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85% expenses???

jtownathan

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I had a pro forma done through a company that contracts with Motor City Wash Works. He sent me a fairly thorough 23 page 3 year pro forma but I was floored to see that he estimated 85 percent operating expenses. And that was before the bank note! Ha! So of $12.44 average ticket price, he estimated that I'll pocket $1.90.(again, BEFORE I PAY THE BANK) I have been researching these tunnel washes for several months now and have not seen a number even close to that. Most estimate closer to a 50 percent expense ratio(not including your debt service). I guess he's preparing me for the worst case scenario because my location is not A+ by any stretch just due to demographics of the town. I just felt that a mini express tunnel with a project cost at 1-1.5 mil would net some profit. Not the hundreds of thousands that these huge volume sights would see but if I netted 4000 or more a month, I would be absolutely satisfied. Can anyone give any merit to this?
 

jfmoran

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Hard to prove it or disprove it, without knowing what went into it. Certainly those numbers would indicate that it is not a good project to go forward with. I have seen Proformas that are 65-35% in year 1, climbing to 55-45 or 50-50 after the site matures in 3-5 years, but 85-15 would be a No-Go for sure.

What State are you located in?
 

jtownathan

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Mississippi. He's claiming I'll wash 4520 cars per month. 3345 of those cars are single purchase (non-unlimited) Average revenue for one time wash is $13.12. Average revenue on unlimited customers is $7.92.

I feel certain those numbers are inflated. I guess I just don't see how a business can gross almost $650,000 and not profit much at all. Is that type of revenue typical? By that logic, it feels like you'd have to gross like a million to make 50,000. Which is less than I bring home at my regular job.

Thank you for your response.
 

jtownathan

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Hard to prove it or disprove it, without knowing what went into it. Certainly those numbers would indicate that it is not a good project to go forward with. I have seen Proformas that are 65-35% in year 1, climbing to 55-45 or 50-50 after the site matures in 3-5 years, but 85-15 would be a No-Go for sure.

What State are you located in?
Mississippi. He's claiming I'll wash 4520 cars per month. 3345 of those cars are single purchase (non-unlimited) Average revenue for one time wash is $13.12. Average revenue on unlimited customers is $7.92.

I feel certain those numbers are inflated. I guess I just don't see how a business can gross almost $650,000 and not profit much at all. Is that type of revenue typical? By that logic, it feels like you'd have to gross like a million to make 50,000. Which is less than I bring home at my regular job.

Thank you for your response.
 

jfmoran

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There is a point of diminishing returns with an EE. Lower volume sites will not cash flow like higher volume sites Here's an example of two clients I am working with. One a very low volume/borderline site (may work because he will have a lube as well) and one a high volume site . These are both Year 5 scenarios. I can tell you that the low volume site for year 1 shows Negative Cash Flow as the Expenses were about 80% based on volume of about 25K cars.

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jtownathan

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There is a point of diminishing returns with an EE. Lower volume sites will not cash flow like higher volume sites Here's an example of two clients I am working with. One a very low volume/borderline site (may work because he will have a lube as well) and one a high volume site . These are both Year 5 scenarios. I can tell you that the low volume site for year 1 shows Negative Cash Flow as the Expenses were about 80% based on volume of about 25K cars.

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I see. Could you share the demographics on that low volume site? My demographics are not ideal but 13000 traffic count and 6000 population in 5 mile radius. There are 3 grocery stores nearby. Walmart is right across the highway. Several fast food restaurants so it's not Mayberry small. My proforma also showed great profits by year 2. Went from losing 30000 the first year to netting 80000 in year 2. I don't believe a word of it. He listed off an expense list the size of a gorilla and I just don't think most of it would apply to my site. I see you work with Sonny's and they are also working on a proforma for the site. But I just want to see what I might be getting into. Ha
 

jtownathan

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Also, my proforma is speculating that I'll wash 40,140 cars annually. In your proforma, you have this guy washing a little more than that in year 5 and making a profit. That's my whole issue. I'm not sure if it's the metrics this guy is using or if he's just way overestimating my fixed costs.
 

jfmoran

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I see. Could you share the demographics on that low volume site? My demographics are not ideal but 13000 traffic count and 6000 population in 5 mile radius. There are 3 grocery stores nearby. Walmart is right across the highway. Several fast food restaurants so it's not Mayberry small. My proforma also showed great profits by year 2. Went from losing 30000 the first year to netting 80000 in year 2. I don't believe a word of it. He listed off an expense list the size of a gorilla and I just don't think most of it would apply to my site. I see you work with Sonny's and they are also working on a proforma for the site. But I just want to see what I might be getting into. Ha
13K traffic count is low, ideally we like to see minimum 20K, preferably 25K. 6000 population in 5 miles is very low, we like to see 50K within 3 miles.

