Anyone buy a wash where the seller's numbers didn't add up?

[Marcelo]

Lenders run from these types of deals.

Curious to dig into that — is that from a deal you've seen firsthand, or something you've heard is common? Do lenders ever come back and say yes once the numbers get sorted out some other way, or is it just an automatic pass the moment anything looks unclear?

 

[aussiewash]

Did you look for any kind of tool or report that could've done this comparison for you automatically, instead of doing it by hand — or would that not have changed anything for you?

I can't see how it could change anything?
Facts are facts - cash income isn't verifiable if it's not included in autocashier reports, twx returns etc.
I'm not deciding the viability of a purchase based on the seller's word, or on what a tool tells me.
The numbers don't lie, and if something doesn't look right, it probably isn't!

 

[Marcelo]

I can't see how it could change anything?
Facts are facts - cash income isn't verifiable if it's not included in autocashier reports, twx returns etc.
I'm not deciding the viability of a purchase based on the seller's word, or on what a tool tells me.
The numbers don't lie, and if something doesn't look right, it probably isn't!

Makes sense - if it's not in the official numbers, it's not real to you, and that's a fair line to hold. Curious about one thing though: is it always a hard walk-away the moment something's unverifiable, or does it depend on how big the gap is? Like if the chemical-cost math was only slightly off vs. way off like the one you looked at - would a smaller discrepancy ever just become a negotiating point instead of a dealbreaker?

 

[aussiewash]

Makes sense - if it's not in the official numbers, it's not real to you, and that's a fair line to hold. Curious about one thing though: is it always a hard walk-away the moment something's unverifiable, or does it depend on how big the gap is? Like if the chemical-cost math was only slightly off vs. way off like the one you looked at - would a smaller discrepancy ever just become a negotiating point instead of a dealbreaker?

No, I made an offer, but it became clear that top end for me and bottom end for the seller were several 100k apart and there was no point wasting each other's time.

I'm sure the chemical costs are correct, but they're divided into ~20% less verifiable revenue than the seller states.

Business valuation is generally a multiple of EBITDA or some other profit-linked multiple, and anyone who took a seller's word on this being higher than their records show is silly to say the least!

 

[Earl Weiss]

That's a good point — and kind of scary since bank statements alone wouldn't catch that. Have you ever seen that actually happen to someone, or is it more of a known theoretical risk? And is there anything you'd actually trust to catch it — water/chemical usage vs. claimed volume, something else — or is it just 'buyer beware' at that point?

I have not seen it but was having dinner with a guy - I forget if he was a treasury or IRS guy and he told me washes were known for laundering stuff besides cars. I think "Breaking Bad" may have had this theme and we know story lines are often based on facts. Years ago a Chicago area wash owner had several locations - lived in a really nice house and had really nice guys, My uncle who was in the business would comment that he didn't understand it since you Never saw a dead dog in his places" That operator was indicted for money laundering - but If I recall correctly - he beat it. . So, none of those instances involved defrauding the Buyer.

 

[OurTown]

Curious to dig into that — is that from a deal you've seen firsthand, or something you've heard is common? Do lenders ever come back and say yes once the numbers get sorted out some other way, or is it just an automatic pass the moment anything looks unclear?

Yes, it's from a deal first-hand and we are trying to get the deal done currently. In my experience, most leaders are going to look at net operating income, or sellers discretionary income from the most recent tax return. I doubt most lenders would look at a combined tax return. How could anyone correctly decipher that? The seller's books play very little into this even though they will ask for all prepared financial statements. They seller really screwed themselves by running multiple businesses on one schedule C.

 

[Marcelo]

Yes, it's from a deal first-hand and we are trying to get the deal done currently. In my experience, most leaders are going to look at net operating income, or sellers discretionary income from the most recent tax return. I doubt most lenders would look at a combined tax return. How could anyone correctly decipher that? The seller's books play very little into this even though they will ask for all prepared financial statements. They seller really screwed themselves by running multiple businesses on one schedule C.

That Schedule C thing is a really specific problem — how do you deal with it right now, with your current deal? Are you just accepting the lender's number as-is, or trying to isolate the wash's real numbers some other way? And if there was a way to independently show what this location specifically was generating — separate from the other businesses — would that actually help you close, or would the lender not care either way?

 

[OurTown]

That Schedule C thing is a really specific problem — how do you deal with it right now, with your current deal? Are you just accepting the lender's number as-is, or trying to isolate the wash's real numbers some other way? And if there was a way to independently show what this location specifically was generating — separate from the other businesses — would that actually help you close, or would the lender not care either way?

We do not have this specific issue with our current deal but there are other issues the lender is scrutinizing. All I'm saying really is that lenders want to see clean books and Schedule C's. Commercial lending is tight right now compared to three or four years ago.

 

[mud puppy]

To all posters who are buying, what numbers are you comfortable with offering? Are you using 3 to 5 times suspected gross or some other number?

 

[liftheavy]

Did you look for any kind of tool or report that could've done this comparison for you automatically, instead of doing it by hand — or would that not have changed anything for you?

i mean, i already know roughly the operational cost to run a tunnel site at this point, so its just me looking at the traffic, the competition, and the demographics to assess the potential of the site vs acquisition price & capex. all our sites in our portfolio are acquisitions of underperforming sites we brought back to life so at this point i can just look at the basic car count numbers, revenue, and asking price and assess whether its worth haggling for or not.

for tunnel sites its starting to turn into buyer's market again with majority of the operations across united states underperforming in retail sales.

 

[soonermajic]

I had the "reverse" deal happen to me years ago. I found a wash for sale in the owner showed three years of revenue @ $210k avg. I bought the site and immediately started noticing things were not adding up. I decided to give it 90 days. I then called up the owner and said, my #'s are not adding up at all. He said WTH do you mean? I told him I am making about25% MORE than he showed. He said, well, of course, sunny. This is my "blow & go" wash. You know, like when you want to go to Vegas for the weekend or go fishing in Canada. I just use that cash.
I told him I am a HS coach & I have no idea what you mean by "going to Vegas or fishing in Canada". I go camping at the lake" !!! LOL
That wash became an absolute ca$h cow for me!