Minimum Wage increase and Regulatory Threats

[Sam]

Hello all, I'm considering the purchase of an established conveyer tunnel car wash in the Northeast. Land, equipment and business are all included the sale. I'd like to run the numbers by you for an opinion about valuation but before I do, I wanted to ask some general info about the industry and what the future may hold for car wash owners. My main concerns right now are not related to the financials nor the asking price nor the equipment nor the competition.

I'm concerned about the impact by the government/regulators/activists. I'm worried that a $15.00/hr. federal minimum wage may be coming soon which would raise the business' current payroll by 50% over a span of a just a few years (assuming it's phased in over time). I am skeptical that the increased expense can be passed along to customers as a tunnel car wash is not one of life's necessities and there are other options i.e. wash the car in the driveway, use self serve, use IBA which do not have the payroll costs of a conveyer tunnel. The tunnel I'm considering needs between 2 and 3 employees (although sometimes just one and sometimes four). The other concern is environmental, will this grandfathered wash someday be required to have a reclaiming system? Will the state or federal EPA impose crippling water conservation standards.

If these things occur, could I somehow run the tunnel with fewer or even no employees - essentially making it a kiosk style payment system similar to an IBA or is that not possible with a conveyer system? Could I at least eliminate the guys prepping the car as it goes into the tunnel with some new equipment? They hit the cars with a high pressure sprayer and may even brush it in the winter (I'm not sure yet). And would the reclaiming system or other water saving equipment be a manageable expense?

Last question, given these concerns would you recommend that a new investor/owner sit on the sidelines at least until after the election - which could likely impact these developments. Or am I worrying to much???

Appreciate any feedback.

 

[MEP001]

There are formats which allow a tunnel to be run by just one person, usually with more than one paystation and gates with one employee to guide them on. I've seen one like this that has self-prep buckets near the entrance.

 

[Waxman]

i would create 3 years of pro formas and include your increased payroll numbers. see if it pencils out or not. no sense worrying and guessing. that's what financial projections are for.

 

[rph9168]

A Federal raise in minimum wage of $15 is a long way off. Current federal minimum wage is only $7.25. Even if they decide to do it they will phase it in over a long, long period of time. The highest state minimum wage is $10.15 in DC. Most state minimum wage laws range from $8 to $9.

If you go to a traditional or flex serve tunnel you will need anywhere from 4 to 6 employees minimum depending on your volume. With a higher volume you obviously would need more to operate smoothly. With an Express Exterior the minimum would be two on duty but again if you have a high volume you could easily double that or more.

 

[robert roman]

The problem of buyer’s remorse can be solved by mitigating investment ownership risks and business operating risks.

“I'm concerned about…government…$15.00/hr. federal minimum wage….would raise the business' current payroll by 50% over a span of a just a few years.” “If these things occur, could I somehow run the tunnel with fewer or even no employees”

This concern is a business operating risk – can adequate staff and management be maintained and motivated to ensure a customer-centric operation?

It takes an owner/operator to mitigate this risk.

“….will this grandfathered wash someday be required to have a reclaiming system?”

Based on my experience, the likelihood is remote.

“Will the state or federal EPA impose crippling water conservation standards.”

No, they have bigger fish to be concerned with like agricultural irrigation, power generation, etc. Carwash is a drop in bucket of total daily U.S. water consumption.

However, local or state restrictions may apply during times of drought.

Actually, there are other risks you didn’t mention that are more important to someone with no hands-on carwash experience.

For example, has previous use of land resulted in toxic contamination? Will future market conditions allow you to sell business to 3rd-party buyer (new owner) for expected price?

There is also competitive risk – will the site continue to produce sufficient gross sales after you purchase it?

 

[robert roman]

"There is also competitive risk – will the site continue to produce sufficient gross sales after you purchase it?"

It also takes an owner/operator to mitigate this risk.

Since you have no experience as owner/operator, how do you plan to do this?

