Full service hand wash purchase

[jjordan1984]

Hi everyone,

I'm new to the industry and wanted to get everyone's thoughts.

There is a full service hand wash and detail center 2 blocks from my house and my office (i live close to work) for sale. It was one bay with a conveyor and air dryers at the end.

The business does roughly $400-500k/year in EBITDA on 1.4mn in revenues ($600k/yr memberships) and the asking price is $2.3mn. There is no real estate included and it has a 20 year lease. The current owners (3 partners) are in their 70s and selling off the various businesses they own.

I live in a wealthy small coastal city in socal and there are 2 full service competitors in town. There are 2 self serves and 2 gas station washes. All of them are in different parts of the city and i'm almost certain no new competition will come to the market as it is nearly impossible to get anything built here and we have a water shortage, so a car wash is last on the list.

I walk by this place every single day, so i know it does a good business. I have a full time job, but my job is extremely flexible. I'm in the investment industry, so as long as i perform, nobody cares. I can easily leave the office at any time to check on things, but i don't want to spend all day there long term.

My questions:
I know nobody likes the full service handwash model on this forum. How bad is it to manage employees? The wash has a manager. Customers in my city like the hand wash model. 60%+ of the cars are luxury cars.

The yelp reviews for this handwash and the other 2 in town are pretty bad. Lots of complaints about damage to the vehicle. I look at this as a huge opportunity to improve quality. Am I delusional for thinking that it should be pretty easy to avoid touching the car with anything that isnt a towel or mitt? Maybe i'm underestimating how dumb employees can be. Wondering how common this is for others.

Does everyone use a LLC? Just curious if any of you have any interesting corporate structures.

Is there any way i can gauge how much they do in cash before i buy? They claim 30k/year in cash on their taxes. I imagine its much higher, maybe not.

 

[MC3033]

Do the 3 partners do any management? I would look at that as you will need to pick up that workload or hire someone else. Also in this case since you are not buying real estate or equipment with much value I would be cautious. You would essentially be paying $2m for a brand. Often times smaller businesses base the brand on the people, meaning if they ran it themselves or the manager leaves you can be in for a big loss.

I’m not sure how a hand wash is damaging cars?

Would I be understanding correctly that you are saying $30k cash flow on $500k ebitda? Even at $150k I’d run like hell.

 

[OurTown]

Would I be understanding correctly that you are saying $30k cash flow on $500k ebitda? Even at $150k I’d run like hell.

I think he (assuming) is saying that they are claiming only $30K in cash sales out of the $1.4m in sales.

 

[jjordan1984]

I think he (assuming) is saying that they are claiming only $30K in cash sales out of the $1.4m in sales.

correct. they claim $30k in cash sales out of 1.4mn in total sales. I wondering if there are any tricks to getting a better sense of the real cash sales before i buy.

 

[jjordan1984]

Do the 3 partners do any management? I would look at that as you will need to pick up that workload or hire someone else. Also in this case since you are not buying real estate or equipment with much value I would be cautious. You would essentially be paying $2m for a brand. Often times smaller businesses base the brand on the people, meaning if they ran it themselves or the manager leaves you can be in for a big loss.

I’m not sure how a hand wash is damaging cars?

Would I be understanding correctly that you are saying $30k cash flow on $500k ebitda? Even at $150k I’d run like hell.

I need to do more work, but my understanding is only 1 partner ever visits the facility and its mainly for payroll and things like that. The wash has a full time manager.

I agree that you aren't getting any assets. I'm not worried about revenues leaving with the owner given this is a car wash. Maybe you disagree, but in my opinion the car wash industry and coin laundry is attractive to buyers as revenues are much more dependent on location of the facility and customer service. Customers have no idea who the owner is and therefore less likely to care as long as quality stays the same.

There is zero chance another competitor opens up within 2 miles of this location and 1% chance a competitor opens up in a 10 mile radius. There is no space and the city would never allow a new wash to be built. So i am buying a well known brand and customer base. The downside of this is i'm sure the city will be hell to deal with. However, i'd rather have that than worry about competition.

Yeah i don't get how a hand wash can damage so many cars. Its not just a problem on the yelp of this wash, but all of the hand washes in town have bad yelp ratings. I see it as an area i can help improve by actually spending time there 1-2 hours a day m-f and entire day on weekends.

 

[OurTown]

Its not just a problem on the yelp of this wash, but all of the hand washes in town have bad yelp ratings. I see it as an area i can help improve by actually spending time there 1-2 hours a day m-f and entire day on weekends.

Keep in mind that Yelp is the septic tank of online reviews.

