Buying car wash - need advice on confirmatory diligence

[rck1878]

Hey everyone,

I’m currently looking at buying a SS w 2 touchless IBA car wash . The owner gave me P&L financials as well as some “off the record” financials that included cash income they do not report. Either way since it is near impossible to confirm cash income I am valuing the business solely based on the P&L financials they provided. My first question is, what’s the going EBITDA multiples that SS car washes are selling for? Also, more importantly, I am ready to put in an LOI but I just wanted to get your guys’ opinions/advice on what the most important factors are to look at during the confirmatory due diligence process. I am primarily concerned around whether the tax returns will match the P&L? If they don't, what is the standard process of reconciling/matching tax returns with the P&L, is that something I must do myself or can my lender do that for me? My main concern is being able to confirm whether what is stated on the P&L is actually true and what the business is generating. Any other advice on car wash acquisition process or post-LOI diligence would be greatly appreciated. Thanks!

 

[HeyVern]

Ask to see see the tax returns

 

[Joswhaha]

Greetings,
You will find a common multiplier on this forum of 3-5x GROSS. You will really have to decide for your self what your desired return is for the work involved. I would vet any information provided from the seller carefully, there is nothing really stopping them from giving you information that is not accurate.

I just purchased a car wash in December and the owner did not even count the money he removed. He just kept the cash and spent it. He paid the expenses from a different business and he had no P & L and his tax return information would be useless in determining the viability of the business. I literally counted cars that used the facilities a few days during the week and weekend- multiple times. I extrapolated a gross income and valuation from that information I collected.

 

[rck1878]

Greetings,
You will find a common multiplier on this forum of 3-5x GROSS. You will really have to decide for your self what your desired return is for the work involved. I would vet any information provided from the seller carefully, there is nothing really stopping them from giving you information that is not accurate.

I just purchased a car wash in December and the owner did not even count the money he removed. He just kept the cash and spent it. He paid the expenses from a different business and he had no P & L and his tax return information would be useless in determining the viability of the business. I literally counted cars that used the facilities a few days during the week and weekend- multiple times. I extrapolated a gross income and valuation from that information I collected.

Why use a gross income multiplier instead of ebitda/SDE income multiplier?

 

[Joswhaha]

Why use a gross income multiplier instead of ebitda/SDE income multiplier?

Because that is the only multiplier that I have seen posted on this site. For my purchase, I didn’t use a multiplier to determine a value and the appraiser didn’t use it to determine the value. My appraisal was based on sold comparable properties like a residential appraisal.

 

[soonermajic]

I own 4 washes, & dont know what an EBTIDA is! But I know what 3.75xGross is! I know how to go MANY times & count cars.

 

[Roz]

Two people can run the same wash and have different EBITDA depending on how you operate the Carwash. Hence the generally used number used is gross revenue. For that matter two people can have different gross revenue if the place was poorly managed or has bad reviews.

Have seen multiples from 3-10x but again it depends on several factors like scale, how the place was run, location, competition, and commercial land value. Appraisals are not an exact science. You need to also figure out if you will need to investment additional funds in the place to upgrade equipment.

good luck with the purchase. You are on the right path looking for info. Trust your gut.

 

[mac]

Even tax returns can be deceiving. Some people use a car wash to launder their money from ill gotten booty.

 

[Dan kamsickas]

Tax returns and P&L are helpful, but if they are openly admitting they are skimming it's really near impossible to know with any level of accuracy what numbers the sight has. I would be very skeptical of anything they tell you. You can only go to a bank with numbers they can verify. Utility bills and observed car counts can be helpful. I've even know a few who have gotten sellers to agree to non-resettable counters on everything that both parties record. Of course, you could low ball them and off-handedly mention that the IRS would be really interested in the "off the books" records they gave you......just sayin.

 

[traveler17]

Tax returns and P&L are helpful, but if they are openly admitting they are skimming it's really near impossible to know with any level of accuracy what numbers the sight has. I would be very skeptical of anything they tell you. You can only go to a bank with numbers they can verify. Utility bills and observed car counts can be helpful. I've even know a few who have gotten sellers to agree to non-resettable counters on everything that both parties record. Of course, you could low ball them and off-handedly mention that the IRS would be really interested in the "off the books" records they gave you......just sayin.

