Another Newbie-1st Post-Value of Existing Wash?

[Dave1972]

Ok guys--I've seen a few threads from using the search function (I know-a newbie using search-that's absurd!). Was hoping to share a little information (or a lot) to help with my first deep-dive into small business ownership.

Location--only wash in town-3 SS and one IBA. The IBA is a Belanger Saber that is financed and 2 1/2 years into a 5 year term. The wash is located in a great corner location with roughly 6,500 cars per day traffic. The town has roughly 8,000 residents. The building is roughly 15 years old and in decent shape. The wash currently has some repair issues as there is one non-functioning SS bay and one non-functioning IBA (is an original Mark VII of some model I'm not even sure). Other concerns are the lighting as it is currently either not operable or has blown bulbs or operator has chosen to not light when it's dark (creepy!). The in-floor heat is natural gas with the original boiler said to be in good shape. Other mechanicals seem to be in proper working order. or real-estate tax assessment the land is valued at 180k and improved value assessed at 241.9K for a total of 421.9k.

I've signed a non-disclosure agreement so sharing cash flows isn't something I can do in a public forum like this--I have the previous 3 years tax information and cash flows have been somewhat stable--varying by up to 25,000-can that be called stable?

Without sharing cash flow information--anyone have ideas on where to start with a valuation? The 2nd IBA being non-functional is a huge concern as it will take at least 50k to take out the old and replace with a used IBA right?

I've seen the car wash appraiser guy as a forum member here and I don't think I "need" another professional opinion--I'm a fairly intelligent guy at least in my own eyes.

Thanks in advance for your help and I'll bring out the popcorn!

 

[Waxman]

The tax returns should pay the note, all expenses, your salary as well as capital improvements.

Signs of trouble; the current owner hasn't repaired a broken IBA, is not lighting the place at night, or repairing an o.o.o. SS bay (simple compared to IBA often-times but not always.).

If it had good revenues and profits, an intelligent owner plows some of that capital back into the business so it's the best it can be and making the most $$ it can make. The IBA/SS equipment doesn't need too many coffe breaks/vacations/sick time. Anyone who has ever had employees values their automated equipment so much as to minimize downtime (some entirely).

No one on this forum who considers themselves a Veteran Carwash Operator would have a wash in the current conditions of the place you describe.

 

[robert roman]

“I've seen the car wash appraiser guy as a forum member here and I don't think I "need" another professional opinion--I'm a fairly intelligent guy at least in my own eyes.”

“(I know-a newbie using search-that's absurd!)”

I suspect most participants on this forum would consider themselves professionals.

Currently as the only game in a small town, the business has monopoly power.

Mostly likely this is the main cause for the rundown condition of the wash, no competition to contest the market, meaning no pressure to maintain appearance, function, etc.

Most towns with a population of 8,000 can “easily” support more than one commercial carwash.

RCN for a 3 + 1 including your R.E. might be between $500K and $600K.

So, I figure you could afford to throw in a maximum of about $200K in improvements.

This might keep someone from building new.

Of course, this “opinion” is not risk adjusted. Business expansion (improvements) is only one of 15 factors a professional would use in risk adjusting the valuation multiple.

Based on your comments and as a professional who provides opinion of value, I believe you have a lot of factors that would negatively affect the valuation multiple.

The most obvious are low barriers to entry, management retention, operational, new owner social desirability and alternative investment. More information would be needed for complete assessment or opinion.

For example, what would you do if someone decided to build a standalone express mini-tunnel or a 4 + 2?

 

[Dave1972]

Robert--I didn't mean to offend and hopefully I haven't as I value your opinion and the opinions of pretty much anyone else here as I am not an owner yet and am not "IN" the business. Thank you for your initial feedback on this. I knew you were "THE GUY" I wanted to respond as I had viewed a few other posts but being the new guy, I didn't remember your name.