 

[Sam]

Thanks for the response to my questions: Just a few follow up comments/questions along with responses to the feedback received.
1. I understand there is still standard due diligence needed regarding financials, competition, location, condition of equipment etc. I just don't want to get too deep into it until I've gotten comfortable with these overarching issues.
2. How to reduce employees at an exterior-only tunnel if necessary?? I'll look into the viability/expense of a paystation to eliminate a cashier as was mentioned but not sure how to have more than one paystation and still keep cars queued up in the right order although I'm sure there is a way. Still, I just don't understand why this exterior-only conveyor wash and many others I've been too have someone prepping either with a wand or a bucket and brush. I would think that with over a 100 ft of tunnel space that some type of equipment could be used in place of this human labor. Perhaps the idea is that the cashier has the time to do it so why not?? Problem is this place has/needs a cashier and two other people prepping - one on each side - when it's busy.
3. I'll try not to belabor the minimum wage issue. No one seemed to blink at it. I guess you are all confident the increase can be passed along to customers given what would be a multi year phase in period? I'm able to do that at my laundromat in Mass which is instituting an $11/hr minimum wage over the next two years ($9 now, $10 in Jan 2016 and $11 in Jan 2017). Laundry is a necessity and car washes aren't so I thought the reaction might be different. I may try to get some feedback from the operators in Seattle, LA and San Francisco. Do you think the key factor is the income bracket of the customers and whether they can pay the increase or not?
4. If you were buying a car wash now would you factor this potential increase into your offer or would you let it go as it's not even in the works?
5. I understand the need for a pro forma but won't I just be factoring in higher wages that are offset by higher wash prices. Minimum wage could be a $100/hr which would be fine if I could pass along the increase. My question is just how price sensitive are car wash customers? Same point as above.
6. Contamination of the property. I hadn't thought of a car wash leading to contaminated property. Of course, I have with gas stations I've looked at but not this type of business. To my knowledge it was built as a tunnel car wash decades ago. I'll have to do more research on this. Does anyone know if lenders require a Phase I or Phase II for a car wash.
7.. Environmental: does anyone think I should investigate where/how the car wash gets rid of its wastewater and how the city sewer system is handling the wastewater? Or would you not worry about any location that's grandfathered.
8. There a many references to being an "owner/operator." Interested in knowing what that means to all of you in your day-to-day. Is your car wash your occupation? Meaning is your day/week spent at the location doing, among other things, the work of a car wash attendant and also doing the work of a repair tech. Or do you mainly manage and perhaps do basic, routine maintenance and repairs. I'd likely be onsite 3, maybe 4 days, per week for no more than 4 hours and I would not be able to do anything other than the basics in terms of repairs/maintenance - and I would not be doing any shift work. I'd be doing collections, paying bills, ordering supplies, doing or arranging for repairs, phone contact with employees any time of day, monitoring cameras from home office and the like. Assuming the business could support the added payroll and repair costs of relying upon others, is that a realistic way of running a car wash. Or should I consider this deal to be buying myself a job as a car wash attendant/repairman in order for it to succeed?
Thanks again for any feedback.

 

[robert roman]

The problem in trying to answer these questions is that your thought process is all over the place.

If you want to wash cars to make money, you have to put the horse before the cart just like any other small business start-up even if you are buying a going concern.

Unless you pay cash, external funds are needed to build or buy a wash. Since recession, banks and lenders place a lot of emphasis on market and management viability.

In other words, they expect to see an “excellent” market opportunity and at least several years of previous carwash ownership and/or carwash management experience.

Like I said, how are you going to mitigate the fact you have no ownership or management experience? You are not going to gain it here.

No play dough, no play.

As for owner/operators, they are individuals that own and operate their own businesses. They may lease “business-only” to a third-party and collect rent or they may operate under their own accord.

Whereas as an investor is a person who allocates capital with the expectation of a future financial return. Investor might come by from time to time to hang out, get a free wash, pat someone on the back, count money (LOL), etc.

 

[rph9168]

I think you need to stop obsessing about the possibility of increases in the minimum wage and in the process of making a decision start looking at more the more immediate concerns that Robert points out.

 

[Washmee]

If this wash you are interested in purchasing is operating on such a thin margin that a 50% wage increase for a 3 man crew is a game changer, I would think twice before I bought it.

 

[Sam]

Thanks, I get the point. I knew my post was going to look different than the typical so-called "newbie" posting beginning with "Help. what should I pay? What will I make, etc." Bob, it's not that my "thought process is all over the place." I'm probably just cramming too many topics into one post although the issues are largely intertwined.

So going with the usual sequence: I looked at the financials and so far they look good but I still need to prove them out, so far the location looks good, so far the competitive situation seems stable and everyone has their share of the market, so far the equipment looks sound although I would bring in one of the local distributor/maintenance companies to inspect. The asking price is too high in my opinion but that's not usual.

