Help valuing a SS Car Wash for Sale

[mr25]

Hi,

New to this thread and have learned a lot from members. I've searched and read all the existing threads related to valuing SS businesses, but thought I'd try my luck with getting advice from the community on fair value for the following SS I'm looking to acquire:

* Annual revenue: $400K (has been growing 5% annually prior 3 years and this year forecasted at 10%+ driven by price increase)
* Operating Income: $240K (60% margin. Seller is reporting closer to 68% SDE, but I want to value it based on 60% assumption)
* Tax assessment property value at ~$970K ($330K land and $640K structure)

Property and equipment are well maintained. Owner was very hands and actively managing the business.

I know the 3-5X gross income and various guidance on NOI multiple (up to 6-8x). Owner is asking for the top end of multiples, but I want to figure out what's a range that I should be comfortable with / walk away price (knowing that ultimately the market will set the clearing price).

(I've been doing my diligence to validate numbers - counting cars, etc, but for this thread let's assume all the numbers are accurate)

Thanks!

 

[Waxman]

so they are asking $2 million. Do the numbers work at that figure when you factor in downpayment and amortization schedule ( interest rate, term , etc)?

Is there an automatic?

 

[mr25]

Thanks for the response.

No automatic - all self service. I don't think convert an existing bay to automatic will be viable (but can't say that with 100% certainty right now).

The numbers work out when factoring interest expense from financing (i.e., using 12% rate and 15 years). What I'm trying to think through is essentially "the value of my time." I could just put the down payment in the stock market and get 9% per year (based on historical averages), so if we're looking at a 10-20 year horizon, how much more would this business need to yield (including sale at the end) to make it worth the time/energy required to operate it, as I've clearly learned from this forum and others that this is not a passive investment.

To determine this, there's ultimately 2 considerations:
1) How much time would I need to spend on this business (i.e., hours per week) -- My margin estimate above does include ~15-18 hours a week for an attendant, but I'd still need to collect cash, do the light maintenance/repair work myself, admin, manage customer complaints, and all the other responsibilities.
2) How much delta I can get above and beyond 9% (e.g., a 12% cap rate or more). I am assuming that growth in this industry is pretty limited, especially since this is a strong performing business and not a turnaround. Therfore, my real "yield" will come from buying in at a good price.

 

[Mchas]

What location is this in? Surprised it pencils at 12% interest with a 15 year loan. Those are very high monthly payments. Is there any room for improvements? Can you add any functions or increase price or do anything else to add value? Guessing at these numbers it’s already pretty maxed out.

 

[mr25]

* The only improvement I can think of is converting a bay to automatic, but as noted I'm not sure on viability of that (already accepts CC)
* Price was already increased earlier this year, so next price increase may be 2026
* Interest rates going down and refinancing in a few years would squeeze out some more cash

...but yes, I think it's close to being maxed out.

In terms of the numbers working out - for the sake of discussion, if we assume $2M asking price, 40% down, 15 years, 12% interest rate =$14.4K monthly payment ($172K per year)

At $400K revenue and 60% margin = $240K EBITDA, which can absorb the payments.

So I'm trying to work out in my head: >$x "thanks, but no thanks", <$y "heck yes", and then the grey area between "$x-y"

 

[AnalyticWash]

You need to find a better bank. 12% and 40% down...

 

[george361]

Invest option: $800k down payment if earning 9% would be making you $72k/ year. Assuming you don’t touch your investment for 15 years and reinvest the earned interest, you would have $2.9m.

Buy car wash: $800k down, $240k NOI, $172k / year loan, cash flow $68k/year. Assume $10,000/ year for capital improvements(these don’t hit every year but when they pop up they are expensive, ie. Roof, asphalt repairs, equipment replacement, ect). Adjusted cash flow accounting for capital improvements. $58k/year or $4833/month. Assume this is all invested every month a 9% annualized, with starting balance of zero. You end 15 years with $1.7m + sale amount ($0-2.5m).

