JohnRunchey.com

I owned a laundromat for 4 years. I was the coin collector, the machine fixer, the accountant. I was the guy. This was a small 'mat, grossing under 100k per year and netting, at least early on, around 1500 bucks per month. Easy money, right? Just empty the bills from the change machine, transfer the quarters from the washers and dryers back into the change machine, take cash to the bank. What could be easier, this must be a great business!

Far from it. Let's go over some qualities of a good business and compare with my little laundromat exercise.

A good business has:

1. Substantial growth potential; limitless upside.

A laundromat definitely does not have large growth potential. Sure, you can increase your business a bit, but there are only so many customers within easy driving distance. Your machines can only support so many loads per day.

You won't be growing your business 10x if your business is a 'mat.

2. Low or no capital investment; limited re-investment of earnings required to sustain business.

I put $80k into this small, used laundromat. This was pretty much my entire liquid savings at the time. What exactly did this $80k buy me? Essentially just a bunch of equipment; equipment that was constantly losing its value as it aged and wore out. Yes, part of business is reinvestment to replace equipment. But on a small laundromat, the economics are very challenging. A large front-load washer is 3 to 5 grand. A 2-stack dryer, maybe 3500. Multiply this by the number of machines in the place, and the dollar amount is overwhelming. The income just doesn't support it. 

So the value of the business, the equipment, is constantly eroding. 

3. Minimal customer hassles

The bread and butter of the laundromat business is the renter. And while it obviously isn't true in all cases, a certain percentage of these customers have a very different attitude towards life. They feel they can't get a break, that they're taken advantage of by 'the system'. They don't ask themselves effective questions. These customers, who are putting quarters in your machines and paying your bills, will be a pain in the rear. They'll leave notes that they are calling the health department because your floor is a little dirty. They'll leave messages ranting about the quality of your machines. They'll drop a massive dump ON your toilet for no apparent reason (this happened to me twice). I think some of them are mentally ill. I had one guy who would come in and methodically go thru all the garbage cans, asking customers if they'd seen his pants. All of this in a very good part of town, where you wouldn't think twice about walking at night - I can't imagine what owning a mat in a bad part of town would be like. No thanks.

These customers will break down your enthusiasm for owning a business.

4. Minimal time involvement; passive income

The mat does come close on this one. I didn't spend a ton of time in there, maybe a few hours a week unless something was broken. (And yes, most times something was broken, at least something small like a jammed coin slot. Problems came in a steady stream, sometimes slow, sometimes gushing). But in fairness the income was somewhat passive, as I was receiving quarters while sitting at home or while at my 'regular' job.  But when a problem came up, I had to be there - water and plumbing problems are not your friend. 

So, why on earth did I buy this mat? I bought it to gain some business ownership experience, with something I could do on a (relatively) small scale, something I could do while maintaining my full-time job. Being very 'mechanically inclined', owning a bunch of machinery held a certain appeal for me. This was a way to make a little extra income while gaining experience running a business. 

In the end I sold for quite a bit less than I had paid 4 years earlier, but was glad to even find a buyer in the rapidly imploding economy. Many purchasers buy 'mats using home equity loans, and that market was rapidly drying up. I was worried, to put it mildly, that my all-cash buyer was going to get nervous and walk away. But he didn't, and eventually I walked away from the closing, as one very happy man.

The greatest value I got out of the experience was the realization that owning a business without large growth potential, is really not owning a business, it's more like having a second job. 

Think twice about buying or starting a business without true growth potential. Don't buy yourself a second job - your time can be better spent elsewhere.