Buying an Existing Car Wash

[ShiningCar]

So I am looking to buy a job and investment and have my eye on an existing full service car wash. Below are some details for review and any comment / thoughts, but I am also interested in a referral to car wash industry consultant in the mid Atlantic area that I might be able to contact to assist with further analysis.

--Car wash is in a very busy road with lots of nearby retail, fast food, etc.
--Car wash well established and has been in existence for at least 20 years. Current owner has been in place for over 10 year
--Established employees (some more than 10 Years) that will stay on
--Conveyor is new in 2014, dryer about 8 years old
--We are told the was does about 45 cars / year. Establishment also does detailing
--From a cosmetic stand point the facility needs a some pretty significant face lift
--Seller is motivated and price seems right based on reported EBITDA.
--Business only sale. Land is not included

Thanks in advance

 

[rph9168]

For most the last item is a deal killer.

 

[ShiningCar]

Dear Carwashguy

Thanks for the reply. Why do you feel that way? Could you elaborate a bit?

 

[robert roman]

“I am looking to buy a job and investment….existing full service car wash….also interested in a referral to car wash industry consultant….”

I’ve worked with a number of investors purchasing business-only carwash. In fact, in some parts of the country, this is only way to acquire a going concern.

So, a deal killer for business-only would be business operating risk, not real estate development and investment ownership risks.

Principal risks a lessee faces are competitive will site produce sufficient sales and operations can adequate staff and management be provided to ensure customer-centric operation.

A lot of operators consider opinion of value report a cost effective and efficient way to obtain information for decision making purposes.

http://carwashplan.com/opinion_of_value

 

[rph9168]

You have already said that it needs a significant face lift. Since you do not own the wash you would be investing in something that is not yours. If the owner wants to essentially lease you the business they should do the face lift and have the wash in top condition. I am guessing but I have seen similar cases where the owner simply does not want to invest any more money into the business that usually means it is not profitable as it once was but he wants a revenue stream in the form of a lease. I would need much more financial information as well as the terms and length of the lease on the wash but I have seen very few cases where leasing the property works to the lessee's advantage.

 

[ShiningCar]

thank you Bob.

 

[ShiningCar]

Thank you. Very helpful

 

[Waxman]

The real estate is a significant asset. I can't imagine a month going by where I didn't increase my own investment in my business by paying the principle portion of my car wash mortgage. Without this steady, incremental increase in assets, the car wash business, for me personally, would not be a worthwhile endeavor.

 

[Earl Weiss]

At the end of the day it's about making enough money. I lease 2 of my 4 places. Some issues to be concerned with: Length of lease? Options to extend? Need sufficient time to recoup any improvement costs. Also you must absolutely get a right of First refusal. If they were to sell it you should have the right to buy. Seller should not care where the money comes from. If you could negotiate an option price as well that is great. Lots of very [profitable businesses like walgreens rent their properties. If the lease expires any investment you made evaporates.

 

[robert roman]

“Without this steady, incremental increase in assets, the car wash business, for me personally, would not be a worthwhile endeavor.”

This is same as saying the business doesn’t generate sufficient gross sales.

Yes, land is significant asset but it doesn’t have the capability to create goodwill.

Consider pizza brands like Papa John’s, Hungry Howe’s, etc. that lease rather than own brick and mortar stores.

Similarly, stores in a shopping mall don’t own real estate.

Several years ago, Mister Car Wash offered a 20-Year NNN sale-leaseback for $3.6 million.

The largest carwash in the U.S. is located on leased land.

 

[Waxman]

“Without this steady, incremental increase in assets, the car wash business, for me personally, would not be a worthwhile endeavor.”

This is same as saying the business doesn’t generate sufficient gross sales.

Yes, land is significant asset but it doesn’t have the capability to create goodwill.

Consider pizza brands like Papa John’s, Hungry Howe’s, etc. that lease rather than own brick and mortar stores.

Similarly, stores in a shopping mall don’t own real estate.

Several years ago, Mister Car Wash offered a 20-Year NNN sale-leaseback for $3.6 million.