I couldn't agree more with regard to the above mentioned comment regarding not putting money back into the business. I think he's had it for about 7 years and he was forced to replace the current IBA as the other equipment aged and deteriorated. I can't see that he's done much to put money back into the business and that's a huge concern. He did just put new dollar bill accepters (sorry for lack of correct terminology-I'll get there) in all of the SS bays even the one not functioning. The wash is in a good location for the local population and in an "OK" location that's about a mile or so from the Interstate that could bring additional customers but not super likely as the location is not where the Interstate traffic usually visits (fast food and gas/convenience stores are within 150 yards of the Interstate exit ramp).

What I meant by my post and being a fairly intelligent guy meant that I've done some homework (appraisals, traffic patterns, initial evaluation of cash flow/expenses). I hope I didn't offend or come across as a know it all kind of guy--as I 100% don't know much about the industry. Just meant that I understand business at least in some simplistic forms .

Robert-you mention RCN--what's the acronym stand for?

I'm a local guy that's been a resident of the town for 10+ years and will be very active in the community to try and drive this business forward. Things like partnering with the school district/athletics as well as rural things like 4-H would likely help to bring some new customers as well as former customers.

What concerns around cash flows should I look into? Building and structure are important and will need several improvements in my opinion--lighting and getting all equipment in good working order come to mind first--then adding doors for the SS bays for reducing operating costs (natural gas)--is there a savings opportunity there if not currently doors on both sides of the SS bays?

 

[robert roman]

RCN is replacement cost new.

I would be most concerned about potential new competition not cash flow.

I consider a 3 + 1 a small scale wash. The benchmark is 5 + 1.

As the only game in town, you could fix up the wash and generate super normal profit until someone else sees your success and decides to build another new wash.

In fact, I’m surprised someone else hasn’t built because total potential sales for the area are probably around $500K per annum.

So, if you fix this wash up, I would go first class.

Skin package for building is about $1,000 per lineal foot, frontage.

Figure $150K to $190K for best-in-class in-bay.

Budget $500 per light fixture.

Etc.

Otherwise, it might be tough for a 3 + 1 to compete against someone who decides to build a more substantial carwash operation.

 

[cwguy.com]

I agree with waxman. Except I would just add the owner was probably ignoring the place because of lack of profit. Or he had higher priorities elsewhere.

I wouldn't replace that automatic.... Yes it's a basic unit but it's almost new? Anything else new would be 80-150 installed?

Since you can use the search function you probably read this post. But I would check some of this stuff. http://www.autocareforum.com/showthread.php?11291-Considering-purchasing-a-ss-automatic-need-advice

 

[Dave1972]

CW Guy--the current owner has been great to deal with and I can tell he just wants out. He has kids in middle school and he lives 40 minutes away one way. I am a little worried about cash flow but the past 2 years have been very solid and consistent (and profitable). I wasn't thinking of replacing the current IBA--but the 2nd IBA bay is currently inoperable. They've offered 4 years of tax returns and are willing to offer assistance with down payment.

I'll be checking on the link you posted.

Again--thank you to both CWGUY and Robert Roman for the info. Keep it coming!! PLEASE

 

[Waxman]

The concerns over cash flow are wise, even if your market stays competition free for 3-5 years.

This business is fully weather related and income fluctuates as such. That can hurt if you're extended out too far from purchase and necessary capital improvements that this wash needs.

Do you have another income stream besides the carwash? Our company has detailing and used car sales to keep revenues as consistent as possible when customers aren't washing (bad weather pattern).

Are you handy? Can you troubleshoot and repair equipment? Are you familiar with safety procedures for working on machinery and electrical motors, drives, input/output modules and PLC's? Do you understand basic plumbing? The chemistry of surfactants/solvents?

Carwashing is all these things and much more, so have your eyes fully open when you do your research. It's easy to think owning a carwash will be one way, only to then realize once the papers are signed and loans are outstanding how in over your head you are. (I was!).

Good luck!

 

[Kevin James]

I can understand why the current owner wants out, he’s burned out after 7 years. There is something that you have to realize about the car wash business. It’s a lot of hard work and it’s a LOW PROFIT business, basically a janitorial business were you are wiping the a$$ of society, cleaning up after them and most people get burned out doing that. Once it’s all said and done at the end of the month there isn’t a lot left over when you take in to account what you have to put back into it. But figure on spending every bit of free time at the wash for the next year redoing everything and you had better be somewhat mechanically inclined. How long has he been trying to sell this white elephant? I’d offer him land value only to start with and go from there.

