What's it worth!?

[thomps9]

So I just started a thread about how to find existing car washes for sale, but need to touch on a car wash that is already listed for sale in the area I am looking.

The current car wash (built in 2004) has 3 self-service bays and one touch-less automatic (not sure exact model). It is located on a highway a few miles south of a bigger city in Iowa. There is a gas station right next to the car wash and a housing development. The city is starting to develop south of the car wash location, thus increasing traffic counts going by. There is also a small town just south of the wash location that currently does not have a car wash. Traffic counts past the location are about 8,500/day. 19 acres were just sold near the location for another housing development as well. I should point out that there is a casino on the same road one mile north of the car wash, but that doesn't really affect the traffic flow from the south.

It is currently listed for $375,000 and states that it has NOI of $40-45,000/year. I do not have gross sales numbers or what the yearly expenses are as we are just in the beginning stages of discussion. Hopefully I will have more on that soon. The car wash sits on 1.7 acres of land, in which the car wash itself utilizes .7acres. The other acre can be used however one pleases (self storage, new storefront, etc).

I have never evaluated a car wash to determine a sales price so I am completely new to this. I look forward to hearing your responses.

 

[I.B. Washincars]

If it were me, the # I would most want is the gross receipts. Those that I THINK know more about finances than I do, throw out a lot of alphabet soup (NOI, P&L, EBIDTA, NRA, EIEIO, etc.) and can't ever seem to agree on exactly what each is. Gross is the same # regardless of who is looking at it. If it is grossing 100K or more, I would take a closer look. Most of us agree somewhat that 3.5- 5X gross is about the range that most functioning washes should go for. Nicer, high volume washes push the 5X envelope, whereas beater to average, 3.5-4.5X.

 

[robert roman]

The current equation to “test” the value of self-serve wash is multiple of between 3.0 and 5.0 of gross sales.

For example, typical operating expense for self-serve is 40 percent of gross sales.

So, if NOI is $45,000, estimate of gross sales is $75,000. $75,000 - $45,000 = $30,000 / $75,000 = 40%

Value = $225,000 to $375,000

I mentioned “test” because the process of determining where a wash falls between this interval or lower or higher involves many factors.

For example, this owner has priced this wash to perfection. However, $75,000 gross is only about 1/2 the benchmark.

So, owner may be asking a premium for the business but certainly on the basis of sales alone it is not justified considering industry norms.

A method to develop a more precise opinion of market value for carwash is capitalization techniques.

For example, when I prepare opinion of value, I begin by deriving available cash flow (ACF) by reconstruction consecutive years of income and expenses.

Applying capitalization rate (adjusted for risk) against ACF provides a preliminary or business-only value.

The preliminary value is then adjusted for assets and liabilities to reach a concluded value for 100 percent of the business.

Goodwill value is obtained by subtracting preliminary value and liquidation value of furniture, fixtures and equipment.

If you are interested in buying a wash, my advice is to engage an adviser like a licensed business broker or carwash consultant with experience in the industry to help you along.

 

[thomps9]

I just got some more information regarding this wash. It appears that gross sales are always, for the past 7 years, right around the 80K range. Their mortgage payment is between 40-45K, which ends up showing them a net profit of $0 after other expenses are subtracted. The guy I spoke with stated that they wanted to get it paid off as fast as possible, hence putting all the profit back into the mortgage payments.

My situation would allow me to pay all cash for it, avoiding any mortgage. Maybe that get's me a better deal, I don't know. But let's say I got it for $345,000 and was still showing net profits of $45,000. That puts me at a 13% return on my investment, which seems fairly good to me. The problem is I don't see much growth in this business unless I were to develop the other acre of property to attract more traffic.

 

[Waxman]

Is the car wash investment the highest and best use of your available cash? They are alot of hard work and if I had that kind of free cash I could think of many other ways to use that cash to make more money than a car wash makes. I like the car wash business, but you will take that cash, invest it, and then work your a$$ off to make money washing cars, so you'd better love it or you're sunk.

 

[thomps9]

Waxman, I appreciate your words of wisdom and caution.

 

[robert roman]

“I have never evaluated a car wash to determine a sales price so I am completely new to this.”

If you don’t heed my advice, heed Waxman’s.

“Is the car wash investment the highest and best use of your available cash?”

This is a fundamental of investment to which you can apply sanity tests.

For example, you envision a 13 percent ROI whereas most investors will begin with risk reward.

Risk reward = $45,000 reward / $345K risk (cash price)

Risk reward = 0.13:1

Most investors I work with don’t get interested in a project unless the risk reward is 2:1 or greater.

The problem with 13 percent ROI on low yield wash like self-serve is the low margin for error.

 

[thomps9]

I completely agree, even though the numbers show a nice return percentage wise, it still isn't much in terms of the risk involved. Now if this place had room for significant growth, that is a whole different story.

Thanks waxman and robert for all the input in this and my other thread.

 

[soonermajic]

Figure out what you can do w/ the other acreage, to add more cash : storage building, Snow Cone stand (seasonal ) , Ice Machine (somewhat seasonal ), etc....