What is my wash worth?

[guitarandy]

Are car self serve washes still generally valued at 4 X gross revenue? I haven't paid much attention to this lately and I have two washes that are 4 bay ss 1 IBA that I may want to sell in the next couple of years.

 

[Waxman]

You can get an opinion of value from a consultant like Robert Roman. Rather than guesstimating with 'X times Gross', the opinion of value considers your marketplace specifically.

 

[cwguy.com]

It is really irrelevant what a consultant says or thinks.... it's if a bank will loan the money or if the purchaser has cash? It's what you can get in your hand. A real chain bank (if they loan money for a car wash) would probably just do land value? Or 1 1/2 revenue.... that was my last appraised value. At least around here.

 

[robert roman]

If you are contemplating selling in the next few years, this is the time to begin preparing to sell.

Here are some tips.

Generally speaking, market values for most carwash properties have adjusted negatively since 2009. Good news, the trend appears to have bottomed out.

Valuation of carwash depends greatly on income verification.

If profit and loss and balance sheet have been combined for both locations, I would split them up into two separate sets of books.

If you have in-bay, mechanical car counts are invaluable in showing history of average sales.

Profit and loss is needed so analyst can reconstruct (adjust) earnings and expenses for nonrecurring and discretionary items.

Three fiscal years is recommended so analyst can calculate weighted average earnings for the span (stabilized earnings) to determine true investment value of the business.

If 100 percent of business is sold, value will also need to be adjusted for cash equivalents, A/R, inventory, real estate and other assets less liabilities.

For example, assume you have $10,000 in outstanding warrants or vouchers. The buyer would want to know about this before negotiating price because it represents $10,000 less in earnings when redeemed.

Another factor involved in arriving at value is retail market analysis which examines area household statistics, economic outlook, segmentation, market potential, competition, etc.

Supporting documents are also recommended like a real estate selling brochure, sales and use permits, legal documents for property, equipment and maintenance lists, legal agreements, etc.

So well prepared, you can go to market with a bird in your hand. Ill prepared bird poop.

 

[Earl Weiss]

In the "Buyer beware " department, while it is typical for Sellers of cash business to claim receipts are higher than reported and you trust that at your own risk, a potentialy worse scenario is the person who siphns revenue from another operation thr the SS wash to boost it's revenue to enhance it's revenue for marketing or other purposes. Then when the new owner begins operations they are stumped as to why the revenue fell of drasticaly.

 

[2Biz]

I track water usage and it’s amazing the gallons used per $1.00 of bay income are within a few percent every week. IF I were to EVER buy another wash I’d request water bills/usage to support Income Claims. It’s too easy for an owner to cook the books…

 

[boywonder]

Its all about what someone will pay. Ive looked at some rundown washes. Their distributor gave them a 3x multiple. It wasn't worth that cause Id have to use that multiple to upgrade the wash. The property was worth about the same as the gross sales for the year. Sat on the market for 10+ years. They finally found some sucker to take it over and they aren't making any money at all.

 

[rph9168]

Right now banks will only consider the value of the land and the building and its contents. The value of the business is not normally even taken into consideration. I agree with Robert that you need to have at least three years of clean, verifiable books to have a chance to get what the business may be worth. I think a combination of total revenue, operating expenses and profitability are the important factors for establishing a price for the business so the better and more accurate and complete the books are the better chance you have of getting the best price for it. I don't think you can use any multiplier in assessing the value. In reality the sale is really two different sales - one for the land and building and one for the business.

 

[cwguy.com]

Everyone is arguing two separate things I believe..... there is always a perceived value and an actual value. If he wants true value talk to a commercial Realtor in your area. If you want a better value....

Also I completely agree I wouldn't trust anyone with there figures unless they wanted 1 x gross. I believe that might be one reason you can't get 4 x gross anymore? But you can never underestimate a person with cash! Some have no logic it seems?

 

[madscientist]

I track water usage and it’s amazing the gallons used per $1.00 of bay income are within a few percent every week. IF I were to EVER buy another wash I’d request water bills/usage to support Income Claims. It’s too easy for an owner to cook the books…

This is a great way to support income claims at your wash, which I'm sure is well maintained and running efficiently. Using this method to verify income could lead you to overpay for a wash that's had a broken sprinkler head and a leaky sink faucet for 2 years.

 

[cwguy.com]

That's a great idea mad scientist! I'll start running my water now! LOL

You would "hope" an owner wouldn't do that. Only problem is there is not a golden standard on your equation. People have asked my Dad about that very same thing before though. Your back to your word.

