Investing In NEW Coin-Op Carwashes

reprinted from Fall/96

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The lesson to take to heart (and to the bank) is that early investment is a most critical component of any investment strategy.

Compounding Q & A

In the example as shown in the main part of this article, it's possible to invest $100,000 in a car wash and within a 10 year period see it grow to a $400,000 assett (which works out to be about a 15% annual Return On Assets) while generating a hefty annual Return On Investment (over 30% was a "reason able" projection). If you took those Returns, "blended" them and re-invested those profits (compounding the interest) you could see Returns that were well over 50% ... "stratospheric!"

But to round out this sidebar consideration of the investment power of compound interest, lets try playing a little "Q & A".

You may be amazed, amused, perhaps informed ...

Questions #1: Suppose you put $100 every month for 10 years into a savings account which pays 7% interest compounded annually. Now, for how many years can you draw out that same $100 a month 20 years? 100 years? (Assume the interest rate remains 7%.)

#2: Suppose instead of drawing out the $100 a month you leave all the money there until you retire 40 years later. About how much is your retirement nest egg? (As before, asume the rate remains 7%.)

#3: Suppose you put just $2,000 into a trust the day your child was born and that it earned 10% compounded annually. What will the child have by the ripe old age of 70?

Answers #1: You can withdraw a $100 a month in per petuity! Yes you, your heirs, and your heirs' heirs will be able to get that hundred bucks a month forever and ever and ever.

#2: If you made no withdrawls (and the rate remained at 7% compounded annually) the total value 40 years after the last $100 deposit would be almost $250,000 ... a quarter of a million dollars!

#3: At age 70, this lucky child will have over $1,500,000 from that $2,000 investment. "Rule Of 72" Most people like the idea of being able to project when their invested money will double. Here's a handy dandy way to do that the so called "Rule of 72". To apply the Rule you simply divide 72 by the interest rate. That quotient is the number of years it will take for any amount of money to double. Examples: An investment earns 8% interest compounded annually, 72 ÷ 8 = 9. Therefore, money at 8% will double in 9 years. And money at 12% would double in 6 years (72 ÷ 12 = 6). Anyway you cut it, compound interest works wonders for long term investors!

MEET THE SBA'S SMALL BUSINESS "FRIENDLY BANKERS"

Money borrowed money makes the world of small business go 'round. There sure would not be very many carwash ventures without start up venture capital. But, as pointed out in this article, obtaining financing is all too often a major hurdle ... even for many veteran carwash owners with long, successful track records in both business and borrowing. All lenders, however, are not created equal. Some have been founded and operate with more favorable dispositions to small business loans. They are out there, but where?!! The Small Business Administration felt that America's entrepreneurs needed a little help finding these almost mythical "friendly bankers". The SBA also wanted to reward those lenders doing a good job of keeping the capital flowing ... and goad others into doing likewise.

To do that they undertook a massive study released under the name "Small Business Lending in The United States". The SBA gathered data from banking regulators, banks, economists, small business organi zations, and other experts. They then analyzed the nation's lenders to determine such things as number of business loans under $250,000, the overall percentage of business loans, loans vs. assets, and other such criteria. Many in the banking community were very displeased with the publishing of the results and the SBA's implicit recommendations. Among the most unhappy were a lot of "the big boys".

The study shows, generally, that the small banks are more small business friendly ... not the large institutions with the large ad budgets and friendly slogans. The lenders are ranked in preferance according to their position on the list. We're not saying that if you go to the top of the list of the banks in your state you're going to find those "20% down, 10 year, 10% fixed rate" loan terms so many of you (including Professor Crowe) nostagically remember. But, what the hey, it wouldn't hurt to ask.

.Pt 2 Pg.1.............................................................Pt. 2 Pg.7

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