SS/IBA Valuation

[thomps9]

I recently moved to a smaller town and noticed that the car wash is for sale here. It has four bays, 2 are self-service, 2 are In-Bay automatics. Car wash was built in 2010 and is extremely well taken care of, basically looks brand new . I have the last three years of income and expense reports. The car wash reports on their tax returns that they do $115k gross per year. The asking price for the car wash is $750k. How would you go about evaluating this car wash?

This is the only car wash around, so about three other communities use it. Again, very nice well taken care of wash which does well financially.

 

[robert roman]

Best practice is to engage a carwash consultant, real estate agent or business broker to prepare an opinion of value report.

Process involves reconstruction (adjustment) of income and expenses to derive available free cash flow (ACF).

Preliminary value (business-only) is arrived at by applying a risk adjusted earnings multiple against weighted average ACF.

100 percent value is determined by adding preliminary value and the depreciated value of furniture, fixtures and equipment (F/F/E) plus fair market value of real estate less any liabilities assumed (i.e. pre-paid).

Goodwill value (negotiable) is then calculated as preliminary value less the liquidation value of F/F/E.

Some here will say skip all this and use an income multiple of between 3 and 4.

While this may be a test of value, the approach is naïve and may not accurately reflect the risk associated with continued operation of the business for new owner.

For example, “This is the only car wash around, so about three other communities use it.”

What happens to performance and value of wash if someone builds new wash in market?

For example, $115K is roughly 60 percent of benchmark. So, this isn’t a high flyer to begin with.

Furthermore, someone new-to-industry has inherently more risk than veteran operator due to lack of experience.

Greater risk implies lower income multiple or higher capitalization rate.

Hope this helps.

 

[kentadel]

Since this is a recently built wash I would also suggest getting wash count numbers from the owner. His equipment should have that available and I would guess he has them from day one. I would want to determine if the 115 gross is actual 100% and would also like to see if all three years records ( if you can't get more) were similar in both sales and expenses to help identify a trend. Then I would agree with Bob on getting help on this.

 

[tdlconceptsllc]

If I personally had 750K to spare a Carwash would be the last thing on my list, unless it was hauling a** in gross sales 250+ I don't even think a bank would loan money on a 750K site only doing 115K I mean his net profit would be 20K max no kidding. That's him doing all the work his self from turning wrenches to trash. I would run unless he is sandbagging to Uncle Sam, or the tax value is like 1.5 million or something crazy.

 

[bighead]

I think if you poked around a little on this site you would find that during good time IBA/SS car washes sell for 3.5-4.5x gross. During bad times its probably something like 2.7-4x gross.

Since its all pretty much automated, you can look at it somewhat like buying the gross revenue, then differentiating from there based upon what you want to do with that revenue. Go attended or not, run "name brand" chemicals or not, heat the water etc.

Long story short, given the 2/2 and the revenue he has, he isn't doing as well as he should. And when you say it is kept up well, and clean, and that there is no competition, you are implying to most people on here that there isn't much to improve, thus not much upside. He's probably into it $750k (or even more, and that is his payoff to the bank) and that is how he came up with the price. (Or you are mistaken by the word "gross" and you actually mean the word "net".) But at either rate, given the way you describe it, it is a non starter and not worth looking into further.

 

[tdlconceptsllc]

Better yet just though about this. If he built this wash in 2010 why is he selling, red flag maybe he can't make the payment and about to loose it. Just wait till he forecloses call the bank and buy it for 150-200K then you might have a chance at doing something. This happens everyday.

 

[thomps9]

Hey everyone, thanks for your input. There has been a development. The realtor was mistaken in what the gross numbers were. Turns out the wash does $152k gross per year and this is documented on tax returns. It has done about $150k each over the last three years, so I would say that is the stable benchmark so to speak. Here are numbers I have:

Gross: $152k
Expenses: $47k
NOI: $105k

Again, 2 IBA, 2 Self-Service. Everything at the site is what they are calling "state of the art". Credit card readers, bill acceptors in the bays, security camera system, etc. In Bay Automatics are Laserwash M5's. I should point out that the property taxes are very small here which helps keep expenses low compared to a bigger city.

Realtor states the owner is tired of the day to day operations and wants to kick back and enjoy retirement now.

 

[tdlconceptsllc]

Run forest Run don't even look back 150K is very low for 2 automatics without the SS bays. The expenses alone should be way more like 60-70k+ unless he is on well water and taxes and dirt cheap and getting soap & parts for free. I honestly don't know how the bank would loan 750K on only 150K in gross sales you couldn't make the payments unless you going to put down 200K in cash or he is owner financing. Just my 2cents. I hope someone else will chime in to save you. You can get a way way better deal on a wash than this just be patient. If your a investor and the land alone is zoned high intensity commercial/Industrial and worth 750,000 without the carwash/building then go for it and wait for Walgreens or someone to buy you out go for it, but it doesn't sound like that. I would pay 300,000 tops and that depends on location. What's the local tax value worth we haven't heard you say that either?

