Running a successful laundromat business hinges on providing excellent laundry services, but also requires careful and deliberate management of expenses. A clear understanding of the various costs is a necessity for any laundromat owner. Now, accurately calculating these expenses is more than a simple accounting exercise; it's the only true way to be in control of your laundromat's profitability and growth potential. By mastering and staying on top of this aspect of laundromat management, you can make informed decisions that propel your business forward.
If you’re a current laundromat owner, what are your biggest challenges related to expenses that would make your life easier if solved? On the flip side, what strategies have you found most effective in maintaining a balance between costs and profitability?
Keep reading to learn ways to overcome your biggest expense pain points and our favorite strategies for how to calculate laundromat expenses.
Understanding laundromat expenses
The spectrum of laundromat expenses, or operating costs (OPEX in the business world), are the day-to-day costs needed for the functioning and maintaining of a laundromat. These expenses encompass a variety of aspects, each playing a pivotal role in the smooth operation of your business.
Keep in mind that monthly costs of running a laundromat range from approximately $5,700 to $17,800 and start-up costs of a laundromat can reach upwards of $159,500 to $728,000. It’s important to know exactly where your financial investments are going. Here are the variety of laundromat operating expenses you need to consider:
Rent or mortgage payments
Maintenance and repairs
Licenses and permits
Marketing and advertising
Step-by-step guide: How to calculate laundromat expenses
Accurately calculating expenses is a fundamental aspect of running a successful laundromat. It aids in financial planning and budgeting as well as helps in identifying areas where costs can be optimized. Here's a step-by-step guide for how to calculate ongoing expenses:
Step 1: Gather financial data about your laundromat
Begin by collecting all financial documents, including bank statements, bills, receipts, and loan documents. Leaving no stone unturned is essential as it forms the basis of an honest expense calculation. Organize these documents in a manner that allows easy access and analysis. Digitizing these documents or using financial software can streamline this process, and protect you from lost documents.
Step 2: Categorize laundromat expenses
Divide your expenses into categories: fixed, variable, and one-time costs. Fixed expenses, also known as recurring expenses, like rent or mortgage and insurance, remain constant regardless of business performance. Variable expenses, such as utilities and supplies, fluctuate based on usage. One-time costs, or laundromat startup expenses, might include equipment purchases or major repairs. Proper categorization helps in better forecasting.
Step 3: Calculate fixed expenses in your laundromat
First, focus on your fixed expenses like rent, insurance premiums, and employee salaries. These costs are typically straightforward to calculate because they don’t change from month to month. Summing up these expenses will give you a clear picture of the minimum amount of revenue your laundromat needs to generate monthly.
Step 4: Calculate variable expenses
Variable expenses require a more nuanced approach. For utilities, track consumption over several months and find the average of these costs, accounting for seasonal variations. Supplies and maintenance costs should be tracked and averaged out over the year for an accurate monthly estimate.
Step 5: Account for depreciation and one-time costs
Equipment depreciation is a significant but easily overlooked portion of laundromat accounting. Calculate this by dividing the cost of the equipment by its expected lifespan. For one-time expenses, record them as they come, making note that these are not regular operational costs but necessary for long-term sustainability.
Step 6: Analyze monthly and annual totals
Last, compile these expenses monthly and annually. This comprehensive view allows you to track financial performance and find patterns or areas where you can save some money. Regular analysis of these totals will help you maintain a profitable laundromat business.
Expense tracking and budgeting
Regularly tracking expenses is crucial for accurate budgeting, identifying cost-saving opportunities, and ensuring overall profitability. With technology and modern tools, a tedious task is made much simpler!
By implementing software solutions for expense tracking, you can monitor costs in real-time, enabling you to make swift, informed financial decisions. These digital tools can automate various aspects of expense management, from utility bill tracking to inventory control, reducing the time and potential errors associated with manual tracking.
Types of technology solutions that automate expense tracking:
Cloud-based accounting software
Point-of-sale (POS) systems integrated with expense tracking
Inventory management software, which optimizes the usage of supplies
Ideally, you should opt for a solution that rolls all three of these into one, holistic system that streamlines your operations, saves you time on tedious (but necessary tasks), and protects your profit margins.
Explore our suite of laundromat management tools designed to save time and boost revenue
How to calculate ROI: Comparative analysis of expenses vs. revenue
Calculating return on investment (ROI) is a critical measure for any laundromat owner, serving as a key indicator of the business's financial health. You can generate all the revenue in the world, but if you’re not taking into account the cost-level it takes, you’re not getting the whole picture. To calculate ROI in the laundromat context, you simply compare your expenses versus revenue.
First, determine the total annual laundromat operating expenses, then calculate the annual revenue generated from laundry services, additional offerings, and any ancillary income. Find the ROI by subtracting the total expenses from the total revenue, dividing this figure by the total expenses, and then multiplying by 100 to get a percentage. This number gives a clear picture of the profitability of your laundromat.
(Total Revenue – Total Expenses) / Total Expenses x 100 = ROI%
Planning for future laundromat expenses
Planning for future expenses allows you to safeguard your laundry business for years to come. Here are key strategies for creating a robust financial plan:
Emergency fund: Establish an emergency fund to cover unforeseen costs such as urgent repairs or economic downturns. This fund acts as a financial cushion, preventing the need for unplanned high-interest borrowing.
Regular financial reviews: Conduct frequent financial assessments to understand your cash flow and savings capability. This enables timely adjustments in your budgeting and savings plans.
Insurance coverage: Ensure adequate insurance coverage for your equipment and business operations. This mitigates financial risks associated with accidents or natural disasters.
Investment in maintenance: Regular investment in maintenance can prevent larger expenses down the line. Proactive upkeep reduces the likelihood of major equipment failures.
Future expansion planning: If considering expansion, plan financially for this growth. This includes assessing the costs of new equipment, additional locations, and increased staffing needs.
Diversification of revenue streams: Explore avenues for additional income, such as offering new services. This not only allows you to boost current revenue but also provides an additional financial buffer.
A well-structured financial plan addressing both immediate and future needs places your laundromat on a path of financial resilience!
Next steps: start crunching the numbers
Successfully managing a laundromat involves a comprehensive understanding of all operational expenses. Knowing how to calculate laundromat expenses accurately is vital, as it impacts factors such as cost control, efficient tracking and budgeting, and strategic pricing, all of which are essential in maximizing profitability.
Take the next step in optimizing your laundromat’s profitability by using our Laundromat Profit Calculator. This tool will assist you in making informed financial decisions, helping you to get the most accurate look at your ROI and achieve greater success in your laundromat venture.