Self Serve Newbie

[RXCarWash]

I am looking to purchase a 5 bay self serve car wash. The owner has shown me 5 years of tax returns. Sales are down, but he is still showing a bit of a profit. He claims there is additional cash that is unclaimed. The business is generating around $20K net before adding back depreciation.

What is the best way to find out the value of this business? Sales are around $50k and there are no employees. I know that until I pay off the debt the return will be slow.

Any help or guidance is truly appreciated.

 

[rzeavy]

If he generates $50,000 per year? on 5 bays, he is well below national average.
I would only pay for market value of: land, improvements, equipment, and very little on the business, providing there is good potential to increase revenues or to build something else.
You may want to use the service of an appraisal company to assist you.

 

[Ben's Car Wash]

that's about 1/2 the average for a SS. What's the area like? Is it a growth area? Is there room for increasing demos, housing, roads.

Is there improvements? Can you upgrade the wash to increase revenue? If you have to pay more than $200K... unless that property highest, best use is worth something else more valuable and you have a led on it.

Why has the net/gross been trending down for this owner? Is it only the area or mismanagement?

 

[Randy]

It?s pretty hard to say what this car wash is worth with the information that you?ve provided. What state is this car wash located? What is the general overall condition of the property? How old is the equipment? What condition is the equipment in? Up here in the Pacific Northwest $200K will just about cover the permits to build a car wash. There are to many unanswered questions to give you a good answer as to what it?s worth? I?ve seen washes that do about $50K sell for upwards of $975K.

 

[RXCarWash]

Thanks for the answers, here is some more clarifying info.

The wash is based in a community that has a traffic count of about 20000 per day. The lot itself is not worth much. the mechanical room is clean, the equipment is fairly new. (2 new pumps, 1 new compressor) The building was repainted 2 years ago. There is no vending. There is a stop light in front of it. Low income area. The first owner who did in the $70K was there all the time. New owner has seen sales decline and has not done any promos. Additionally, the economy has also slowed down. Seller paid $400 and is now asking $330K. What should an average 5 bay do in a year? According to some of what I read, each bay should do about $1300/month.

I looked at 2 other car washes in the area and they were asking similar or higher prices, bringing less money and one did not look half as good as this one.

On average, how much time should I expect to spend there since I work full time.

Thank you again for all the feedback, I can't tell you how helpful you have been.

Regards,

Ray

 

[pitzerwm]

IMO, everyone that owns a car wash would like you to believe that they are a goldmine. Of course they realize that it isn't and that is why they are trying to sell it. IMO the seller got screwed and he is trying to recover something before his wife divorces him for being stupid. One simple way to look at what you should pay. Assuming that the town/area isn't going to hell any time soon, look at the recorded net and decide how long will it take for you to get your money back. Let's say that he grosses $50K, netting $30K, you want your money back in 5 years, pay no more than $150K. Bottom line is that if you put your money in a say stock investment, in 7 years you should have doubled your money. A lot of people are paying too much money for a wash, because, they all think that they are a goldmine and they will somehow do a LOT better than the last guy. Sometimes you can, but "Why buy a known problem"?

As for how much time you will need to spend there, if you have equipment that stays running well, then not all that much. The main thing is to keep everything running all the time and a clean lot.

 

[Greg Pack]

There are plenty of five bay washes out there making 50K or less. If gross is indeed 50K, the wash in my area would be worth somewhere between 150-200K, depending upon condition. Don't get trapped into paying for upside potential that may or may not be there. Any increase in income you bring by good operations should be your reward for operating it well.

Can you post pictures?

 

[Ben's Car Wash]

last I known about, a SS averaged $1250 a bay Nationally. There are a lot of ideas here to increase revenues or to build loyality. The wash needs a customer base.

A rule of thumb for a "guestamate" on what a wash is worth (without doing an appraisel) is 3-4X it's gross sales and on occassion 5-6X it's gross. This site might push 4-5X if it's fairly new and in good working order, niclley landscaped.... but are you willing to sit on a low producing business if you over payed?

