Noobie looking for advice on buying an existing car wash

[Earl Weiss]

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No. Real estate appreciates... But if the sale price is higher that what the real estate actual value is, then there is a goodwill portion.

So this is the reason that I say that car washes are unique: you can't have the business without the special use building. And if you have the special use building (think self serve wash) without any business - what is the value? Likely its the cost of the land plus some for utilities less demolition costs of leveling the property....

Income producing Real estate is properly valued based on income, by apparaisers, Lenders, and investors, and apparently even the IRS. It may be a Walgreens, Post Office or Car Wash.

Your opinion is that somehow car washes should be treated differently.

America is a wonderful country. People are entitled to their opinions.

 

[JGinther]

Income producing Real estate is properly valued based on income, by apparaisers, Lenders, and investors, and apparently even the IRS. It may be a Walgreens, Post Office or Car Wash. Your opinion is that somehow car washes should be treated differently.

You don't think car washes are different (especially self serve) in that the building is nearly entirely special use...? I can think of only one time I have ever seen a car wash building refitted for another use. The floors are special, the walls are special. The building (except for the equipment room) doesn't even have an 'inside'! There are block walls between the 'spaces' of the building... What is a car wash good for other than a car wash? And because of that, what value is there in the building really? The value is in the 'business', not the real estate. The building is incidental and possibly a liability. So yes, I think car washes are unique. I can think of about 20 'rite aid' stores that were recently constructed around here that never became 'rite aids'. Other businesses just moved in...

America is a wonderful country. People are entitled to their opinions.

Yes, but their opinion doesn't matter when it comes to the IRS...

 

[mac]

Many good points presented here. The depth of knowledge here with these simple wash operators is amazing. Maybe our industry is actually changing. Just a couple of questions. 1. Why is ANYONE concerned about cheating the IRS? Do you see how they spend our money? 2. How does a retired guy need a vacation? (Just kidding. See you later today.)

 

[Earl Weiss]

Many good points presented here. The depth of knowledge here with these simple wash operators is amazing.

As an aside, born into the simple car wash thing and working at them regularly since 1965 or so. (Owner since 1987) . Been a lawyer since 1980. been involved in well over 2000 real estae deals including a couple dozen 1031 Exchanges working with the largest Deferred exchange companies / foremost experts in the Chicago area (if not the country)

 

[Louey]

Is there any rule of thumb for the value of car washes? One broker told me something like 6 times EBITA or SS, 7 times for express, 8 times for full service.

I realize that rule of thumbs would just be for a ball park figure.

What rules of thumb do any of you guys use?

 

[Louey]

So, I am looking at another wash. This guy gave me his P&L from last year. Says he'll show me his tax return to prove the numbers if we get serious about a transaction. Sounds fair.

How do these numbers look?

Income (sales) $110,000
Bank fee $ 150
Contract labor $ 2,600
CC fee $ 3,100
Equipment $ 300
Ground Maint $ 325
Insurance $ 9,000
Professional fees $ 900
License/permit $ 300
Mowing $ 250
Payroll expense fees $ 375
Payroll expense tax $ 425
Refund $ 125
Repairs & Maint. $ 10,600
Sales tax $ 800
Supplies $ 3,300
Business tax $ 150
Property tax $ 5,000
Electric $ 4,200
Telephone $ 900
Trash removal $ 650
Water $ 3,500

Net income $ 65,000

Seems like there isn't enough money shown for labor. He supposedly has a guy that goes to the wash every day to clean and maintain everything. I also don't see how he can only spend $250 for mowing. That's like $20 per month.

The broker says that not a single dollar from the vacuums ever gets reported. (that's what I'd say too, I suppose).

Do you guys see anything glaring in these numbers?

 

[mac]

Earl, I hope you took that as a compliment when I said "simple wash operators". Thanks again for the input.

 

[Buzzie8]

Utilities seem awfully low. Insurance seems high.

 

[2Biz]

Sewage???? What about Pit Pumping/Cleaning? I wonder if that is included in Contract Labor? I also agree, Insurance seems pretty high.

 

[Louey]

Utilities seem awfully low. Insurance seems high.

I agree.

Mac tells me that when this was was built, it was not connected to city sewer. That would help explain why the water bill is so low.

 

[Louey]

Sewage???? What about Pit Pumping/Cleaning? I wonder if that is included in Contract Labor? I also agree, Insurance seems pretty high.

I think the amount shown for labor, ground maintenance, payroll expense, and repairs and maintenance all seem kind of light. The owner is 100% absentee, so he's not doing the work.

 

[Louey]

Is there any rule of thumb for the value of car washes? One broker told me something like 6 times EBITA or SS, 7 times for express, 8 times for full service.

I realize that rule of thumbs would just be for a ball park figure.

What rules of thumb do any of you guys use?

Anyone ?

 

[automotivefreak]

bump because I'd like more info too

 

[Waxman]

the value is whatever the market will bear.

the sale price has to be justified by the tax returns. otherwise you wind up with a note you can't afford.

 

[robert roman]

Fair market value (FMV) is the price agreed to between willing and knowledgeable buyers and sellers.

Opinion of FMV is usually prepared by independent third parties like a carwash broker or consultant.

For example, a Letter Report is a one-page document that identifies the property and arrives at FMV based on simple rule-of-thumb like multiple of gross sales.

For example, current equation for 5 + 1 self-serve is 3.0 to 5.0 times the sales revenue.

Value is range because letter report does not contain level of detail and analysis needed to make a precise determination whereas an Opinion of Value Report (OVR) does.

OVR methods vary but most focus on available cash flow because this allows the potential buyer to determine the true investment value of the business.

For example, I use a combination of capitalization techniques adjusted for the risk associated with the continued operation of the business. Risk is different for each circumstance.

This gives preliminary or “business-only” value. Value for 100 percent is determined by adjusting preliminary value for assets (i.e. F/F/E, real estate) and any liabilities. Goodwill is then business-only less liquidated value of F/F/E.

This approach is far more useful than 3.0 to 5.0 gross sales.

For example, gross $200K would be $600K to $1.0 million. $400K is not a little number.

Also, what multiple do you use for a 4 +2 or 3 +3 or free-standing multiple in-bay?

I have primer on fundamentals of buying/selling small business. It’s free.

http://www.thesmbizadviser.com/buying_a_biz