And regarding money/financing, the lenders I've approached want to see more details of the deal even though they know I'm a laundromat operator/real estate investor and not an experienced car wash operator. I'm not about to tell them they're crazy to loan me money because I'm in the business of cleaning clothes instead of cars. Or that the real estate I own is residential and not commercial. Maybe they'll ultimately pass based upon lack of experience but I don't get that sense now. My sense is that they're eager to have me present it to them.

All this brings be back to where I am: what does the future look like for the tunnel car wash business? Analyzing the financials is key but that's looking through the rear view mirror, I'm trying now to see through the windshield a few miles (years) down the road and what I'm seeing for road hazards are the things I mentioned.

I'm also trying to understand the day-to-day of an owner/operator which was my other topic. Even if I was 100% guaranteed that the car wash in question was a great business at a great price where I would make great money, I would not be interested if I just did not have the time necessary, or the mechanical skills, or desire to work as a car wash attendant - if that's truly what is needed to be successful. I may try to flesh this out as a separate topic to keep things more concise.

Hope I don't sound argumentative, I do appreciate the responses.

 

[Sam]

Jon, point taken. I guess it isn't a big issue in the scheme of things given the decent revenue of this car wash. I think the increase in MA minimum wage affecting my laundromats has just left a bad taste in my mouth. I just look at those labor-less IBAs and wonder if any greater labor cost differential could give them a meaningful competitive edge offsetting the benefits provided by a tunnel wash. Perhaps my real question is whether the future is as solid for a tunnel as it is for an IBA wash. It sure seems that IBAs have taken a toll on the self-serve car washes - at least in my area. I know I haven't used a self serve in well over a decade. The IBAs seem to be washing better and, I assume, quicker with each new generation of machine and doing it in a smaller, cheaper footprint.

 

[robert roman]

“All this brings be back to where I am: what does the future look like for the tunnel car wash business?”

There is plenty of literature available to draw your own conclusion.

Industry journals like ICA’s Trend magazine, Auto Laundry News, Professional Carwashing & Detailing and Self-Service News address this subject. People who contribute are manufacturers and suppliers, consultants and owner/operators of some of the industry’s more successful car washes. IBISWorld also sells a Car Wash Industry Report.

“….lenders I've approached want to see more details of the deal…..My sense is that they're eager to have me present it….”

I’ve never met a business broker or loan officer who was not eager. So what aspects of this deal have you been too afraid to show lenders thus far?

“I think the increase in MA minimum wage affecting my laundromats has just left a bad taste in my mouth.”

Labor in coin-laundry is minimal. Pass increase in cost to customer, they have no place else to go.

If owner/operator is “what's truly what is needed to be successful….I would not be interested”

“Hope I don't sound argumentative…”

Not argumentative but rather frustrated because you are not getting the answers that you wanted to hear.

However, I’m not getting paid enough to be a psychologist.

If loan officer is foolish enough to loan money to newbie with no carwash ownership or management experience, then buy the wash.

Then spend the 20 hours a week you plan to operate the wash - consistently clean, shiny and dry car, customer service excellence, customer loyalty, marketing, customer claims, call offs, break downs, housekeeping and maintenance, etc.

Sometimes this 20-hour fades to 10 hours and then all of the above slowly goes down the drain.

Then when it becomes an expensive job or worse, the wash gets sold as a great opportunity for an owner/operator at the seller’s expense.

 

[Sam]

Bob, you've managed to get one thing right. I am frustrated. You're answering questions that I'm not asking and you're throwing in some snide and condescending remarks along with it. You say you're "not getting paid enough to be a psychologist" , hey, sweetie, you're not getting paid at all for your so-called advice. Remember, only in your mind are people on this board paying you for your advice. But I have to remember, this is the internet after all and every message board has its "Bob Roman." Not to say you don't have a wealth of wisdom (who knows, maybe you do and maybe it will make an appearance soon), but you kept wanting to talk about the deal itself and where the money is coming from. Who asked you about any of that? I basically tell you not to worry about the financing and you're still commenting. Now here I am acting like you, spending my Sunday morning doing an asinine back and forth on a message board. It's tiresome but I'll do a little just to make you happy.