I know and have worked with sites that have low traffic counts (below 10K), but they have huge populations within their 1,3, 5 mile radius and can utilize marketing to bring people to their wash.

The low volume site here has 14K within 5 miles and a traffic count of 15,671.
Not even close to ideal, however his development cost is relatively low and he will have an additional profit center onsite to help bolster his ROI.

I would suspect that Sonny's Proforma for your site will not be favorable and will show low volume with marginal profitability.

Low volume sites can work, IF, the project is reasonable. Most EE's cost in the neighborhood of $3.5M-$5M. If you can do a low volume site for $1.2-$1.5M it could make sense, but its not a certainty.
 

MC3033

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I see. Could you share the demographics on that low volume site? My demographics are not ideal but 13000 traffic count and 6000 population in 5 mile radius. There are 3 grocery stores nearby. Walmart is right across the highway. Several fast food restaurants so it's not Mayberry small. My proforma also showed great profits by year 2. Went from losing 30000 the first year to netting 80000 in year 2. I don't believe a word of it. He listed off an expense list the size of a gorilla and I just don't think most of it would apply to my site. I see you work with Sonny's and they are also working on a proforma for the site. But I just want to see what I might be getting into. Ha
I would highly recommend not moving forward with that project based on traffic and demographics. Seems high risk and low reward.

That being said I’m sure it can be made successful. If you plan on running it yourself and reducing labor costs you can definitely make some cash flow (depending on your bank note)
 

jtownathan

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There is an express exterior wash located 30 miles east of my town in a town with very similar demographics. They have about 7000 in the town and the traffic count is 16000 per day in front of the wash with a split highway that is not super easy to enter. If you're headed west bound, you have to go just past it to a turn around to go back to the wash. It has been in business for about 5 or 6 years. He's the only one in town and the manager says he is washing an average of 450 cars per day. I don't believe he has anything to gain by inflating his numbers because he works for a franchise! To further add to the confusion, it was built by a private individual. He ran it for 2 years and then sold out to Carwash USA. I don't think they'd waste their money on a piss poor low volume site. I'm sure you might say they got it for a good deal, but they still have to believe they can make it profitable. The tunnel looks to be about 80 feet and their price points are 8, 10, 16, and 21. If he's washing 450 a day, I promise they're making money. Proformas are purely speculative anyway and I just believe that the people that do them are trained to believe you have to be in a huge metropolitan area with mega traffic counts to be successful. I really believe they are absolutely not equipped to give any good answers on smaller markets where the overhead would be way lower and there's no competition for miles. Sonny's website even had an article posted by Anthony Analetto(probably butchered that) but he literally spelled out what I'm saying. He felt that the next evolution of these washes would be smaller markets with a small footprint and low labor costs. Price points would be on the higher end since there's no competition. I love the information I've found on this site and it's been very helpful but everyone seems to be located in one of those large markets and can't wrap their heads around only making 100,000 a year. 🤣
 

Kramerwv

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Why not build something cheaper like ibas? If the volume turns out to be really good you’ll have great margins due to lower cost of entry and labor. If it doesn’t pan out as a great site you’ll probably still be better than break even and not on the hook for millions.
 

jtownathan

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Why not build something cheaper like ibas? If the volume turns out to be really good you’ll have great margins due to lower cost of entry and labor. If it doesn’t pan out as a great site you’ll probably still be better than break even and not on the hook for millions.
We have a guy here in town who has probably a million dollar setup with about 7 or 8 SS bays and he just replaced all his equipment in his IBA. He wasn't even taking credit cards until last month and he stays slammed mostly on the weekends though. He's owned it since I can remember so he probably already has it paid off and just puts money in his pocket every month.
 

