to know what to expect, the advantages and disadvantages, and how could you help us make it a reality as opposed to us trying to research online or figure something out?

Ryan Smith: AAdvantage Laundry Systems offers a turn-key solution to investors looking to get into the vended laundromat industry. We have 20 years of experience in bringing viable solutions to investors. Opportunities, we know some of the advantages of Section 179 and other government rebates that offer tax incentives for small businesses whereby you can achieve accelerated depreciation for investors who are looking for those types of opportunities, to the mom and pop shops who are looking for a decent retirement income. As most people recognize in cash businesses, there's a lot of flexibility but for the laundry equipment owner, it's more than just looking at cash. You're looking assets that are obviously depreciable assets and so it becomes a business, or is a business, and those that treat it as a business are very successful so we can help from like I said a turn key standpoint with a lot of data that they need, a lot of the demographic information that they need, the site evaluation that they need. Obviously we offer the machines, we offer layouts, we offer grand opening start up ideas. It's a blessing to have this service after the sale that we have because our technicians are very knowledgeable and we do our best to teach the ownership, whether it be the onsite owner who wants to learn how to repair his machines or perhaps he has somebody that he has set aside to do that for him in a multi-store scenario. We do our best to educate him. We offer parts here for them to purchase parts from us at discounted prices, so as far as the one stop shop is concerned, we offer everything.

Jason Baird: What kind of money are we talking about? In other words, how much money would we have to spend to get it up and going one time and then how much monthly do we need to budget for. Just a guestimate.

Ryan Smith: Well, typically we look at, because of the different units and different costs and different stores and so on and so forth, we typically look at $100 per sq ft for equipment, so a $400,000 investment would be appropriate for a 4,000 sq ft store. We recognize that, fortunately we have financing via our manufacturer at very competitive rates on equipment and the promotions that they offer and the programs that they offer really enable operators to be successful. We've found that the financing side within the vended laundry industry is really the key. Very few of our investors come to the table with cash. Most of the time the capital they do bring is being leveraged from a third party and so typically that third party is going to require them to have anywhere from 20-30 percent of the total investment in cash on hand and inject that into the business. So for instance, for a $400,000 investment they would need to have somewhere around $80,000-$120,000 invested in the store in some capacity. From a revenue standpoint, revenue ranges based on the store but when you look at a solid 4,000 sq ft store that is going to potentially generate $25,000 a month, when you couple that with tax incentives as well as the financing terms that we discussed, typically most of the programs are financing equipment out for 8-10 years now and a lot of them have a wrap up period where they offer, at ours, DFS, Dexter Financial Services, offers 90 day program where there are no payments or interest and then it rolls into an interest only payment for another 90 days and then it transitions into a principle and interest payment so that the store owner can get his store up and running and creating some cash flow that should help fund a slower period as he's in his start up phase.

Jason Baird: So you said that $25,000 a month is  gross revenue?

Ryan Smith: Right, that would be a gross revenue projection and once again that's a pretty general statement because 4,000 sq ft stores can do $20,000 a month or they can do $35,000. The operators have shared with us  scenarios where a 4,000 sq ft store was generating $35,000 and we have all stars that are generating north of $40,000 a month so the return can be quite impressive for a business that can generate off of 4-6 FTEs, that's a nice opportunity.

Jason Baird: It seems like the word on the street is that a coin operated laundry can just break even potentially before a lot of businesses or before the average. Do you have any comment on that? I know there are always variables.

Ryan Smith: Well, fortunately we offer projections that are based off from national averages so we would take on these projections, we would take then prices and the number of machines and because you're going to have a mix of capacities ranging from 20 pounds up to 90 pounds in your washers and then your dryers are a percentage of your wash revenue, but these projections have been based off of 20 years of experience and national averages but we actually pull most of the data for the projections off the coin laundry association information that they've generated and projections that they've offered, but at the end of the day we get a pretty healthy snapshot of what potential revenue for a store will be prior to ever opening the store and projections that we've been using, albeit we've had to modify based on utility rates and things of that nature, but generally speaking the percentages have been consistent for the last probably 10-12 years and so we've gotten very comfortable with the projections and our customers. Some of them come back to us saying "spot on". The one thing we always struggle with when we are advising our customer is that this is a business that you have to continue to reinvest in just like any other business and some of those obviously operate their business better than their competitors and we find that they are more successful. That's the one caveat to this. Yes we can certainly give you all the ammunition you need to be successful, but at the end of the day you have to implement it and best practices are necessary in order for it to be successful. Fortunately we've never put a store in that has not been successful or has gone out of business unless there was some very extenuating circumstance that created that, i.e. a divorce and when I say that I mean literally a divorce of a business partnership that went bad. Stores have always performed but there have always been extenuating circumstances in just the handful that hasn't been successful. I would probably say it is in the 1 percentile range so we're fortunate in that we spend a lot of time for our customers. Part of our side evaluation is that we turn a lot of our customers away from locations simply because we didn't feel that they would be successful there and that's something that we recognize that not everybody does. We know that our competition puts customers into locations on a regular basis where they shouldn't go and the reason we know this is because they end up going out of business and all of a sudden we have used equipment that is available.

