Small Town Car Wash for Sale... How much?

[Bill Mac]

I'll try and make this short but include some details.

I was trying to start a Laundromat backup in my small home town that has been closed for a few years. Due to mechanical complications with the old location I would need to find or build somewhere else.

Then I noticed the only car wash in town was for sale. It has two self serve bays and a Touchless automatic with a dryer in another. Also three Vac's, water softener, boiler, nice paved lot and it was built maybe ten years ago, it's a real nice building. I don't know the make of the equipment yet, just had a short phone call with the owner so far. The market value assessment is $106,300 and he's asking $225,000. Owner says it will make 28 to 30K this year, he?s going to raise the Touchless a buck and said it should bring 30 to 35K a year. With these numbers, he stated ?it would make?, not sure if that was net or gross, I have to check.

I got the water usage for the last couple years;

Year?1st qtr??.2nd qtr?..3rd qtr?.4th qtr
2007?191,000?.97,800?..71,700....183,600
2008?272,200?.103,000...88,600....288,100
2009?293,200

I live in Western NY and we had 295 inches of snow last year. Population is about 2000 year round with the summer tourist invading for 10 to 15 weeks exploding the population into the 10?s of thousands.

After subtracting the assessment from the asking price it looks like he wants $118,700 for the equipment and customer base. I know this is hard to judge without see it but does this sound some what in-line or is it way of base.

Any and all comments welcome,
Bill

 

[Waxman]

Get 3 years tax returns. Review them yourself or with an established businessperson and post again after that.

 

[Alan Bussey]

Bill -

I agree with Waxman. The seller should be willing to provide you with a copy of the 2008, 2007, and 2006 Federal Income Tax Returns on the car wash, or the Schedule C from his personal return. You'll want to get the Supporting Schedule for the Other Deductions as well, because there may be additional depreciation, amortization, or one-time (non-recurring) expenses on that Schedule.

Do not get into a time-wasting and frustrating guessing game with the seller. Get those tax returns and the year-to-date Income (Profit and Loss) Statement as of the end of the most recent month, in this case 5/31/2009.

The most important factor with most car wash purchases, as it is with other businesses, is the ability of the car wash cash flow to pay for that business. A customary cash down payment is about 20%. So, the cash flow (Net Operating Income, or EBITDA) would need to be able to comfortably cover the loan payments on the other 80%. Assuming that the car wash is of masonry construction and is in very good condition, a not-unusual loan amortization is 20 years. A good ballpark interest rate to use is 6% today, although you may want to use 7% or more if you think that interest rates will be going up in the near or intermediate future. Once you have the financial information, try this worksheet to help you estimate the amount that you can afford to pay, assuming that the results for future years will be about the same as in recent years.

http://www.carwashloans.com/Proforma_Cash_Flow_to_Calculate_Purchase_Price.html

You'll also want to sit down with a local CPA to go over the numbers to see whether she or he sees anything in the return and financials that needs to be brought to your attention.

Good luck to you in your negotiation.

Alan Bussey, Car Wash Loans.

 

[robert roman]

Since carwash is a cash business and many self-service owners operate out of a cigar box, income verification and quality of market are critical components in determining value. As a sanity check, you can assume gross net of about 60% (EBITDA) and then you can use this simple method.

Monthly NOI = (annual gross ? operating expenses)/12

Maximum allowable payment = Monthly NOI/debt service coverage ratio

The DSCR would come from the lenders you are considering.

If this seems to make sense, the next logical step would be to get an opinion of value from an independent third-party like a qualified carwash consultant or an appraisal from a certified appraiser or both.

As for superlatives like ?it would make,? they are worthless.

 

[Bill Mac]

Waxman, Alan, Bob....... thanks for the reply.

When I get back from Clean 09 in New Orleans I will contact the seller and see if he will provide the information you suggested. I haven't completely given up on the Laundromat project and I hope to get good info in New Orleans.

The nice thing about the Car Wash its turn key, ready to go which would be easier than putting together a Mat. One question I have.... I'm new to all this and not very good with acronyms.

If you could be so kind;

EBITDA ? NOI ?

Thanks,
Bill

 

[Alan Bussey]

EBITDA is the acronym for Earnings Before Interest Taxes Depreciation and Amortization.

So, you'd start with the bottom-line net income or net loss number, then add the Interest Expense for the subject accounting period (usually a calendar year), the Depreciation Expense, and the Amortization Expense. This is usually synonymous with the NOI, or Net Operating Income. Most lenders expect the EBITDA to exceed the loan payments for the same period of time (again, usually 12 months) by 25%. This is called the Debt Service Coverage Ratio by bankers. It is the most commonly used ratio in banking circles, for example 1.25x ("1.25 times"). The idea is that the EBITDA (Cash Flow) of the business must be able to cover the loan payments with a comfortable margin. While it is a simple ratio, actually determining the historical proforma normalized cash flow can be a daunting task. If you can calculate the DSCR for a car wash or any other business that you are buying, you will be able discuss it knowledgably with the banker and with the seller. Really, most buyers can only afford to pay what the cash flow of the business will allow you to repay the note. Once the maximum loan amount is determined using the DSCR, the difference between the purchase price (or project cost) and the loan amount is the equity, or down payment, that you necessarily will need to complete the transaction. If the purchase price is "normal" and the loan terms are "normal" the cash down payment is usually about 20%. But the 20% is the result of the relationship between the cash flow and the loan payments, not the starting point.