 

[2Biz]

Good point I hadn't thought of! The only thing I looked at when buying our wash was the PO's last three years tax returns. He owned multiple businesses....Even IF I would have looked at water usage, I probably wouldn't have known how to calculate revenue from the total usage. But I do now! Not saying this would be the only comparison I'd make, its just one that was not mentioned.

 

[rph9168]

Buying or selling a car wash has always been a little challenging. There are many ways to manipulate the numbers. I think that is part of the reason banks have always been reluctant to fund car wash loans for existing washes. Not sure I agree with the idea that there is a perceived value and an actual value unless you are referring to what the owner thinks it is worth and the actual value. Many states have full disclosure laws that can lead to some serious legal problems if disclosures are proven to be fraudulent but that can be a hard thing to substantiate in the eyes of the law. Usually people are reluctant to file false state and federal income tax returns so I would say if you are selling or buying be prepared to have three or more years available to go over. Of course it is also important to have good legal representation as well as a competent business realtor or advisor.

It should go without saying that if a seller mentions a separate set of books or what they make on the side it's time to run, not walk, away from the deal. Many years ago I knew of an owner that almost went to jail when he told a prospective buyer about a separate set of books. The prospect reported that to the IRS. In addition to a very hefty fine the owner had to pay a huge amount of back taxes and interest and had both his personal and business returns audited for several years back. In the end he had to sell the wash to pay the government and his lawyers and received a long probation to avoid jail.

 

[Earl Weiss]

There may also be factors that would lead a prospective buyer to pay more than other buyer or simple formulas might suggest. Is this location located in an area near his other locations making it easier for him to run than someone else and perhaps have some unfied marketing advntages? Is there a realistic chance that the location could do much better than it has due to neglect? (Cost of rehab being factored in to the "Value")

 

[Stuart]

For Self Serve washes, I have also heard of using 8-10X net income. Really a matter of preference for any method to attempt to value your business, then accept any very reasonable offer. FWIW

 

[Ghetto Wash]

You would "hope" an owner wouldn't do that.

I've seen it done. Some people are just crooks. Saw one wash that had a permanent leak through the water softener hard plumbed to the drain. The rough revenue estimate based on water usage was 50% higher than actual revenue. The seller claimed revenue equal to what the water usage suggested.

 

[robert roman]

Getting back to the point of what a 4 + 1 is worth.

In some parts of the country, values are down 30 to 40 percent. In many parts of Florida, self-service washes are worth about 1/2 of what they cost to build when new.

For example, 5 + 2 built eight years ago for $1.2 million, asking $800,000, still on market over 2 years.

Is a carwash owner qualified to value business? Certainly, but opinion is biased by emotion and ownership risk.

Is distributor qualified? Yes, but opinion is biased because of financial relationship (equipment and chemical sales, service contract, etc). Also, distributor may have been involved in site selection, construction and doesn’t want black eye from being associated with business that is worth less than it cost to build.

Is real estate agent qualified? Maybe but opinion is biased because of financial relationship of fees and commission.

Who is best suited to proffer opinion of value, independent 3rd parties.

Best choices are carwash consultant or carwash broker that have no stake in real estate transaction.

Is opinion of value absolutely necessary? No, buyers and sellers can always negotiate price in vacuum as long as no bank loan.

If bank is involved, eventually a summary property appraisal is needed from licensed professional (3rd party). Hopefully, appraiser understands carwash business, many don’t.

Moreover, it may be the broker or consultant that finds unlocked potential or upside to business.

Potential is not additive to market value but it can signal a higher and better use of property as carwash.

 

[Waxman]

I will agree that something is only worth what someone is willing to pay. And just because someone is willing to pay an amount doesn't mean a bank will loan it.

I fully agree that a commercial appraiser may not know anything about carwashes; my bank's DID NOT many years ago and I had to research the appraisal myself and find the errors in the appraisal to get financed. I endured a scolding by the banker but got my loan to add on my detail shop.

That's why it's smart business to employ some sort of well-thought-out exit strategy. Those of you who built a wash/detail/lube/laundrymat from the ground-up; think back on all the planning you did. Careful, well-thought out preparation goes into building. Appraisals, projections, market research, comps, car counts, marketing plan, contingency plan, business plan.

If you did all this careful planning at the start, then worked the business, refining operations, developing strategies for purchasing, sales promotions, maintenance schedules and logs, safety procedures, added service offerings, etc., it only stands to reason that you would put similar effort and planning into your exit strategy.

Yes, banks have their; rules I know. However, rules can also be flexible. If a well-run business is marketed and presented professionally and thoroughly to the banker, he/she may look upon the deal more favorably than one that is supported by less.