Jason Baird: Let's say that I have the investors all ready to go and that's already taken care of.. Should I put together a business plan and then bring it to you and you can help with that or can you help with the first business plan? Do I need to pay you for that? How do we make it? If we think it's a good business, and we have the finances figured out. What's the next step?

Ryan Smith: Typically we have sample business plans. Ultimately we don't write the business plan for you. We have some samples you can get some information from. Primarily the business plan is going to be, it depends on their funding source as to how detailed they want it, but what we have we can certainly glean information from and we help them with the basics as far as grand opening ideas, best practices. Things we know that we know are not always incorporated into the business plan but should be. We offer that information and really try to help them along the way. The projections help from the business. You plan a scenario with a third party funding source. Everything that we give them, enables them to put a good business plan together and we actually use the business plan as a barometer as to what kind of owner they're going to be and what kind of operator they're going to be because those that are detail oriented and invest time into actually putting their plan together we find are more often more successful than those who didn't help.

Jason Baird: So we put together a business plan and then maybe you guys would review it or we start going into..

Ryan Smith: Yes we would give you the information and give you the outline and give you a sample. Once you actually put the plan together, we will take a look at it, give you our two cents, and tell you where we thing we can improve or if we think it's absolutely perfect, our advice would be at that point once we obtain funding then it's back to the implementation  and we like to have a copy of the business plan just from the standpoint that we want to somewhat hold our operators accountable to what they say they're going to do because we want them to be successful and at the end of the day, after start up and after they are into it, we give that plan back to them if they like and if they want it back. Otherwise we file it away. We don't share business plans with new investors. Like I said we just have a generic example form because we fell that it is confidential and we certainly don't mind drawing on our years of experience to assist our investors.

Jason Baird: When I start to implement this plan, I hear that you guys will help with trying to figure out the best location and things of that nature…

Ryan Smith: Oh absolutely! We'll do site evaluations for you so when we've got a business plan in place we'll listen to where you want to be in a general area and we will help you. We'll give you potential locations that we know  that are out there for you to go look at. We very rarely get involved in the negotiation with the landlord for a site location unless in a scenario where we are building, maybe somebody has asked us to be the contractor and basically to deliver a turn key solution for them at a location. Outside of that, we're going to put you in contact with the landlord and let the operator negotiate the lease that they are comfortable with and we will certainly once again give them an idea of what makes sense and it's part of our projections, but we will help them with that lease. Especially that new investor who potentially may not have negotiated a lease before. We will give him an idea of what we think would be fair so they know what they need to target to be successful in their location. From there, once the ball is rolling, we have a lease in place, all the documents are signed, the paperwork is signed, the bank, Dexter Financial Services, is satisfied, we've ordered equipment, we have a layout in place, if we're not the contractor on the location then the contractors pull permits. We help along the way. We do site evaluations along the way to make sure things are where they're supposed to be even if we're not the contractor, something doesn't seem right or looks out of place, we will certainly bring it to the owner's attention, but once the contractor is ready for us to bring the equipment in, we will bring the equipment in and we will install the equipment to manufacturer's specifications. In fact we go a bit past that in some regard. Once we've installed all of the equipment and it's perfect and the contractor has finish out, we'll help with a start up stand point, many times the grand opening will be on site, but typically our salesman's role is that he will be on site for the start up along with the technician so we will go through and test every machine to make sure everything is operating correctly. We'll help with programming VIN prices in the beginning. Most of our investors and operators are appreciative with the help at start up and from there we assist with the grand openings. Typically our owners and operators are putting some kind of program in place for a soft opening and obviously we give our input for what we would recommend for a soft opening and then from there we typically recommend a grand opening in which they have a ribbon cutting session with the city or something of that capacity and some type of promotional event so that they create some sort of buzz around their new business and it helps to get them into the black faster by generating more revenue.

this is part 4 of an interview with Ryan Smith of AAdvantage Laundry Systems

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