The largest carwash in the U.S. is located on leased land.

Owning a car wash is alot of hard work and countless hours invested. Maybe the highest grossing 3-5% of car washes would work as leases, but most smaller washes like mine require a reward at the finish line and not just an 'attaboy' from all my satisfied customers.

 

[robert roman]

“….but most smaller washes like mine require a reward at the finish line….”

Agreed, but many washes aren’t “smaller” or low yield business like self-serve.

45,000 to 60,000 cars a year can be a nice cash business for a hands-on operator.

Like Earl said, it all comes down to making money.

 

[rph9168]

Basically I agree with Bob and Earl that making money is the object. I also agree with Waxman about paying down on property loan. I don't agree with the comparison with a pizza place. Their equipment and business could be considered somewhat mobile in that if the lease is up they can pick up their equipment and move to another location - that is impossible with a lease situation for a car wash. I believe Mister Car Wash lease is in a city where they also have several other locations that could possibly keep customers when the lease expires or becomes a problem. If you only intend on being in business for the length of the lease it might work but remember, any money you invest in improvements reduces profitability. I would also recommend you do your due diligence with tax returns for at least 3 years (5 would be better) and any maintenance records they might have. Keep in mind that maintenance records only tell you what they have done, not necessarily what needs to be done. Good luck,

 

[ShiningCar]

Gentlemen

Many thanks for all the input. I would definitely look for right of first refusal for future purchase and expect we'll ask landlord for some consideration for any improvements we make to his building. I'll also be sure to do proper due diligence. I haven't signed a letter of intent yet, but have been told what the reported revenue and cash on tax flow is and guess what, these numbers differ pretty significantly from the revenue and cash flow reported on listing report.

Couple other pieces of information I didn't mention earlier:

--Landlord is not the owner of carwash
--Car wash is on a very busy road. Probably 60000 cars a day pass by
--A brand new automatic wash and detail facility just opened up about a mile down the road on same side ($ 7 exterior wash only, free vacuum, etc.)

Hmm....

 

[rph9168]

Don't underestimate the effect of that new EE. In our area they have had a significant effect on existing tunnels often forcing them to match or beat their prices affecting both their profitability and volume. Being on the same side of the road is also a negative factor. This is all part of due diligence. This scenario sounds like something that requires extreme caution. I would bet the existing operator's lease is about to expire or is he subleasing to you? Along with the new wash he may be panicking a bit which is good for you as a real bargaining chip should you decide to proceed.

 

[Waxman]

Don't underestimate the effect of that new EE. In our area they have had a significant effect on existing tunnels often forcing them to match or beat their prices affecting both their profitability and volume. Being on the same side of the road is also a negative factor. This is all part of due diligence. This scenario sounds like something that requires extreme caution. I would bet the existing operator's lease is about to expire or is he subleasing to you? Along with the new wash he may be panicking a bit which is good for you as a real bargaining chip should you decide to proceed.

But why would you lease when you could buy and own?

 

[rph9168]

Personally I would never recommend leasing as an option but I have seen it work depending on the situation. It is a cheaper option to get into the business and depending on the terms and amount it may work for some.

 

[BBE]

Are you financing this acquisition? Reason I ask is that if you are, cutting the real estate out of it is going to make financing harder. Banks want hard assets, they typically aren't going to lend against "going concern" or "goodwill" as there is nothing tangible about it to have if you default on them. Financing an acquisition with no real estate to a person who has never been in the carwash business before is going to be a very tough sell to a bank. And if you don't need to finance it....then why the heck do you want to get into the carwash business!?

 

[flynnhardey33]

Nice Thread..its very helpful for me..and other user who are care about car wash

 

[Pjtmiii]

The real estate is a significant asset. I can't imagine a month going by where I didn't increase my own investment in my business by paying the principle portion of my car wash mortgage. Without this steady, incremental increase in assets, the car wash business, for me personally, would not be a worthwhile endeavor.

Not sure I understand. You have no income from operations? Why only the equity is so important.