Once again: I didn't ask for your two cents about financing yet you keep giving it. The lenders I'm speaking with are lenders I've dealt with in the past who have approved loans for three industries I had no experience in whatsoever: laundromats, gas stations, food related and commercial lending for residential rentals and line of credit for house flipping. I don't know what lenders you're talking about but these lenders aren't looking to waste their time looking at deals with a borrower that won't make it through their underwriting requirements. They see what my net worth is, they see the cash on hand, they know my excellent credit score, they see the financials of my laundromats, they know I already keep hundreds of machines in operation, that I already manage low-skilled employees in urban settings and they know my previous experience as a corporate manager. That's been good enough for them to risk their money even if it's not good enough for you. And you asked what aspect of the deal I'm "too afraid" to show lenders? Too Afraid?? What kind of silly question is that? Bob, I'm a busy guy. I'm not going any further down the road with a lender until I've determined that a tunnel wash is a good fit for me, my skills and my schedule which is why I posted these queries. But again, who asked you about financing?

One of the questions, I did ask: what does the future look like for the tunnel car wash business. You won't or can't offer an opinion about that instead you tell me to look at industry publications. No sh!t, really? Good advice. I would certainly love to hear what "manufacturers and suppliers" of tunnel car washes think about the future viability of tunnel car washes. Hang on, I'm going to check right now….I'm back, I found some articles - turns out the "manufacturers and suppliers" of tunnel car washes think the future is bright and people should invest in tunnel car washes- what a surprise. Thanks Bob. I owe you one. I may want to hire you. What would you charge for that sage advice?

 

[Sam]

Bob, you're also commenting on the coin laundry business which again I didn't ask you about. You couldn't be more wrong by the way about labor costs. Labor can very well be a significant expense for coin laundry if you have urban, fully attended laundromats with a busy wash and fold business. You say the customers have no place else to go?? So you can't think of where a laundromat customer can go when prices are raised due to wage increases?? Think some more Bob…. Keep thinking…. Keeeeep thinking... Nothing? Really, you can't come up with anything? Give up then? That's rather amusing. Okay, I'll tell you. How about an unattended laundromat that can be even more price competitive than before - or how about this, they can go to the owner-operated store which is attended but has no payroll. How is that possible? Well, the owner and his family work there all day, every day. As you can probably guess, I'm not working shifts as a laundromat attendant (that's how Bob Roman would do it, I'm sure) so I have payroll. And, gee, where else can they go?? How about the laundromat with off-the-books employees or bogus 1099's who are getting paid below minimum wage, no payroll taxes, no comp. They can all keep their prices the same and move customers away from the attended stores with on-the-books payroll. Are you getting any of this Bob? Now, at least with the unattended laundromats, there may be disadvantages like lack of cleanliness, more out of order machines, no one to provide refunds for malfunctioning machines etc. that could offset the lower price advantage - but to use the one good comment you made that was really nothing more than reinforcing the overall point of my queries is that there is a "tipping point" where the price savings of an unattended mat outweighs the benefits of an attended mat in the mind of a customer especially the generally very low income laundromat customer.

 

[Sam]

So to turn this back again to the tunnel car wash business. I was asking generally if anyone felt a spike in labor costs could be a meaningful future threat that could significantly hurt the tunnel washes when there are so many IBAs out there without labor or certainly less labor. I was roundly shot down. Okay, fine. IBAs are not a threat to tunnels because tunnels have so many advantages and the lower labor costs and other IBA advantages will never significantly affect the market share of tunnel washes. Again, that's swell - good to know. I just wanted to see if there was a "tipping point" that may be occurring against tunnels and in favor of IBAs. And I also asked if environmental issues are a looming threat particularly for a grandfathered wash that doesn't have a reclaiming system or other modern systems. Again, apparently not an issue. Glad to know I'm wrong. Everything is hunky-dory in the tunnel car business and will be in the near and long term future.

I also asked about the day-to-day of the tunnel business for owners. You're telling me 20 hours a week won't work. Again, fine that's why I asked the question. I needed to know. I have other things I work on, I like the variety of what I do, I like the flexibility that I have and I'm not looking to buy myself a job as a car wash attendant. I, frankly, don't need it or want it. However, I remain skeptical that a tunnel can't be run the way I run my laundromats. The busy tunnel down the street has been manned all summer by kids in their teens or twenties, I've never seen anyone else there so I guess they must be the owner, right, Bob? The tunnel near one of my urban laundromats is manned by a guy with a tattoo on his neck, no one else ever seems to be around and it's quite busy and looks successful so I guess he's the owner too. I probably shouldn't judge a book by its cover, neck tattoo guy is actually a savvy car wash owner/operator, right, bob? Or maybe they're employees after all and the owner comes in, say, 20 hours a week.

