Do you borrow six months’ operating costs when you buy a laundromat?

[CKH]

In my job, we consult entrepreneurs on getting financing. One thing we always tell them is to make sure to include six months worth of operating costs so that they don’t run out of cash until the business becomes profitable. I would assume that this rule of thumb certainly applies to laundromats, but I haven’t heard one guest on the podcast mention it. What do you guys think? Did you borrow extra capital beyond just the cost of the laundromat? Do you wish you did? Do you simply not need to do that if you’re buying an existing laundromat because it already has cash flow?

[Alex]

Good question, I’ve been thinking about this lately too and I’d like to know what people who actively own laundromats would say. I imagine that every laundromat is different due to a variety of factors including the lease agreement, equipment reliability, employees, etc. I’m sure that the difference in consistent revenue between a brand new vs. well established laundromat is huge as well. Some lenders might require proof of funds for general operating expenditures and emergency reserves (I would assume.)

Or what about a business line of credit? I think you’d probably want both, but what’s advisable?

[Jason Dodge]

Some lenders will borrow a little for operating capitol in a new build. Its best if you have that banked already cause the building process can be long. Then the ramp up of a new location can take a few months as well. If you are buying an existing location it may be easier to predict cash flow as the seller should have P&L’s to supply you. If its cash flow positive when you buy it then not much reserve is needed.

[Author]

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