Potential New Owner

[Suds2Riches]

I would first like to thank everyone for all the help in advance. This forum is filled with great owner/operators.

A little about me, I live in the northeast and work for "the man". I do not have any car wash ownership experience....yet.

Recently I decided to make my dream more of a reality and started pursuing a complete build up, I researched new building designs and really became hooked on the Tommy Wash building and equipment. Development costs with land are near the 3mil range and this would be the only car wash of it's kind in this area.

My other option is which I seek help with...

In my area there is a local wash for sale with the following details:

Full Service Car wash, asking price ~1.3mil
80' Tunnel, but I need to confirm this
Econo-craft Equipment????? Haven't heard much about it
Land is leased - approx 5500 per month, 25yrs remaining
Gross Revenue - 800K
Gross Profit - 500K
Net - 300K

Daily Traffic Count is over 40K, nearest competition is approximately 3-4miles away.

My plan would be to invest 150K and remodel the building/site, add a self pay station and change it to a self exterior wash by adding a POS unit and pay vacs.
The wash is tight to really expand and my thinking is cashing in on the early bird/late night type customers I see going in for exterior time slot specials at other nearby washes.

Question #1, How do I verify the current cash flow numbers?

Question #2, How bad is it to not have the ability to ever own the land?

Question #3, Best way to have the business evaluated.

Question #4, Offering price!

I'm open to all suggestions and don't want to rush into this. I look forward to hearing your thoughts.


=S2R

 

[dogwasher]

The guys on this site will give you some good information, my advise to you is listen to them. Im just a small fish here as I own a self serve wash with automatics, so basically Im nipping at the heels of the $3 dollar tunnels of love. The water bill is a good place to start for checking volume also you could get some popcorn and sit and watch the show for some or alot of hours.

 

[Earl Weiss]

Not sure where you think this is headed vis a vis exterior volume and pricing.

ROUGH Guestimates.

Annual debt service on $1.3 Million $90,000.00
Annual Rent $66,000.00
Cost To put a car thru a Tunnel
for a basic wash 100K @1.00 each $100,000
Soft costs - Ins. Scavenger,
accounting , advertising, $24,000.00

Labor $76,000.00

Total $356,000.00

If you wash 100k Cars, what do you think the average ticket will be?

 

[Suds2Riches]

Because I feel the current owner is trying to increase sales with higher prices rather than volume, I'll use competitor pricing as a guide.

Currently neighboring washes have exterior services as follows:
Exterior - $6
Exterior works - $7
Exterior works with tire shine - $10

None offer self vacs because outside of the early/night special they are full service washes.

My thinking and hopes:
New image, new owner = higher capture rates
Different services geared more to the express customers = higher capture rates

My goal would be to see an average ticket of $8.5 and nearing +120k car count by focusing on convenience and customer service.

Generally speaking my community doesn't speak highly of any car wash but they don't have many choices. My initial thoughts are to really focus on providing a quality, clean environment, convenient, affordable service etc......but I guess that's everyone's goal here.

Am I only seeing the positives here? Is this unreasonable to expect?
With those numbers I should be able to turn a profit and make a living, my main goal is making a living....

What about the equipment? Owner is saying equipment is fairly new ~15yrs old.
What else should I be watching out for?

-S2R

 

[Waxman]

1. Get 3 years tax returns from present owner.

2. It's bad and I'd never ever invest $3M on a business like this w/no land. Crazy talk.

3. Hire an independent carwash consultant.

4. $ Zero. Lousy idea.

 

[robert roman]

My advice is put goals first then look for answers.

“my main goal is making a living....”

How much of a living do you need to make; $50K, $75K, $100K or more?

Based on a price of $1.2 million for business only, $800K gross and expense ratio of 70 percent (full-service), the owner benefit would be about $80K before depreciation and income taxes. Need to make $100K, then you would need to gross $1.0 million and so forth.

Question #1, How do I verify the current cash flow numbers?

Buying “business only” is all about income verification. Forget about using water or chemical usage as a proxy, consecutive years of books (profit and loss, balance sheet and income tax) are “crucial” in reaching a valid indication of market value.

Question #2, How bad is it to not have the ability to ever own the land?

Here are a few issues to consider. At $1.2 million, I believe you would be grossly overpaying for business only. Consequently, returns and exit strategy would be in jeopardy. To this, you propose to sink another $150K in improvements that will eventually go to the land owner.