I could go on and on with this… but being a "Bob Roman" for twenty minutes is a serious waste of my time. I want to be out at my pool while my employees work at my non- owner operated laundromats and my maintenance guy works on my non-owner operated rental properties. Just as an example, I'm at one of my laundromats an average of 3 hours per week and there's one rental property I haven't laid eyes on in over a year. Both profitable I should add.There are plenty of "Bob Romans" on the laundromat and real estate investor message boards who say that can't be done either, by the way. And I know several laundromat owners and real estate investors who own a whole lot more than what I have and they are a whole lot more successful and wealthier than I am. I can assure you that they have not cloned themselves so they can be at all locations at all times. Those are the people who have provided real sage advice for an owner like me. But, for the time being, I'll defer to you: "the tunnel car wash business is different from other businesses and it can't be run semi-absentee by a newcomer or likely anyone else for that matter" See, Bob, I do think your smart. I'm signing off now. Enjoy your day on the message board buddy. Actually, on second thought, get out and enjoy some fresh air. You'll be better off for it, I can guarantee it.

 

[rph9168]

Hello all, I'm considering the purchase of an established conveyer tunnel car wash in the Northeast. Land, equipment and business are all included the sale. I'd like to run the numbers by you for an opinion about valuation but before I do, I wanted to ask some general info about the industry and what the future may hold for car wash owners. My main concerns right now are not related to the financials nor the asking price nor the equipment nor the competition.

I'm concerned about the impact by the government/regulators/activists. I'm worried that a $15.00/hr. federal minimum wage may be coming soon which would raise the business' current payroll by 50% over a span of a just a few years (assuming it's phased in over time). I am skeptical that the increased expense can be passed along to customers as a tunnel car wash is not one of life's necessities and there are other options i.e. wash the car in the driveway, use self serve, use IBA which do not have the payroll costs of a conveyer tunnel. The tunnel I'm considering needs between 2 and 3 employees (although sometimes just one and sometimes four). The other concern is environmental, will this grandfathered wash someday be required to have a reclaiming system? Will the state or federal EPA impose crippling water conservation standards. Generally speaking most car washes meet or exceed these conservation standards. As far as the minimum wage situation I doubt that it would have the effect you are concerned about. If such wage minimums are instituted I think it would have an across the board effect on all service industries which means at least some or all of the increased cost could be passed on.

If these things occur, could I somehow run the tunnel with fewer or even no employees - essentially making it a kiosk style payment system similar to an IBA or is that not possible with a conveyer system? Could I at least eliminate the guys prepping the car as it goes into the tunnel with some new equipment? Prepping could be eliminated if you have the room to install one of the the newer prep arches but you cannot run a conveyor wash without an attendant due to putting vehicles on the conveyor safely. They hit the cars with a high pressure sprayer and may even brush it in the winter (I'm not sure yet). And would the reclaiming system or other water saving equipment be a manageable expense? Reclaim systems are required in many locations and in many cases can pay for themselves with reduced water consumption and sewer charges.

Last question, given these concerns would you recommend that a new investor/owner sit on the sidelines at least until after the election - which could likely impact these developments. Or am I worrying to much??? I think only you can really make that final determination. It sounds like you have a strong business background and have been successful in other business ventures. Sometimes we tend to over think possible problems in the future rather than see the immediate potential. If it is a good location and currently successful and the price is right for you I think you can make it work.

Appreciate any feedback.

Hope this helps at least a little. Seems like some of the posts got away from your original questions. As far as the future of the industry I think car washes will always be around. In my 35 years I have seen good and bad times and many changes but the industry has survived. As a side note I think most failures I have seen can be traced to one of two problems - poor management skills or bad location. If you feel neither is a problem in your case I think it will work for you.

 

[robert roman]

If you are such a hot shot, quit flipping out about nothing, buy the wash and quit wasting time.

By the way, right now I’m watching PGA on TNT.

I also get up at 4 AM, practically every morning, and read for two hours.

Then, I usually do 20 minutes of exercise and then ride 15 to 20 very hard miles on my bike, like this morning at 6 AM.

I’ve helped a lot of people on this forum because I chose to.

 

[Washmee]

Sam, I think the tunnel carwash business is the way to go. IBA's definitely have a place in the market, but a good tunnel operation is way more profitable. The other advantage to the tunnel wash is that typically they are not 24 hour a day operations. When my wash closes everyday at 6pm I know that I can have some piece of mind until 8am the next day.

 

[Sam]

Good info Carwashguy, thank you. I'm going to research a newer prep arch just to see if that would take the place of an employee or two. Even leaving aside labor costs, I'd rather rely upon a machine than employee in most instances.