Protecting from ignorance

[sundae5]

My in-laws have been presented with an investment opportunity of a carwash/lube business proposal by someone they have other real estate partnerships. They have a comfortable net worth. The partner went ahead and purchased the lot for the prospective business and did traffic and geological studies, involved an engineer and architect. This obviously has cost no small amount. There is even a 15 thousand dollar deposit on equipment without even an agreed business plan. The proposed next step is a 3 million dollar investment into the building and creation of the business. There is no seasoned and experienced person who is pegged to run this business, but they are planning to send someone to the Sonny carwash college. My concerns are these:

- the location is supposedly good, 20,000 traffic but demographics are mid income (30-60 per year) with great public transportation and very oil dependent
- the business plan is scarce if non existent and relies on someone with real estate, but not carwash experience and makes LOTS of assumptions such as a 1.5% rate of cars into the carwash projection when things are going (about a year in)
- an inflated investment based on all I have read here, shouldn't this be able to be done much cheaper???
- how long does it take to see a return on investment? That is to say, my in-laws are in their mid 70's but very healthy, so is this an intelligent investment or should they be looking into something else?

Thank you SOOO much for your help, I need some knowledge to help me help them!

s

 

[Washmee]

They should run away from this deal as fast as they can. Read these forums for a while and you will see what I mean.

 

[Earl Weiss]

Sounds llike some numb nuts thinks it's one of those deals where you sit back and collect your $.

Unless there are other factors at work like the "Someone" they plan to send to car wash college is a family member in need of a vocation, they should let someone buy out their interest for whatever they have in it and get the heck out ASAP.

 

[sundae5]

Thank you so much guys, I agree. Could you, if you have time, provide some sound reasoning why this is a less than intelligent idea? Perhaps in answer to my points? I need something solid I can use to take to them. We have a meeting tomorrow with them and the financial advisors and I am working very hard to compile sound and well backed evidence that this is not the deal for them. I appreciate any input you have time to provide.

s

 

[Earl Weiss]

1. An inexperienced person, irrespective of schooling will likely need a lot of on the job training which could result in a very costly education.
2. It is a 7 day a week business requiring competent oversite everyday.
3. It is a cash business requiring extremely tight controls or someone you trust or they will steal from you.
4. There will be ongoing fixed costs irrespective of success. These will include financing, real estate taxes, insurance, scavenger, wages (employee, not management) , electricity, and Natural gas unrelated to operational volume.
5. A $3 Million investment has financing or time value to money of 5-7%. Lets average 6% or $180,000.00 a year / $15,000.00 a month. Ad to this other items mentioned in #4 above. Lets call it a conservative $10,000.00 a month. Lets also take a round 5000 cars a month at an incremental cost of $1.00 for unities, solutions and maintenance. This puts your monthly nut at $30,000.00 . (Note this can vary widely by area of the country due to weather, utility costs and things like real estate taxes. Adjust to whatever extent you can based upon location.) So, at the 5000 cars a month figure you need to charge or average $6.00 per wash to break even.

Factor in the potential to bleed $ if you don’t cover overhead versus what you need to break even versus even considering taking $ out.

 

[Whale of a Wash]

Let's not even talk about the wash idea, when you are in the mid 70's --you're investments need to be the sure thing. My father changed his investments a couple of years ago out of the stock market as he said when you are retired you need a sure thing. His adviser told him how stupid that was and then the stock market tanked. Not to be negative, but at that age, they may not be around to see it built, and that could put the project on hold. Their investments should be a sure thing only, like Tax free Municipal bonds..Almost a guarantee that this guy will take them dirtier than Bernie Maddoff

 

[sundae5]

Thank you so much for your help. I really appreciate it.

s

 

[pitzerwm]

IMO, anyone gambling more than 10% of their net worth at that age are fools. Since 50 I wouldn't gamble more than 5% in any single investment. AT best **** happens, and with the lack of knowledge in this industry, you will be filing Chapter 7 or be feeding it for a long time. You don't mention where this is but $3M needs to be in a BIG city.

 

[rph9168]

My in-laws have been presented with an investment opportunity of a carwash/lube business proposal by someone they have other real estate partnerships.

I hope this guy does a better job looking into any other future investments he might propose. This has loser written all over it.

 

[MEP001]

This may be something that could be worked into a profitable business, but the key word is "worked". Their age and lack of experience in the field will work heavily against them. They won't be able to be absentee owners unless they can find someone they can trust 100% to run the business to its ultimate potential and not steal from them.

I think this "investment partner" of theirs is either an idiot or trying to swindle them.

 

[mac]

This thing sounds too familiar. Is the equipment guy who got 15K for doing nothing so far named Barry Boyd?