Ask yourself a few questions:
- do I want the liability/risk and time requirements of this business for my estimated profits?
- what capabilities does current owner have that I don’t and what do I need to learn to be as successful as they have been, can I learn these things by the time I need to?
- do I want to buy a job that pays me $58k/year but I’m paying taxes on $240,000?
- how does income tax and property taxes effect my assumptions of investable income?
- do I think owning an asset is better than paper, factoring in risks on both options? Do I feel better about diversifying my portfolio to include both paper and assets? What mix profile meets my goals and risk tollerance?
- can I alter my loan terms to better improve my cash flow?
- what risk do I have when I need to sell and can I recover my initial investment and improvement costs? Will the value of this property increase, decrease, or stay the same? How does my success or failure of running it as a carwash effect the value of the property?
- what competition or government change may effect my assumptions of cash flow? Example a car wash is built right across the street from me and my chashflow drops 30%, now I can’t make my loan payment. City builds a new water treatment plant and raises my water rate to cover the build out.
- how might my life change and what do I want in the next 15 years? Does owning this liability help or hinder this? (Example: I want to travel but can’t because I own a 24/7 business that I can’t afford to pay some to take care of while I am away)
- how does income tax and property taxes effect my assumptions of investable income? (Yes I am recommending this question 2x because I think this is very important given what you have outlined)
—-
Keep asking questions as you wrestle the decision and let us know what you decide.

 

[jack954]

400k gross is a very good amount for self serve only. 240k expenses sound very high for that gross (unless a loan payment is included). how many bays and why not an automatic? if you’re self serve is that busy then you might have an automatic that could bring in up to 300k a year (depending on competition). to put in an automatic, auto cashier, and doors (if needed depending on your location winter time climate) would probably be around close to 300k but we’ll worth it if it brings in 2-300k per year

 

[Roz]

$400K for SS only is very solid performance. Very solid.

12% loan rate is very high. I would look for a 8% loan. They are out there especially if you are able to put down 40%

60% margin for SS seems low

real question is do you want to be an entrepreneur and how much are you willing to work. As you mention even collecting money takes time as does keep everything looking and working great.

being your own boss has many advantages, too many to list. Sitting on your ass and hoping the stock market continues its run upward seems like a much riskier approach especially as Russia and China threaten global business.

Lastly if you have assets like a house or brokerage account you should explore an equity line of credit. The rate is pegged to the bank to bank interest rate plus a negotiable spread. I think the current rate is like 6.5% all in. You can pay the note back at whatever pace makes sense without any penalties. You just need to watch the loan to equity ratio as the max is usually 70% of assets.

 

[mr25]

400k gross is a very good amount for self serve only. 240k expenses sound very high for that gross (unless a loan payment is included). how many bays and why not an automatic? if you’re self serve is that busy then you might have an automatic that could bring in up to 300k a year (depending on competition). to put in an automatic, auto cashier, and doors (if needed depending on your location winter time climate) would probably be around close to 300k but we’ll worth it if it brings in 2-300k per year

Thanks - expenses are 160K (~40K), so the NOI is 240K. The lot is fairly small and I'm not sure if any of the existing bays could be repurposed into an automatic (something I need to look into further)

 

[mr25]

$400K for SS only is very solid performance. Very solid.

12% loan rate is very high. I would look for a 8% loan. They are out there especially if you are able to put down 40%

60% margin for SS seems low

real question is do you want to be an entrepreneur and how much are you willing to work. As you mention even collecting money takes time as does keep everything looking and working great.

being your own boss has many advantages, too many to list. Sitting on your ass and hoping the stock market continues its run upward seems like a much riskier approach especially as Russia and China threaten global business.

Lastly if you have assets like a house or brokerage account you should explore an equity line of credit. The rate is pegged to the bank to bank interest rate plus a negotiable spread. I think the current rate is like 6.5% all in. You can pay the note back at whatever pace makes sense without any penalties. You just need to watch the loan to equity ratio as the max is usually 70% of assets.

Yes - 12% is high. As a conservative/base case, I was using SBA Prime + 3% (which would be 11%), but have started reaching out to banks. Thanks for the suggesting on line of credit - HELOC may not work, but the getting a line against a brokerage account is new to me (and worth checking out). Thanks!

 

[mr25]

You need to find a better bank. 12% and 40% down...

Yes, you are right. Was starting with a conservative base case based on SBA Prime + 3%

 

[mr25]

Invest option: $800k down payment if earning 9% would be making you $72k/ year. Assuming you don’t touch your investment for 15 years and reinvest the earned interest, you would have $2.9m.

Buy car wash: $800k down, $240k NOI, $172k / year loan, cash flow $68k/year. Assume $10,000/ year for capital improvements(these don’t hit every year but when they pop up they are expensive, ie. Roof, asphalt repairs, equipment replacement, ect). Adjusted cash flow accounting for capital improvements. $58k/year or $4833/month. Assume this is all invested every month a 9% annualized, with starting balance of zero. You end 15 years with $1.7m + sale amount ($0-2.5m).