There are other ways to calculate appraisels. The owner seems like he's motivated... taking a loss now of $70k. But you might need to put in $20k to accept credit cards and install vending to get it up to producing that $1250 average... and there's now guarentee.

 

[RXCarWash]

I am unable to post pictures because I want to respect the privacy of the seller. I know a few things about this wash. The owner is definitely motivated as I know the bank is putting some pressure on him to get out. He has been very transparent with me and has shown me his schedule C for the last 5 years. Unlike a couple of other ones, they want around 450K and they can't show me a penny profit.

This business does have vending (correction from my previous post). The building is in a very good location, near a small strip mall, a liquor store and a convenience store. It is a lower income neighborhood. There is no way he will take $150K for the business as he owes at least $100K more on it.

Looking at the financials again, he is netting around $30k after you add back the depreciation. His supplies are running in the $4k range, taxes are $6K and utilities have been around $7K. He claims that he is netting between $500 and $1K additional unreported on his tax forms.

Based on what he is asking and my down payment, I would probably be netting around $8-$9K until I repay the loan. Assuming a $100K deposit, that is better than what other investments are offering today. However, it will take me 10 years to recover my initial investment which is a bit long. Maybe the price is too high. Every car wash I have seen seems to be priced way out of the range of income. How do you do it?

 

[JMMUSTANG]

Find out what type of vandalism he's had and the other two washes too.
If they say they haven't had any problems maybe you should ask the police to make sure.
It seems to me that if all the washes are for sale in the same general area there might be more to the picture than you're seeing.
You do not want to be in an area that has a lot of problems, criminal etc.
If everything is good possilbly adding a IBA would help the average.

 

[RXCarWash]

Find out what type of vandalism he's had and the other two washes too.
If they say they haven't had any problems maybe you should ask the police to make sure.
It seems to me that if all the washes are for sale in the same general area there might be more to the picture than you're seeing.
You do not want to be in an area that has a lot of problems, criminal etc.
If everything is good possilbly adding a IBA would help the average.

I should clarify. The other 2 washes were not in the area, just two different ones where the price is high and information is scarce.

What is an IBA? Also, someone else mentioned adding Credit cards, how expensive is it to do such a conversion?

 

[Ben's Car Wash]

Find out what type of vandalism he's had and the other two washes too.
If they say they haven't had any problems maybe you should ask the police to make sure.
It seems to me that if all the washes are for sale in the same general area there might be more to the picture than you're seeing.
You do not want to be in an area that has a lot of problems, criminal etc.
If everything is good possilbly adding a IBA would help the average.

Adding the IBA might be a good idea if the area isn't saturated and there is room. But the cost is $60-$90K!

If the bank is putting pressure on him, something else might be up. Sounds like he's sick of this wash and want's out and willing to take a loss. So you ask "how do you do it" when the sale prices seem to high? Secondary or creative financing. If he is really wanting to unload this to you and you have the $100,000 to put down, get him to hold a second portion. This but more risk on him, less on the bank and get him the price he wants with interest and a balloon.

 

[rph9168]

I would worry about what he says is no reported income. There is no way to verify it. It is not your concern that your offer is less than what he owes. That is his problem. If needs to get out he will negotiate and may accept less than he owes. That is better for him than defaulting especially if he intends to finance any other ventures.

This whole deal is shaky unless you can get it for what you think you can afford. Some times the best deals are the ones you don't make.

 

[RXCarWash]

I would worry about what he says is no reported income. There is no way to verify it. It is not your concern that your offer is less than what he owes. That is his problem. If needs to get out he will negotiate and may accept less than he owes. That is better for him than defaulting especially if he intends to finance any other ventures.

This whole deal is shaky unless you can get it for what you think you can afford. Some times the best deals are the ones you don't make.

I agree with you. He is trying to finance a real estate deal where he is sitting on a lot of empty homes. Knowing how bad the housing market is in my state, I am guessing he will be sitting on them for a while.