 

[DavidM]

It sounds like a car wash equipment distributor or manufacturer like Sonny's (since you mention their car wash college) has fed someone the marketing lines. There are some successful car washes but this looks like one starting badly. Carwashing is not an automatic income producer.
Others have mentioned finding the person to run it, I'll add that while Sonny's car wash college is a good 2-3 week jump start, it can't give you everything you need to make this successful. Unless there is an experienced Site manager or owner on site everyday things can go downhill rapidly.
The traffic count isn't great and 1.5% seems a little on the high side, especially after only one year. Any consideration for current competition or future?
I see you are in PA, me too, and it is not cheap to run a business here.
Finally, if nothing else, how can someone even consider investing at this point without a business plan?
Those are just a few red flags I see with the limited information you've shared. Hope it helps.

David

 

[robert roman]

One thing I have learned over the years is the folly of trying to use thumbnail analysis to determine the viability of a business concept.

Over the last ten years, I have evaluated every conceivable type of carwash project. Based on the information you provided, there is absolutely no way I could tell you if this project is a good or bad idea.

Quite frankly, I believe your biggest hurdle in convincing your relatives not to invest in this project would be to overcome the psychological barrier.

Obviously trust has been established between your relatives and the property guy or money would not have changed hands.

Unfortunately, once the decision has been made to acquire and develop a site, it is very difficult to persuade people to change their minds because they are convinced that they have solved the location problem correctly. Consequently, your relatives have already moved forward to the next level of decision making which involves store characteristics such as size, layout and services.

Six or seven years ago, an investor in the northeast hired me to evaluate a carwash business without real estate. The down payment was over $350,000. I showed him why it wasn’t worth $100,000 down. I practically begged him to run don’t walk. He didn’t even walk. I don’t think he lasted two years. Why did he buy? I’m convinced it was the fact that the seller’s partner was a former sport’s professional.

At this point, this is the type of resistance that you are going to have to overcome.

So, I believe your best shot would be to get a qualified opinion from an independent third party like a real estate attorney, appraiser with relevant carwash experience or a carwash consultant.

 

[Waxman]

Some other points to consider:

~1 1/2% capture rate of daily traffic count is HIGH. I used 3/10 of 1% (.003) for my cash flow projections.

~a business plan is a pre-requisite for any business, from the smallest home-based businesses right on up to Trump's.

~Carwash College isn't a substitute for industry experience.

~Carwashing is way too hard a business for most 40 year olds-forget 70!

~$3M is a big, fat, scary-big # and a nut to crack that is so large will screw this business out of a chance of survival before it washes 1 car or does 1 oil change. However, if Tony Hawk were a former biz partner I may do it. Just kidding.

This is a bad idea and only a fool would pursue based on the facts have been laid out.

 

[Mr.Aap]

I have seen this time and time again people will just not listen.......

 

[Earl Weiss]

~a business plan is a pre-requisite for any business, from the smallest home-based businesses right on up to Trump's.

I have both an associates degree and Bachelors of Business administration as well as a JD. So, when in the process of acquiring my 4th location (with my partner) This was the third beaten down place I hoped to turn around, I was taken by surprise. The location was in a shopping center and the management company asked me for a business plan.

I told them my business plan was to wash a lot of cars. People tend to walk in lockstep, without using any independant thought. I see it with bankers all the time. They ask for stuff and have no idea if it makes any sense to ask for it. They just do it because thats the way it's always been done.

When it comes to a car wash business plan, it might help some newbie figure out where they are going. When it comes to outsiders seeing if it's worth a darn, most of them (unless they have prior industry experience) might as well be reading sanscrit.

 

[Mr.Aap]

I like the expression on their face when you mention through-put....lol....

 

[Waxman]

While many parts of a biz plan are pure guesswork, a workable plan created by the prospective borrower/buyer/owner demonstrates business sense, skill and a certain familiarity the industry as well as with how to run in the black (hopefully).

Kudos to you if your plan to 'wash alot of cars' convinced whomever needed convincing that you knew what you were doing. Of course, if I had several successful locations as my track record I'd likely point to those and say they were my biz plan.

As a new investor years ago, I had no such track record so I had a business plan.

 

[rph9168]

I have seen a lot of business plans in this and other businesses and done a few myself. I can't remember any of them being totally accurate with some being way off and others at least in the ballpark. From all my years of experience I think one needs almost to develop a sixth sense on a site. I wouldn't even give long odds on an outsider to work out a workable plan without professional help. Building and operating a successful car wash business is much more complex than it appears to those looking in from the outside.

 

[Mr.Aap]

All you have to do is collect the money right......