Budgeting for Laundromat Part 1
Each year businesses of all sizes and in all industries create budgets for the upcoming year. Since 2013 is winding down and we begin to look ahead to 2014 lets review some budget basics for a Laundromat.
There are two types of budgets to create: operating and capital. An operating budget, as its title indicates, outlines a plan of action for operating your Landromat. It includes revenue and cost projections. Revenues ( sales ) are usually based on past and current years’ results. The main source of income in most Laundromats is from self-service customers. For established Laundromats historical income is a good reference. Factors that will change income in the year ahead include the following: changing vend prices of your washers and dryers, a competitor building a new store or rehabbing an existing store in your market, a competitor changes his/her pricing strategy ( free dry perhaps?), a change in the deomgraphics of the neighborhood you serve, a change or disruption in the traffic pattern around your store, an anchor store moving in or out of your shopping center. Any of these or similar events will affect your income. Food/snack vending income are directly related to the number of customers in your store. Any of the above changes will impact snack income. Wash, dry, fold and drop off dry cleaning will follow historical trends to a large extent,. However, is your dry cleaning provider changing ownership? Any price increases planned there? Who controls your WDF income? If it is controlled by an attendant, are they planning to remain with you in the coming year? Revenue is critical to one’s success. Plan for it carefully.
Cost considerations follow the same thinking as the Revenue process. History is a good guide. Nonetheless, there will be changes. Costs are fixed or variable. Fixed costs do not change based on business volume. Rent and note payment are the two largest fixed costs in a laundromat. Is your rent increasing next year? ( By the way, did you exercise your option to renew in accordance to your lease?) How about local property taxes and their impact on your NNN cost? Is your variable rate note due to reset ? Laudromats have high fixed costs. Manage them closely. Variable costs change directly with volume. Water, sewer, gas, and electric are major variable costs. Are water and sewer rates due to increase? How efficient do you employ utilities? If they exceed 25% of your gross income you should consider increasing prices or replacing old equipment ( a capital budget discussion).
Once you have figured out where you want /need your income and expenses to be you are ready create a capital budget. We will review that next week.