 

[MC3033]

Ignore Yelp it’s complete and utter trash. People only seem to make yelp accounts for complaints (we run no Yelp pages for our washes). Google and Facebook are far better gauges since they have a much larger base and are quick/easy to use

In a nice area for a member based tunnel wash 10% cash transactions will happen and I wouldn’t be shocked to see as low as 5%. I assume the ticket average is much larger at a full serve hand wash so I wouldn’t be shocked if $30k cash was accurate. Is be even less shocked if they were hiding cash though

Is this hand wash a free standing building or shared building? What type of upgrades would you be considering? Depending on the answers you may have very little trouble with the city unless they have passed an aggressive ordinance that had grand fathered previous businesses such as the one you would like to purchase. For the most part a call down to the city can quickly give you an idea of what they will want from you

 

[washnshine]

we have a water shortage, so a car wash is last on the list.

That reason alone would put it last on my list in terms of an investment opportunity.
Hand washes are only as good as the labor is trained and how they feel about working on any given day. No pun intended, but it is entirely in their hands. Can be great, can be bad. On site management can oversee quality control, but that might entail having the crew redo/touch up 25-30% of the cars they “cleaned”.

 

[Axxlrod]

As was already said, ignore yelp. It's almost impossible to damage a car in a hand wash. Yelp reviewers are just complainers.

You should be weary since you have no business experience and since you're white collar, probably not much mechanical ability either, although I could be wrong about that one.

And since you don't have car wash business experience, the manager could rob you blind while you're not there, and you'd probably never know.

Who says there is a water shortage? The city? The water district? The drought is gone. It will probably come back again, but we currently are not in a drought. Does the wash have a recycling system?

Hand washes are disappearing in CA because of the rising min wage. When min wage hits $15 in two years, and you have to pay close to $20 per hour to start just to attract employees that didn't get out of prison yesterday, labor costs are going to be huge.

What about funding? Banks will be weary to loan on this venture since you have no experience and only 20 years left on lease. Are there renewal options in place?

 

[MEP001]

As was already said, ignore yelp. It's almost impossible to damage a car in a hand wash.

Or in a touchfree, but even that happens. It's people noticing a new dent/scrape/ding after their car has been cleaned and claiming it wasn't there before. Friction tunnels often have an array of pre-inspection cameras at the entrance just for this reason.

 

[jjordan1984]

That reason alone would put it last on my list in terms of an investment opportunity.
Hand washes are only as good as the labor is trained and how they feel about working on any given day. No pun intended, but it is entirely in their hands. Can be great, can be bad. On site management can oversee quality control, but that might entail having the crew redo/touch up 25-30% of the cars they “cleaned”.

why would it make it last on your list? Isn't a new wash going up down the street the biggest risk to an established wash? A new wash will never get built within 10 miles.

 

[MC3033]

why would it make it last on your list? Isn't a new wash going up down the street the biggest risk to an established wash? A new wash will never get built within 10 miles.

I would never say never. It only takes one influential person who knows a few people to get something done easily. In bay automatics also continue to be higher and higher quality. This gives someone the ability to put a wash on a much smaller footprint.

As minimum wage rises a lot of lower volume washes and higher labor washes will cease to exist (if you don’t have competition this won’t be a worry). If your labor cost goes up by 20% you would want to raise prices to make up for it. The car wash doing higher volume has to raise prices by maybe $1 while the smaller wash has to raise it by $3 to make up the same difference. The $3 rise pushes more customers to the cheaper competition and hurts the smaller business even more.

It is sad that raising minimum wage only hurts small business and the middle class. It also does virtually nothing for those making it as everything just gets more expensive

Wonder why Amazon is leading the way on $15 minimum wage? Wonder why Walmart doesn’t care? It helps them by putting their competition out of business.

i cannot imagine the type of price increase that would be needed at a hand wash to make up a larger increase in minimum wage. Even if you can handle $15 your other costs will go up. Eventually everyone realizes the higher minimum wage didn’t work so they decide to raise it again

 

[washnshine]

why would it make it last on your list? Isn't a new wash going up down the street the biggest risk to an established wash? A new wash will never get built within 10 miles.

Water is the lifeblood of a car wash. If you don’t have it, you don’t wash. I’ve seen hundreds of car washes get competition - that won’t kill another car wash - maybe take some business away, but most people have competition . As a car wash investor, I personally would not buy a location with water availability problems.

 

[Car_Wash_Guy]

Have you seen the lease? Is it transferable/assignable?

 

[Car_Wash_Guy]

correct. they claim $30k in cash sales out of 1.4mn in total sales. I wondering if there are any tricks to getting a better sense of the real cash sales before i buy.

Ask for a long due diligence ( 30+ days) and be there EVERY day. Then you'll see how much cash goes in/out.

I used to own a night club previously and it was difficult to say the least to satisfy buyers until they executed long due diligence.