jfmoran

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There is an express exterior wash located 30 miles east of my town in a town with very similar demographics. They have about 7000 in the town and the traffic count is 16000 per day in front of the wash with a split highway that is not super easy to enter. If you're headed west bound, you have to go just past it to a turn around to go back to the wash. It has been in business for about 5 or 6 years. He's the only one in town and the manager says he is washing an average of 450 cars per day. I don't believe he has anything to gain by inflating his numbers because he works for a franchise! To further add to the confusion, it was built by a private individual. He ran it for 2 years and then sold out to Carwash USA. I don't think they'd waste their money on a piss poor low volume site. I'm sure you might say they got it for a good deal, but they still have to believe they can make it profitable. The tunnel looks to be about 80 feet and their price points are 8, 10, 16, and 21. If he's washing 450 a day, I promise they're making money. Proformas are purely speculative anyway and I just believe that the people that do them are trained to believe you have to be in a huge metropolitan area with mega traffic counts to be successful. I really believe they are absolutely not equipped to give any good answers on smaller markets where the overhead would be way lower and there's no competition for miles. Sonny's website even had an article posted by Anthony Analetto(probably butchered that) but he literally spelled out what I'm saying. He felt that the next evolution of these washes would be smaller markets with a small footprint and low labor costs. Price points would be on the higher end since there's no competition. I love the information I've found on this site and it's been very helpful but everyone seems to be located in one of those large markets and can't wrap their heads around only making 100,000 a year. 🤣
There are always exceptions to the rule. I can show you a car wash with 9K cars per day passing its doors, with a 1 mile radius population of 32K and 3 mile radius of 106K, that washes about 30K cars per year and I can show you a car wash with 7K cars/day that washes 140K/yr.

I've been on the development and operations side of car washing where we used Sonnys to evaluate sites and in my own experience their Proformas are on the conservative side. I've seen sites blow away the proforma numbers in the first year. Having said that, the information provided in their site evaluations and proformas is extremely valuable to investors who know nothing about the industry.

With regard to Anthony's article, you're not wrong, however, for the operators who are doing what you are suggesting, it is strategic to garner and protect market share, there is strategy behind what they are doing and economies of scale. AND, they don't always get it right either.

Can a small market express work... Maybe... nobody's going to stop you if you really want to do it, they'll be happy to sell you the equipment, but you won't be able to say "Why didn't you tell me?" If it doesn't work. A good distributor should be a trusted business advisor who will challenge you. If you want a "yes man" that just wants to sell you equipment, you'll find those too.

Best of Luck
 

jtownathan

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Again, I am very appreciative of all the feedback! I don't want to be one of those people who just can't hear "no". I found this proforma online from a Sonny's investment seminar. This outlines a 5000 car per month mini tunnel and it's netting $20000 a month at lower price points than I would be at. Their average ticket price is $10.35. My proforma says my average would be $12.44. I have to believe that these are also conservative numbers. Once you shoot holes in this one, I believe I'll be convinced it's not viable at all.
 

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Kramerwv

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There’s a big difference in gross revenue in this projection and what you’ll pull in with the population numbers you specify. A mini tunnel might be perfect versus a big EE, but it just doesn’t seem that your area has enough people to generate the revenue to make a big profit. That is not to say you can’t make $100k on $300k in revenue but nothing is guaranteed in this biz except new competition and breakdowns when you least expect. Good luck with your continued research.
 

jfmoran

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Again, I am very appreciative of all the feedback! I don't want to be one of those people who just can't hear "no". I found this proforma online from a Sonny's investment seminar. This outlines a 5000 car per month mini tunnel and it's netting $20000 a month at lower price points than I would be at. Their average ticket price is $10.35. My proforma says my average would be $12.44. I have to believe that these are also conservative numbers. Once you shoot holes in this one, I believe I'll be convinced it's not viable at all.
There's nothing to shoot holes in, this is a sample ProForma for a site that generates volume of 5K cars per month in volume. The question for your project is not whether you can make money on volume of 5K cars per month. The question is, do you have the traffic and population to generate 5K cars per month?

I would encourage you to read pages 72-96 of that investment seminar. The Proforma is just part of the evaluation process and is really just a "what if" scenario, you can't solely make your decision off the proforma. There's a number of criteria that go into the site evaluation process that inform the Proforma, you can't have one without the other.
 

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Which investment seminar are you referring to? Is this something published on Sonny's website? I am looking into a tunnel or mini tunnel right now as well and have been studying my demographics, traffic counts, etc so I would be curious to see this document
 

jtownathan

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OurTown

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There's a lot of good info in that Sonny's power point presentation but it looks like it might be a year or two old. If that is the case you might want to add 20% to the construction cost and at least 5-7% for the equipment. I talked to a contractor the other day and he said metal roofing might go up 10% next month and maybe the same again the month after that. He said something similar about electrical boxes/panels going up. He is getting prices that are only good for a week.
 
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