Question #3, Best way to have the business evaluated.

Get an opinion of value from an expert in the carwash industry rather than an appraiser who is typically a generalist.

Question #4, Offering price!

This would be addressed when answering question 3.

 

[Suds2Riches]

Making a living for us is a minimum of $100K a year. I hate to sound like a pure jackass in asking this but can you explain in detail how you figure the expense ratio of 70%.

Also would it be safe to say that turning this wash from full-service to an express wash would bring the profit margins higher due to less labor... assuming same or more volume?

I also realize the land issue, but for every 10 car washes available 1 might have the property being sold with it. I don't know if that's just the norm for us or the whole car wash industry.

Thanks again for all the help so far.

S2R

 

[seattleguy]

I am total newbie here but here is my thought which is worth 2 cents on a good day. I bought 2 washes from banks. 1 was 7 bay SS and I converted 2 of the bays to IBA's and redid old SS equipement as well. It is doing great. Other is 3 bay SS, 1 iba. It is doing just mediocre. I evaluated both of them on LAND not operating businesses. If both businesses closed I would be OK on land alone. I am big into owning the dirt as well as the business. I would think long and hard as to why the land owners want to own the dirt. Long term land holds its value. Improvements do not. Of course there are always exceptions.

 

[Waxman]

Making a living for us is a minimum of $100K a year.


What is your experience in this industry?

Judging by your line of questions, you sound very inexperienced.

Do you really think an undertaking of this magnitude is wise for someone like you?

The carwash business is a tough one. Debt service alone will kill you if you make mistakes (and as a new operator you will). If you have cash to buy the business, there must be better ways for someone like you to make your required $100k per year.

Labor is expensive and operating costs are high; chemicals, electricity, water and sewer.

I mean, seriously, if you didn't even know to verify income based on tax returns of the business, how can you ever hope to make a go of this???

 

[robert roman]

“I hate to sound like a pure jackass in asking this but can you explain in detail how you figure the expense ratio of 70%.”

I’m not going to go into detail other than saying I make part of my living preparing opinion of value for carwash. So it is my business to know expense ratios. Actually, in some parts of the country like California and New York, 70 percent for full-service is generous.

“Also would it be safe to say that turning this wash from full-service to an express wash would bring the profit margins higher due to less labor... assuming same or more volume?”

It may but there is the higher capital cost of the improvements to cover as well as a price premium that I believe is not justified.

“…. for every 10 car washes available 1 might have the property being sold with it. I don't know if that's just the norm for us or the whole car wash industry.”

Business only is the norm for places like Queens and Brooklyn, New York, that are built out and where property is held for generations.

Another reason for more business only is carwash valuations are down consistently across the country. Generally, it is a buyer’s market.

Not wanting to take a hit on depressed values, some owners may opt to minimize their business operating risks by selling the cash business and sitting on the land and collecting rent.

 

[dogwasher]

Making a living for us is a minimum of $100K a year.


What is your experience in this industry?

Judging by your line of questions, you sound very inexperienced.

Do you really think an undertaking of this magnitude is wise for someone like you?

The carwash business is a tough one. Debt service alone will kill you if you make mistakes (and as a new operator you will). If you have cash to buy the business, there must be better ways for someone like you to make your required $100k per year.

Labor is expensive and operating costs are high; chemicals, electricity, water and sewer.

I mean, seriously, if you didn't even know to verify income based on tax returns of the business, how can you ever hope to make a go of this???

Wax, regarding verifying the income I think he meant how does he verify that the tax returns are true?

 

[Suds2Riches]

Waxman, First off who are you to insult me with such an ignorant comment, "Do you really think an undertaking of this magnitude is wise for someone like you?" What is someone like me? A hard working american with a dream to better his life for himself and his family? If you're insulted by my need to gross 100k a yr then move to NY and tell me what you can do with your 35K.....Nothing!

I appreciate your concerns for me, along with any advise you offer me and that's why I'm here... to learn. If you're willing to listen I am as well.

Anyone can easily evaluate a company, the problem I'm having is that it seems the norm in my area for wash owners to not "verify" or show me their books. I'm having a very hard time putting my hands around this type of thinking.

The sellers expect a buyer to walk in and say oh ok there's the register, chemicals, labor, and keys....that will be 1.2mil please.

