Valuing Car Wash

[grdax]

I am currently looking at purchasing a full service tunnel car wash. The sale is for the business only and no real estate. They are asking minimum $2 million for it.

Gross Sales: $1,100,000
Profit: $350,000/Year

What do you think fair value would be? Equipment is about 14 years old. Location is excellent with very dense population and extremely busy road. I have not received the tax returns to verify income but it has been steady at least for the last 4-5 years.

Thanks in advance!

 

[rph9168]

Those numbers do not add up. The equipment is old and depending on how well maintained it probably needs major renovation or to be replaced. No deal without the dirt. Unless you are really motivated to deal on this one and can negotiate a better deal including the land I would walk away.

 

[grdax]

Those numbers do not add up. The equipment is old and depending on how well maintained it probably needs major renovation or to be replaced. No deal without the dirt. Unless you are really motivated to deal on this one and can negotiate a better deal including the land I would walk away.

Thanks for your feedback! What part of it made you concerned? Was it the fact that the equipment is on its last legs? The broker said if maintained, it can last 30+ years but I took it with a grain of salt. What would a fair value for it be?

Here are some more facts.

Gross sale: $1.1 million
Rent: $11,300/month
Salary employees: $300K/year
Insurance: $33K/yr
Utility: $50K/year

 

[rph9168]

The broker is not a car wash guy - he is trying to sell a car wash. This deal should start out with "Once upon a time" because it looks a lot like a fairy tale. Where did he get the 30+ figure for the equipment? Certainly not from any reliable source in the industry. To make almost 35% profit is ludicrous. When will you get the tax returns? I am sure there are others that will respond but not many would recommend buying any car wash without the land. Impossible to put a fair value on this based on information provided by the broker and without tax returns.

 

[grdax]

The broker is not a car wash guy - he is trying to sell a car wash. This deal should start out with "Once upon a time" because it looks a lot like a fairy tale. Where did he get the 30+ figure for the equipment? Certainly not from any reliable source in the industry. To make almost 35% profit is ludicrous. When will you get the tax returns? I am sure there are others that will respond but not many would recommend buying any car wash without the land. Impossible to put a fair value on this based on information provided by the broker and without tax returns.

Once I sign the NDA, the broker said he will provide last 3 years tax return. I will report back once I get it in hand.

 

[Jeff_L]

Before you negotiate, have your accountant go through the tax returns. Profits might be subjective, meaning, are those numbers calculated with the depreciation? That's just my first thought, but it's best to have your accountant involved. Might be worthwhile to have a business appraisal done.

 

[robert roman]

I prepare calculation of value for carwash businesses.

Calculation is a process that begins by determining available cash flow for a new owner.

Cash flow is defined as net operating income (earnings).

Earnings or NOI is earnings before interest, taxes, depreciation and amortization and before owner’s discretionary and extraordinary and/or non-recurring income and expenses.

Valuation method assigns a financial value to adjusted earnings that are reflective of the risk associated with the continued operation of the business with recent proven financial results that can reasonably be expected to continue after the sale.

So, annual profit and loss statements are required for the latest three fiscal years as well as income tax statements that correspond to the P&L’s.

It’s also helpful to have annual sales and labor reports that contain car counts, extra sales per car, cars per man-hour, etc.

Typically, business-only sales transactions convey certain assets like furniture, fixtures and equipment that provide buyer depreciation tax shield.

If so, fair market value of assets (F/F/E) must be determined from balance sheet or estimate of replacement cost new less depreciation (physical, functional, market) and then added to preliminary value.

Here, goodwill value is calculated as business-only value less liquidation value of F/F/E.

Business-only is a common form of ownership where the value of real estate and/or scarcity of suitable sites make building new prohibitive.

So, person advice to obtain opinion of value is good so you don’t get “soaked” so to speak.

 

[Washmee]

300k for labor seems very low. How many cars does this place wash per year?

 

[rph9168]

300k for labor seems very low. How many cars does this place wash per year?

I thought the same thing. It seemed that in addition to being very incomplete the costs listed in general were a bit low. Did not see any taxes or chemical costs either. Based on the comment by the broker about the equipment this whole deal sounds a little questionable. If you decide to pursue this I would highly recommend that in addition to an accountant you work with a competent consultant or possibly an experienced operator you trust.

 

[grdax]

I prepare calculation of value for carwash businesses.

Calculation is a process that begins by determining available cash flow for a new owner.

Cash flow is defined as net operating income (earnings).

Earnings or NOI is earnings before interest, taxes, depreciation and amortization and before owner’s discretionary and extraordinary and/or non-recurring income and expenses.

Valuation method assigns a financial value to adjusted earnings that are reflective of the risk associated with the continued operation of the business with recent proven financial results that can reasonably be expected to continue after the sale.

So, annual profit and loss statements are required for the latest three fiscal years as well as income tax statements that correspond to the P&L’s.

It’s also helpful to have annual sales and labor reports that contain car counts, extra sales per car, cars per man-hour, etc.

Typically, business-only sales transactions convey certain assets like furniture, fixtures and equipment that provide buyer depreciation tax shield.

If so, fair market value of assets (F/F/E) must be determined from balance sheet or estimate of replacement cost new less depreciation (physical, functional, market) and then added to preliminary value.

Here, goodwill value is calculated as business-only value less liquidation value of F/F/E.

Business-only is a common form of ownership where the value of real estate and/or scarcity of suitable sites make building new prohibitive.

So, person advice to obtain opinion of value is good so you don’t get “soaked” so to speak.

Thank you so much. With so much at stake, definitely do not want that. I will be getting documentation so we will see if what they are saying is legit.

 

[grdax]

I thought the same thing. It seemed that in addition to being very incomplete the costs listed in general were a bit low. Did not see any taxes or chemical costs either. Based on the comment by the broker about the equipment this whole deal sounds a little questionable. If you decide to pursue this I would highly recommend that in addition to an accountant you work with a competent consultant or possibly an experienced operator you trust.

Do you know of any good consultant that you would recommend if this thing gets further?

 

[parsonii]

walk away and keep searching for where you can buy the real estate. whenever someone is selling you something, they know more about it than you do. unless you're super savvy and are a distributor for a chemicals/equipment company, it has to a land play.

 

[rph9168]

Do you know of any good consultant that you would recommend if this thing gets further?

What part of the country are you at?

I agree with several people here that say without the real estate I would walk away from any deal. I have seen operators get trapped in a leased land deal making it both difficult to make any profit or sell if they want to. Leases benefit only the lessor and very seldom the lessee.

 

[grdax]

What part of the country are you at?

I agree with several people here that say without the real estate I would walk away from any deal. I have seen operators get trapped in a leased land deal making it both difficult to make any profit or sell if they want to. Leases benefit only the lessor and very seldom the lessee.

I am in the Washington DC metro area. If you or anyone in this forum know someone who could be helpful, I would be very interested in meeting him/her.

I decided to walk away from the car wash without the property by the way. I had trouble trying to get the most recent financials out of them and that is an obvious red flag. The property wasn't included either so I had big reservations from the get go. I am continuing to search for a good wash with property. Thanks to everyone for their frank advice.