Ask yourself a few questions:
- do I want the liability/risk and time requirements of this business for my estimated profits?
- what capabilities does current owner have that I don’t and what do I need to learn to be as successful as they have been, can I learn these things by the time I need to?
- do I want to buy a job that pays me $58k/year but I’m paying taxes on $240,000?
- how does income tax and property taxes effect my assumptions of investable income?
- do I think owning an asset is better than paper, factoring in risks on both options? Do I feel better about diversifying my portfolio to include both paper and assets? What mix profile meets my goals and risk tollerance?
- can I alter my loan terms to better improve my cash flow?
- what risk do I have when I need to sell and can I recover my initial investment and improvement costs? Will the value of this property increase, decrease, or stay the same? How does my success or failure of running it as a carwash effect the value of the property?
- what competition or government change may effect my assumptions of cash flow? Example a car wash is built right across the street from me and my chashflow drops 30%, now I can’t make my loan payment. City builds a new water treatment plant and raises my water rate to cover the build out.
- how might my life change and what do I want in the next 15 years? Does owning this liability help or hinder this? (Example: I want to travel but can’t because I own a 24/7 business that I can’t afford to pay some to take care of while I am away)
- how does income tax and property taxes effect my assumptions of investable income? (Yes I am recommending this question 2x because I think this is very important given what you have outlined)
—-
Keep asking questions as you wrestle the decision and let us know what you decide.

Thank you for the very detailed and helpful response. This is exactly the mental process I'm going through - the questions you raise hit are the ones I'm wrestling with.

Property tax is already baked into my 40% operaing expense (~$12K = 3% of revenue). And yes - I flow my numbers all the way through income tax in my forecasts (depreciation and goodwill amortization obviously help a lot - though it's partially offset by the reduced basis at the time of exit, which I model out at 10 years)

 

[Greg Pack]

Have you seen returns that verify this? 400K grosser SS only is probably top 2% earner.

Higher grossing washes fetch higher multiples. 5X is reasonable for this wash if in a decent area and numbers can be verified. However, if someone manages to build near you they could cut you in half. A high barrier to entry (high land prices, etc) is desirable. You can get into a zone of concern when the sales price starts to significantly exceed the cost of new wash project.

Doing that kind of volume I would plan on having an employee on site seven days a week to keep things clean and is good with customers. If you're not working this wash make sure adequate labor costs have been factored, probably 40-50k or so.

 

[Dan kamsickas]

Have you seen returns that verify this? 400K grosser SS only is probably top 2% earner.

Exactly my thought. Is this number from a P&L(which can be utter BS) or 3 years of tax returns?

 

[mr25]

Exactly my thought. Is this number from a P&L(which can be utter BS) or 3 years of tax returns?

Right now it's self reported as I'm in the prelim due diligence stage. Will definitely be counting cars and asking for tax returns as I get deeper into the process

 

[mr25]

Have you seen returns that verify this? 400K grosser SS only is probably top 2% earner.

Higher grossing washes fetch higher multiples. 5X is reasonable for this wash if in a decent area and numbers can be verified. However, if someone manages to build near you they could cut you in half. A high barrier to entry (high land prices, etc) is desirable. You can get into a zone of concern when the sales price starts to significantly exceed the cost of new wash project.

Doing that kind of volume I would plan on having an employee on site seven days a week to keep things clean and is good with customers. If you're not working this wash make sure adequate labor costs have been factored, probably 40-50k or so.

In the local area, there is:
- Another SS car wash ~0.5 miles away (not as well run)
- Quick Quack Car Wash ~1.75 miles away
- An express car wash ~1.5 miles away (good ratings/reviews)

All of these are established. The positive takeaway is that this area can absorb multiple car washes and this specific business can achieve those volumes despite the competition (and given the multiple CWs, unlikely a new business will be built in the near vicinity). The risk case is that the SS car wash down the street improves operations and takes away business.

 

[tdlconceptsllc]

A SS carwash .5 miles away that's run down that would terrify me that someone would buy it and do a complete blowout renovation. It would absolutely 100% affect your self serve only wash doing those high numbers that's stated dont fool yourself. The Pie is only so big no matter what. I would buy it and tear it down if I had a SS only site doing 400k a year