Yes I am new at this very new...so what. You may have been fortunate to be born into a car wash or two, and if you weren't then you forgot where you came from IMO. I'm sure you had to learn as well.

Again I appreciate your help and respect your opinion but if you have nothing to add that may help me or others please keep your comments to yourself.

Thanks.

S2R

 

[Earl Weiss]

Wax, regarding verifying the income I think he meant how does he verify that the tax returns are true?

The IRS has a form which authorizes someone to obtain a tax form. You can therify what they gave you is what they filed. That does not guarantee that the tax return does not over or understate the true revenue and expenses.

 

[lezam]

The IRS has a form which authorizes someone to obtain a tax form. You can therify what they gave you is what they filed. That does not guarantee that the tax return does not over or understate the true revenue and expenses.

It would seem that most often the seller grossly understates income to save some $$$... so you might never be able to actually verify

 

[Jim L.]

Since this is your first purchase, why not hire a professional like Mr. Roman to guide you through the process and keep you from making a lot a dumb rookie mistakes.

 

[Suds2Riches]

lezam, my fear is jumping into this to find out I was snow balled and in which I find out the sellers numbers were all bs on the negative side.

I have some benifit of growing up in this town and recall the days when this particular wash was "the wash". Since then I've seen the owner/s take a back seat approach and letting customer service fall short along with many other short falls.

If the seller does understate his income, I can deal with that.... I think.

I plan to give Mr.Roman a call and agree 100% that I need someone like him to guide me through this process.

-S2R

 

[lezam]

lezam, my fear is jumping into this to find out I was snow balled and in which I find out the sellers numbers were all bs on the negative side.

-S2R

I understand where you're coming from, and I'm trying to figure out the same issue. Hopefully some people on here can shed some insight on how to successfully determine revenue without solely relying on the sellers numbers

 

[pitzerwm]

There is an old saying " only the first one that counts the money, knows how much there is". There are too many variables in most businesses to judge the numbers from the outside. Knowing he was going to sell, he could inflate the numbers from another business, or whatever. The first thing is to find out if you can trust this person. When I sold my laundries, the buyer went to a mutual friend and ask him, if he knoew anything about my numbers. The mutual friend say that he didn't, but whatever I told him he could take to the bank. He bought it and was very happy.

 

[Waxman]

Actually, what I said was very kind if you see through the minor insults (and they were minor, so cowboy up).

I could tell you it sounds great and go for it and it's easy to run a wash and the owner is probably telling the truth, etc.

What I said was designed to wake you up to the fact that no new operator is going to buy a wash for 'in the millions', re-hab it, change the service format, get a whole bunch of new customers, make the place cash flow AND pay themselves $100k/yr out of the profits generated. Not likely to happen.

If they won't give you numbers it's because the numbers stink.

No one gave me my wash; I got a bank loan and built it on a sand lot. I went and got a minimum wage job at a carwash on weekends while I ran my detail shop at the same time so I could learn the business. I sacrificed and drove 19 hours to trade shows to learn the business. What have you done? Asked a couple jackass (your words, not mine) questions on an industry forum.

I am trying to keep you from making a bad decision and bankrupting yourself. But if you are this thin skinned, I am right and you are nowhere near tough enough for the carwash biz. Buy some Facebook shares instead.

 

[JMMUSTANG]

Suds all of us in this forum have heard your cry for help many times from prospective want to be car wash owners over the years.
Most of us have been in the car wash business for many many years. Some not so long such as Waxman.
So you've come to the right place to get SOME answers.
Do not take what Waxman is saying personal he is trying to make you understand the complexity and troubles of owning a car wash. He's done it the right way and I'm sure he still made/makes mistakes today like all of us.
That said first of all the weekend is coming up and I suggest you go through the archive history here and read everything there is concerning your questions about learning, starting up, operating, maintaining, competition, rain/sonwing days (days that you will not be open but you still have to pay the bank),etc.
There is a wealth of info here.
Second if you are looking at running this as a full serv I believe that the labor cost would be more in the vicinity of $130-160,000 per year.
Most of all I would seriously question any wash today that is for sale would be able to get 1.3 million. There is always exceptions but in today's environment it is hard to get that.
I would also suggest getting a job there to begin to learn and understand the issues that arise daily. This is by far your best education into understanding this business.
Do your homework this weekend. Good luck.