 

[rph9168]

Just a few more thoughts.

I think it is especially important to either be handy with equipment yourself or have someone that you can rely on that will do work reasonably. Being in a small town I assume that there is probably not a distributor nearby. If a distributor has to travel a ways to get to your place the travel charge can really kill you. You can order most consumable supplies and small parts on line and have them delivered so that shouldn't be an issue. I wouldn't be in any hurry to replace the inoperable automatic until volume warrants it. It might be a good idea to tear it out if it is beyond repair and leave the bay empty for now especially if it is a bit of an eyesore. I am also assuming you have estimates or know the costs of any necessary repairs that need to be done. Anything that you can do to improve the appearance is essential especially as a new owner so customers will know that things are improving. Is there any chance you can get a lease purchase deal? That would mean less money up front and it isn't what it seems to be you have a reasonably good out.

 

[Dave1972]

rph--thanks for the reply. I consider myself to be fairly handy--I'm by no means a plumber or electrician but I do have some fairly basic knowledge of systems and how they function. The current owner has offered to put me in touch with the distributor as he is frequently in the area.

For what it's worth--I went over to the wash today and the 3rd SS bay that was inoperable for quite some time has now been fixed. Apparently it needed a new HP pump (for what $700-is that alarming that it was not replaced sooner?). Yes--the inoperable automatic needs to go--it looks terrible as it's torn apart and the bay is full of garbage,leaves, sand, etc.

I'm going to post pictures I took today so you can see it--it doesn't look bad from 50 feet--but some of the items are things not easily overlooked. Examples include: non working lights (most of them), inoperable 2nd IBA, and I just learned that the vacuums are not operable either. Owner mentioned they need new coin mechanisms?

In the meantime--can someone explain a lease purchase deal and what those terms could sound like?

 

[Dave1972]

Thought I would share a few pics---looks fairly decent from the edge of the parking lot

[/IMG]

 

[Dave1972]

The inoperable IBA:

New coin/dollar switches for all 3 SS bays:

And the very messy and unacceptable mechanical room:

 

[Dave1972]

Operable auto-cashier for current IBA:

 

[Dave1972]

and I'll stop with this one for now--the SS pump/regulator rack:

 

[cwguy.com]

I would try and find a distributor for mark 7 in your area.... To get an estimate on getting it to work. I don't think that unit is overly complex?

I would purchase the property for what it does now not what is could do.

 

[Randy]

Dave1972, You gave everyone the impression that this wash needed a whole lot of work. It doesn’t look all that bad to me. A little TLC, repair the inbay automatic that’s down and you should do OK if the number will support the payment.

 

[cwguy.com]

I agree.... even the "crappy" mark 7 looks nice. I will trade with you.... except for the vacuums. LOL Also you can keep the expresskey system. I have seem very few equipment rooms that were neat.... not sure that means anything?

 

[Dave1972]

I didn't say it looked bad guys-I said it needed a lot and it does. No working lights in SS bays or parking lot, old Mark VII doesn't work, vacuums don't work, hasn't been maintained...while I understand that may be ok with some of you-it's not ok with me and there is less "value" because of these items. Good bargaining chips in my opinion.

Anyone know much about Mark VII machines?

Not sure why he still has the express key-looks like a pain in the a$$.

 

[steve569]

I can understand why the current owner wants out, he’s burned out after 7 years. There is something that you have to realize about the car wash business. It’s a lot of hard work and it’s a LOW PROFIT business, basically a janitorial business were you are wiping the a$$ of society, cleaning up after them and most people get burned out doing that. Once it’s all said and done at the end of the month there isn’t a lot left over when you take in to account what you have to put back into it. But figure on spending every bit of free time at the wash for the next year redoing everything and you had better be somewhat mechanically inclined. How long has he been trying to sell this white elephant? I’d offer him land value only to start with and go from there.

Mr. James I notice a lot of the time when you post you are very negative about the carwash business. I am not trying to pick a fight but if you are unhappy with the carwash business why not sell your wash or washes and do something different. Life is to short to do something you dislike.