I am going to talk to him tomorrow and see how he is justifying his price and how bad he really wants to get out.

I appreciate all the input from everyone.

 

[rzeavy]

Most of your business comes from residents in the 2 miles range.
How many bays are in your area?
traffic count acounts for 10% of your business, the other 90% are from the neighborhood.
the owner can ask for whatever he wants, you don't have to agree to it.
A good appraiser will compile data on such items as: demographics/eagress, deagress/income level/ competition/future competition and so on.
They will attach a value to this project and let you know what to expect in revenues if you take steps to improve.
It may cost you $4,000 or so dollars but with this you can apply for a bank loan (assuming the numbers are good) and if the bank don't want to touch it neither should you. (do not invest more than 30% of your own money)

I have build 3 ss car washes in S. California and I would not attempt to do so without an appraisal.

 

[pitzerwm]

Bottom line is that in our opinion you are going to pay too much. Just because washes are priced too high, they need a sucker to buy it before they get to spend the money. Its called the greater fool theory. One question, why would the bank be telling him to get out. If it worth so much and he only owes $100, something isn't clicking. I'd wait, its better to keep that money that is burning a hole in your pocket there a little longer. You are getting advice from people that have been ther and done that. The Forum is here to help you avoid some of the mistakes that we all have made.

 

[Mike2212]

Don't fall for the unreported income crap. I've see a lot of people do this (tax fraud anyone) but when it come time to sell the business they can't get their asking price because the bank won't loan due to the lack of income. If you really want this wash, I would throw the "unreported income" back at the guy and site the pipe dream of anyone getting this project financed and give a low ball offer. So what if you make him mad?

http://www.startingacarwash.com

 

[Jimmy Buffett]

Most of those other investments won't break down on Thanksgiving, freeze up on Christmas and create garbage and messes every day for you to clean up. IMO you would regret your decision in a short time, much like the current owner. Does not seem like much reward for the amount of risk and work to me.

 

[Greg Pack]

Jimmy Buffett said it best. If you are willing to be content with sub 10% returns there are plenty of investment choices that don't have the headaches of running a carwash.

 

[Jeff_L]

Everyone here has posted great information for you. Your job is to absorb it, massage it, and formulate a business plan which is acceptable to you.

I purchased a SS 6 bay wash a little over a year ago, it was my 1st biz venture and my family and I have absolutely 0 regrets. I'd do it again in a hearbeat! However, I just passed my 1 year anniv with it, so the novelty probably hasn't worn off yet!

What should you pay for the wash? How much is it worth to you? You have the seller's tax records, now you should have an appraisal done. Then put together your business plan, which will contain your ideas, how you plan to put those ideas to work, revenue and expense projections. Then sit down with your banker and discuss your options. Find out what the bank would be willing to loan you. Now you're armed with everything you need from a financial perspective and you can negotiate with the seller. Talk with him, shoot him a price, walk away and let him think about it. If he wants to sell, he'll call you back.

There are a lot of other things you need to think about. If you're doing this on the side and have a full time job, then prepare for the time commitment. Customer service is key in this industry, and you have to provide it. Keep the equipment running, clean lots, empty trash cans, clean bays, etc. every day. Make sure you give yourself the time to make repairs while you are there. Spend the weekends at your wash with your customers. People buy from people they like, and if your customers like you, they will return because they feel good about giving you their money. Make it their wash, not yours, you just maintain it for them. On those busy days, make sure you can skip out of work and stay at the wash. Those are the times when something breaks, right everyone?!

Repairs - you'll have plenty of them. Make sure you know about electrical wiring, plumbing, troubleshooting, etc.. If you're handy, you'll be fine. If you're not, it'll cost you a lot to hire the service work. Your local hardware stores will carry the majority of the things you'll need for repairs.

In summary - The car wash business is an absolute roller coaster. Some days you'll have a lot of quarters, dollar bills, etc.. Other days you won't see a single one! Have fun and make the decision that's right for you and your family. Just ask yourself...Why do I want to do this? What is my goal?

Best of luck!