Building/Buying Formulas

[WishyWashy85]

Hey guys,

New to the site and the car wash business! I’ve been doing my research and am curious about a formula I have found regarding wash valuation (net profit). It goes something like this:

(AADT x Cap Rate) x Avg cost per wash x days open per year x average profit margin

There are a lot of averages in there I understand, and a lot of factors that can play into them.

Any thoughts on this formula? Anything to be taken into considering? Trying to use it in general terms at evaluating a purchase or potential build.

Thanks in advance for any input!

-WW

 

[jrauth]

Yes, I think you are going down the right path. We normally use daily traffic count times a capture rate of 1% times 300 days a year you can wash a car, to figure out the annual number of cars you should wash.

If you are in a dryer area then you might be able to use 310 or 320 days a year.

Also if there is a lot of competition or if the access to the site is difficult, like having to do a u turn to make a left hand turn into the site then you should probably reduce the capture rate.

As far as cash flow we normally see a margin of about 40% before debt service.

Jeff

 

[WishyWashy85]

@jrauth, thanks for responding to my post. I'm late with my apology but I appreciate your response. Back into the research phase after some time away!

 

[CashFlow]

@jrauth Thank you for sharing the formula for the annual annual numbers of cars one can expect to wash was; daily traffic count times a capture rate of 1% times 300 days a year.

Question: Is that 1% of traffic flowing in both directions of the road or 1% of traffic flowing directly past the wash?

 

[CashFlow]

@jrauth Also curious 40% margin for debt service for what type of car wash? I ask because I'm interested in self serve with possible in-bay automatics. Thank you.

 

[Waxman]

When I did my cash flow projections I used 3/10 of one percent of the daily traffic count. That proved to be fairly accurate for me.

 

[mrholty]

I've been on-again/off-again looking for a car wash and frustrated as a deal fell thru as we were almost closed.
So I want to look at the 2 washes in my town for understanding the economics of 1 that was just built in my town.

Village of 8,500 pop (bedroom community). Most people go to work to N or E. via 2 Hwys. Existing 3/1 SS/Touchless on less busy side of town. Well maintained. Traffic on that side of town 7,300-7,900.

Guy buys lot on busier side of town (E) in 2012 and builds a 1 SS/3 IBA wash. 2 vacuums. Cost of land then was $300k on a corner.
According to state DOT traffic is 6,900 there. Both traffic counts are from 2018. I would have guessed east side would be 2x, location on W side.

Using waxman's estimate of .003 x 7k = 21 washes x day.
21 washes x $10 ASP = $210 x 300 days = gross revenue of $63k. (Washes are $9, 11, and $15).
Assume gross margin of .40 = and you have $25k for profit before debt.

Lets use some conservative #s = land sale in 2013 was 300k, plus $250k for building and say $150k x 3 bays for all in cost of $1M. Am I over or under. Even with 30% down, borrowing 70% or $700k - a Commerical loan of 15 years at 5.5 with a ballon to refinance at 5 years is $5.4k/month or Interest only at $2,6k/month. With interest only - you would breakeven or be negative.

I know I am missing something here because the local convenience store chain which is well run - just put in a touchless right on the highway less than 1/2m away.

Also, is there some adjustments to use for regional differentials. - South seems to support more washes and therefore more tunnels, iba, ss, etc vs upper midwest.

 

[OurTown]

I think Waxman's number is low and I think he was saying that if it penciled out with it then go for it. My experience is that even a half percent is on the low side. It's very possible that they are getting one percent of traffic.