 

[thomps9]

Again, very small town so land values aren't anything near that of a bigger community/city. The wash sits on a corner lot in town right next to the only gas station. The parcel is almost .75 acres. I just looked up the "value" of the land which is $38k, total of $146k including the building. Property taxes are $5k/year.

With those property numbers and knowing that it is 2 self-serve, 2 in-bays (laserwash m5), built in 2010, could you come to a rough estimation at least to what it cost to build?

By no means would I pay $750k for it. I am very new to this, I admit, so that I why I am asking as much as I possibly can. You seasoned veterans are very helpful!

 

[tdlconceptsllc]

So the realistic valve is 250,000 to 300 tops. I would be more concerned and worried about the C-store right beside you which can help car count. I would get the soil tested extensively Bc if the gas leaks over from his lot and then you have contaminated soil and you have to get the state involved. In nc to have a company come in is about 25,000 per day for two guys and a excavator, around $200,000 to just get started I know this from all the stores my family has owned over the years and it's a very painful process people always overlook. Not trying to scare you but the state can make you do it mandatory put in 24/7 montering system in the soil make you take classes just a major cluster not to mention shut down your site while all the excavation work. I would just make sure you get that tested before you pay one cent on this wash. Not trying to scare you just being honest. I am just a small town operator myself and love to see people do good in this day and age is tuff. Check some other washes in your area even if there not listed with a Realator. Just start asking people introduce yourself ride around see if they want to sell might find a deal where some old man will practically give it to you just to get out because he wants to go fishing at his lake house.

 

[Randy]

In what small town is this car wash located? What is the population of this small town? Is the town growing or dying? How far away is the nearest car wash?

 

[Ghetto Wash]

So the realistic valve is 250,000 to 300 tops.

Seriously? It does $150k a year and max worth is $300k? I'd buy every wash I could find at a 2x multiple.

 

[tdlconceptsllc]

Seriously? It does $150k a year and max worth is $300k? I'd buy every wash I could find at a 2x multiple.

You can sure find them in my area if you look and know who to talk too. I am sure the economy where I am talking about and located is depressed. Nothing like what you guys are looking for and used too. Example (Ghetto Wash would you buy a wash for 450K that does 140,000 gross a year just out of couriousity. I am trying to learn something.) I think that's high myself maybe you could tell me something. What's the maximum you would do 3x the sales or 4x"s. Thanks

 

[tdlconceptsllc]

Seriously? It does $150k a year and max worth is $300k? I'd buy every wash I could find at a 2x multiple.

You can sure find them in my area if you look and know who to talk too. I am sure the economy where I am talking about and located is depressed. Nothing like what you guys are looking for and used too. Example (Ghetto Wash would you buy a wash for 450K that does 140,000 gross a year just out of couriousity. I am trying to learn something.) I think that's high myself maybe you could tell me something.

 

[Ghetto Wash]

Around here SS and SS/IBA are going for around 3X

Operators asking 5X never sell, 4X will sell occasionally, 3X will sell, and I don't ever see any at 2X.

Your example of $450 for a wash doing $140 would be a fair price in my area.

 

[rph9168]

It is an under performing wash which automatically eliminates anything over 3X. It is probably worth somewhere between 2.5X and 3X depending how the numbers shake out. I think you need to be able to verify the numbers, especially the operating costs which seem a bit low unless there is something missing. You are getting some sound advice on the Forum but I think it would be worth your while to invest in a car wash consultant or find an experienced operator willing to assist that could help you sift through all the information to make a reasonable offer.

 

[fatboy]

$750K must reflect "other uses" for the land because the car wash math doesn't work for me! (or a lender..)

 

[soonermajic]

I just bought a wash, cause I could get it for 2x. I was ignorant, & greedy. Turns out, all his equipment was ancient, zip tied & bailing wired together. Broke all the time, but all I saw was $$$ signs. I bought out of greed, & that was my downfall. Turns out, his wash didn't do near as much as his taxes showed, & I paid closer to 3x gross. I do ok, but not the Home Run I thought it was.

 

[getnbusy]

i don't understand how a gross income multiplier can determine the value. I hear 2x 3x 4x 5x all the time in this industry. It makes no sense to me. Can someone please explain this logic ???? In my mind, any property is only worth the amount of debt the NET income will support, minus a reasonable rate of return. That is what the bank will loan money on. At least in my experience.

Is there a way to present the gross multiplier to a bank that I am not familiar with ???

Not sarcasm. I am always looking for an easier way to borrow money.

 

[Waxman]

gross income multiplier is only one way to determine value. other ways; taking a percentage of daily traffic count to predict volume and drumroll.................................3 years federal income tax returns of the business. That's where net income is.