Exit strategies

[Sequoia]

What issues are involved if I want to *lease* my SS car wash to someone who would then become responsible to run it while I still own the land? And, what would be involved if I want to *sell* the car wash business outright instead of leasing it, but have me still keep the land?

The common denominator is that I think I want to keep the land, and either do a lease or sale of the business side of things.

What experience can you share about how to strike a good deal that works for both parties in either of the above scenarios? Thanks .....

 

[Greg Pack]

My experience with a couple of leases is that many operators will not care for the property as you have. I would factor in that you will have lost considerable ground in revenue if you have to take it back over.

As a percentage of the approximate value of the wash, what would you guess the raw land value is? If it makes up a small percentage you stand to loose a lot of the value of goodwill you may have built up. So the new operator needs a lot of skn in this game so he won't walk away after running this wash into the ground.

 

[Sequoia]

The land value is probably at *least* 75% of the overall wash value-- maybe more. I'm in California where land costs really pressure setups like SS washes.

I want to consider a lease because of a few factors:

There's a bunch of things, when combined, that are pushing me in my direction:

1. I expected to own the wash many years, so I willingly overpaid for it by a little and then put money in it on top of that. But, things have changed, and I want to consider getting out from under the maintenance workload. I can't get full value out of it so recently after the new investments have been added. Revenues would barely, if that, justify an 80% loan for what I would want for it.

2. My target person to lease it to is a local kid who works across the street and is will suited to being the lessee. He has helped me around the wash and I know him well. He couldn't financially swing an outright purchase, and I think the size of the deal would mentally be out of his zone of comfort. I believe he would be a great owner if I can ease him into it though. A lease, with my continued hand holding at arms-length, might set him up to become the eventual buyer down the road. I'm in a rural market so pickings are slimmer than in a city and I can and should target a likely buyer like him.

3. The land is going to increase in value due to several reasons-- I have no doubt about that. So me holding the land is a good proposition, yet a smart buyer would buy it and hold it for the land appreciation while putting up with the car wash and making a little change. That's exactly why I bought it-- but there's probably few people like that around. Especially in the rural market.

So, I'm looking for some ideas about pursuing a lease to a 3rd party ....

 

[Waxman]

Maybe you should hire the prospective person as a manager and see how it works out. That way you can keep the land and business. Determine break even point, and if you can swing it, it may be a better option.

Will the significant hand-holding be easier than having him as a manager? Just sounds like you'll still be doing many of the things you dislike now, only doing them to help him rather than to help yourself.

 

[Sequoia]

He's kind of doing that now. I've been battling an illness, and in the interim he's fixing anything that breaks outside-- guns, hoses, coin jams, etc. I'm doing anything in the equipment room or hiring it out if needed, which is rare.

The tricky part is the money collection. If I truly want to get out from under the wash responsibilities, then this is a big part to give up including collection, sorting, and banking. But, we all know what happens when someone else is entrusted to money that is not theirs. Don't know if I want to tackle that one ...

 

[Louise]

I am thinking about increasing the duties of a manager that I have worked closely with for the last 3 years. As far as the money, although I trust him, my plan is to coordinate a time for collection and to watch him on surveillance. My office cam is so good that I could actually watch him count out the money OR I will have him place the money in a lockable bank bag. Watch him place the money in, lock it up and place the key in view of the camera. Then he will deliver the money bag to me. I'll count and make the deposit.

You can conduct alot of supervision via a good camera system.

 

[MEP001]

Equipment with which you can account for the income would also eliminate employee theft from the equation, even if it's as simple as a mechanical counter.

 

[Sequoia]

I do have cameras and I do have counters. But, I anticipate that I'd still wonder about the true economics of the business during .... "downturns" .... in business volume. It's relatively easy to defeat virtually any system when cash is involved, and I just don't want to get into having to worry about that or to police it-- whether I have cameras, counters, or not.

Plus, I find money handling and banking to be time-consuming. If I transfer this responsibility to a lessee I'll be willing to pony up more $$$ on their side since I will be doing less work. Better for them, better for me.

 

[SteveT]

Duane,

Just curious, what did you end up doing about your situation?

 

[Sequoia]

I'm still kicking it around. I had a discussion with the early-20s kid who helps me with the wash, and he is interested in a lease arrangement leading to a purchase. This could be a win-win and I'd take care of him well if he is willing to play ball.

Separately, a local business owner located nearby has approached me about a purchase. He feels that if he put signs up in the bays it would drive business across the street to his existing establishment. So that's a possibility I am following up on this weekend.

I've also done some exploration about putting in an in-bay auto to increase revenues and the resulting purchase price. But, given the time factor and workload (and expense) to do that it is the least likely of the scenarios. But it is still an option.

Summary: still exploring but haven't pulled any triggers yet.