Valuation help

[Keith Baker]

I’ve got a friend looking at purchasing a self service car wash to buy with the following financials.

$116,000 gross sales based on a three year average. (slightly increasing each year.)
$35,000 direct expenses needed for day to day operation.
$81,000 EBITA This is also before any wages or management fees. The owner says that he does almost all of the work himself.
He says this data is verifiable through tax returns.

So the first question is what kind of labor and management fees are appropriate? My similar operation probably averages 25 to 28 hours per week. I would guess $100 to $120 per day.

The next question is what kind of cap rate is proper for a project like this?

Thanks for any input.

 

[soonermajic]

70% net is too good to be true! What's asking price? That would be very helpful.

 

[Rfreeman]

Cap rates are hard to determine bc of all the factors that can go into building or developing a cap rate. For me personally, I don't touch anything with less than 10% cap rate.

Sounds like you have a good grasp of what is required to run a wash: time, maintenance, etc etc I would explain this to your friend and ask them based on that what cap rate or return on your money would you be happy with.

I agree with sooner those expenses sound a little light. What state is the wash located in? Here in TX we average 40-45% expenses approximately.

 

[soonermajic]

Freeman, 70% vs. 40% is more than "a little tight", dont ya rhink? Sounds more like oppisite of the truth

 

[Rfreeman]

Your comparing 2 different things

70% represents profit margin
40% represents avrg expenses at a percentage of gross income

Reported expenses is $35,000 divided by $116,000 gross income gives you 30% expense ratio and why I said a little light. Although I just noticed it's EBITA therefore when it's all said and done they might be closer to 40%

 

[soonermajic]

Yej, I read that too quivkly. Either way, nobody's making 70% profit @ a CarWash

 

[sjb]

Does the property location offer a higher and better value down the road….?

 

[MEP001]

Yej, I read that too quivkly. Either way, nobody's making 70% profit @ a CarWash

I would be if it were paid off.

 

[Keith Baker]

Sorry I didn’t respond quicker. I’ve spent the last two nights in the hospital with a relative.

Thanks for your responses. Here’s a quick breakdown of the 35K expenses:
$5850 sales tax and credit card fees
$12000 utilities, phone and security
$9000 vending, supplies, and repair parts
$5150 real estate taxes and insurance
$3000 tax preparation, pit pumping and dumpster
The labor for cleaning, snow removal, mowing, painting, repairs etc. are not included. That work is done by the owner and not recorded in these records.

The labor is one of the variables they want to get an estimate on. My place probably takes 22 to 28 hours per week. I figured $100 to $120 per day would be enough to cover the duties needed. Call it $40K per year. The owner can keep whatever he doesn’t pay someone else to do.

If the $40K labor fee makes sense, then the $75K in expenses would be about 65% all in. That leaves the cash ROI should be $41K. Am I right so far?

Rfreeman you said you don’t touch anything with a less than 10% cap rate. Do you think car washes are that risky? The cap rate is the biggest variable in the equation. A 1% change can make 1000’s of dollars of difference in the deal.

 

[Greg Pack]

I guess the question for me is how much time does the owner spend there now, and is that a reason that the wash does the numbers it does?

I'm light on labor, but until recently I was doing repairs and heavy cleanup myself(acid washing walls, pressure washing, etc.) In other words I don't hang around and schmooze with the customers and offer stellar customer service. At a 5/2 I've got that grosses about 150k I'm paying an attendant $150/week to visit the site twice a day. If you factor in my time I was probably averaging about ten hours per week doing repairs,collecting, and the occasional aforementioned heavy cleanup. IIRC it nets about 85K EBIDTA but I have very high sewer/water running about 15-20K/year. Having said all that, his cleanup might be more involved since my SS bay revenue is probably half what his is, and I discourage or deny service to mess makers.

 

[CleanMachine]

Yej, I read that too quivkly. Either way, nobody's making 70% profit @ a CarWash

I did 71.5% this year. I did 90% of the maintenance, cleaning, landscape, etc. myself. 70% is doable with higher gross revenue.

 

[soonermajic]

I did 71.5% this year. I did 90% of the maintenance, cleaning, landscape, etc. myself. 70% is doable with higher gross revenue.

I guess, if you can cheap utilities, cheap soap, do everything yourself & it is paid for, id say 70% is achievable. MEP ssys he'd do that, if paid for

 

[CleanMachine]

NE Georgia so our water/sewer and electric rates are fairly low. I use quality chemicals at about double the recommended rate. Never gonna skimp on anything at our wash. We definitely don't skimp on maintenance either.

 

[Roz]

This thread illustrates why most car wash sales are a multiple of gross revenue as two owners can run the same wash with differing results.

The sales I have heard about are usually in the 3x-5x gross revenue range however depending on other factors like location, competition, equipment age/condition, and scale of operation the multiple can be in the 2x to 10x range (although rare).

 

[Rfreeman]

My washes are paid for but I also pay for a guy to go by them daily to pick up, take out trash, minor repairs. I'm not a full time car wash guy though. If I removed him from my expense I'm still a little over 40%

For me yes I would consider a car wash property that risky but also it's how I value my time and my money. I want a return that justifies it on all investments I do.

 

[MEP001]

I guess, if you can cheap utilities, cheap soap, do everything yourself & it is paid for, id say 70% is achievable. MEP ssys he'd do that, if paid for

No cheap soap or utilities, and I had to hire a guy to clean. Did 60% my best month last year, just a really busy 6-bay. My point is you can absolutely do 70% if everything is right.

 

[getnbusy]

If you apply a cap rate formula to a carwash purchase you are likely gonna pay too much for a self serve or automatic. Take ALL the known expenses and figure the management fee on the high side and add some monthly amount for you. Include your payment also. Use the number left over to decide if its worth the trouble. If using the cap rate to determine value so you can hock it up for a big loan, you might get caught with your pants down, on the first day.. In my opinion, applying the cap rate to a self serve or automatic greatly overstates a realistic value. On the other hand, Im gonna apply it to mine when i try to sell. Might as well shoot the moon and see what happens.