That would be an

Hey everyone,

I’m currently looking at buying a SS w 2 touchless IBA car wash . The owner gave me P&L financials as well as some “off the record” financials that included cash income they do not report. Either way since it is near impossible to confirm cash income I am valuing the business solely based on the P&L financials they provided. My first question is, what’s the going EBITDA multiples that SS car washes are selling for? Also, more importantly, I am ready to put in an LOI but I just wanted to get your guys’ opinions/advice on what the most important factors are to look at during the confirmatory due diligence process. I am primarily concerned around whether the tax returns will match the P&L? If they don't, what is the standard process of reconciling/matching tax returns with the P&L, is that something I must do myself or can my lender do that for me? My main concern is being able to confirm whether what is stated on the P&L is actually true and what the business is generating. Any other advice on car wash acquisition process or post-LOI diligence would be greatly appreciated. Thanks!

3 to 4x’s gross of P&L and make sure tax returns match. Also find out how much upgrades need to be done and use that as a negotiation tool. Do not tell the guy IRS would be interested, terrible advice below and head move. Just sayin

 

[Dan kamsickas]

That would be an
Do not tell the guy IRS would be interested, terrible advice below and head move. Just sayin

Your sarcasm meter is broken.

 

[traveler17]

Your sarcasm meter is broken.

I hope so, I was laying it on pretty thick

 

[Dan kamsickas]

I hope so, I was laying it on pretty thick

Although I would love to see a potential sellers reaction to telling them the IRS would be interested. I actually was interested in buying a small three bay about a mile from my house years ago. The older gentlemen looking to sell told me I could have the last three to five year's financials but then literally winked at me and said "but it does a lot more than that, ya know". I calmly said I can't take a smile and a wink to the bank and I would offer him based on confirm-able numbers. He was a little upset. He never was able to sell it and his kids just auctioned the land off after he passed.

 

[mac]

Tax returns and P&L are helpful, but if they are openly admitting they are skimming it's really near impossible to know with any level of accuracy what numbers the sight has. I would be very skeptical of anything they tell you. You can only go to a bank with numbers they can verify. Utility bills and observed car counts can be helpful. I've even know a few who have gotten sellers to agree to non-resettable counters on everything that both parties record. Of course, you could low ball them and off-handedly mention that the IRS would be really interested in the "off the books" records they gave you......just sayin.

Dan just hope the guy isn’t carrying when mention IRS. The older I get the less life in prison is much of a deterrent.

 

[Dan kamsickas]

Dan just hope the guy isn’t carrying when mention IRS. The older I get the less life in prison is much of a deterrent.

Meh, most of the ones who skim(and are stupid enough to keep records) are the same ones who have 30 year old stuff, are stunned when parts aren't available, and accuse us of not standing behind our equipment and ripping them off. Not the brightest flowers in the bunch. Probably wouldn't even get the implication. The old guy who got mad at me could not understand why I wouldn't take him at his word as to what the wash was worth. He was completely dumbfounded.

 

[mac]

More reason to add chlorine to the gear pool. I mean look who we have for houseplant in chief.

 

[traveler17]

Your sarcasm meter is broken.

People are insane to “wink , share or whatever “ to anyone about skimming. You don’t know who you’re talking to. And just think I bet there are more than a handful idiots that have taken the word of someone like that and got ruined

 

[MEP001]

There was a guy on here some years ago who bought a wash on promised income and got royally screwed. He ended up suing the previous owner, and IIRC his lawyer told him to stop posting here until he got things settled. He's never been back, so I'm guessing it didn't go well.

 

[rck1878]

Does anyone have any rules of thumb figures on standard income potential? such as average revenue per self serve and average revenue per automatic, based on traffic counts? trying to see if there is a quick way to determine whether their stated income is plausible or not (or currently underperforming or performing well) for a car wash based on its size and daily traffic counts. Thanks

 

[Joswhaha]

I have seen a few surveys posted on here with a lot of that type of information. I guess you could use their “average income” and “average traffic count” to determine a multiplier. Of course there are tons of variables so your results would vary.

Plus who knows, their averages may be from equipment manufacturers or distributors and inflated.