Author Topic: Business Valuation?  (Read 1319 times)

jleo

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Business Valuation?
« on: July 15, 2018, 09:36:40 PM »
Looking into a car wash purchase.

600k asking price.

real estate is included and worth atleast 400k.

Net income- 120k

How would you calculate the ROI on this?

Does this seem like a good deal?

lemanfan

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Re: Business Valuation?
« Reply #1 on: July 16, 2018, 12:21:49 AM »

bwall

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Re: Business Valuation?
« Reply #2 on: July 16, 2018, 12:23:59 PM »
Double and triple check the value of the real estate, as that makes up 2/3 of the sales price.

Now, to evaluate the business, back out the value of the real estate. So, you're paying $200,000 for a business that brings $120,000, with the caveat that you have to carry the note for $400k at the same time. Not too bad, so far. Can you verify the $120k? By verify I mean tax returns.

If it's not in the tax returns, then it didn't happen.

MarciaB

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Re: Business Valuation?
« Reply #3 on: July 16, 2018, 03:08:01 PM »
I might jump on www.BizBuySell.com (an online marketplace for businesses) and poke around and see if there are other car wash businesses for sale, and try to get a sense of whether the asking price for the one you're looking at seems reasonable. You could compare what is included in yours vs. what's included (or excluded) from others.

SeattleCPA

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Re: Business Valuation?
« Reply #4 on: July 17, 2018, 07:55:20 AM »
Double and triple check the value of the real estate, as that makes up 2/3 of the sales price.

Now, to evaluate the business, back out the value of the real estate. So, you're paying $200,000 for a business that brings $120,000, with the caveat that you have to carry the note for $400k at the same time. Not too bad, so far. Can you verify the $120k? By verify I mean tax returns.

If it's not in the tax returns, then it didn't happen.

+1

Also, I would add you can/should probably look at both income tax returns and sales tax returns if available because that gives you a couple of information sources that seller has reported to tax authorities.

Further, if you want to be really careful, it would not be a terrible idea to buy a copy of the BizComps database (Available here: http://bizcomps.com/ ) to see if they have car wash comparables... AND to see what comparables on other businesses look like.

Note: The average price to earnings multiple for a small business is less than 2.5.

Michael in ABQ

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Re: Business Valuation?
« Reply #5 on: August 10, 2018, 06:22:30 PM »
I appraised a car wash and at that time the typical multiplier for the business portion was 2-3x, 4x would be the absolute top end. Keep in mind that the building has basically no value for anything but a car wash. Usually the real estate value is almost all in the land. The equipment can vary greatly. The one I appraised was a express tunnel type, brand new construction, and the equipment package was around $700k. However, most of that had a lifespan of about 10-15 years with some salvage value. For a freestanding car wash with several bays equipment will be far less, maybe $100k +/-.
« Last Edit: August 17, 2018, 10:02:36 PM by Michael in ABQ »

PiobStache

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Re: Business Valuation?
« Reply #6 on: September 05, 2018, 01:11:24 PM »
If there really is 120k in NOI then 600k is a steel.  You're talking a 20% cap rate there meaning you'll have your entire purchase price back in five years.  All things being equal, i.e. the equipment and building is in good shape, I'd jump all over that.  I'd read those finances very carefully as this seems like an awesome deal to me.

BTDretire

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Re: Business Valuation?
« Reply #7 on: September 13, 2018, 10:01:45 AM »
Look for delayed maintanence, how much of the equipment will need replacing in the next 5 years and have to come out of that $120k?

jleo

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Re: Business Valuation?
« Reply #8 on: September 21, 2018, 08:44:09 PM »
I was mistaken after digging deeper, the land is worth more like 175k-200k and will also need equipment replaced of 125k in next 1-2 years so I would be in it 700k+ with the land value half of what I thought it was worth.

Would require at least 5-10 hrs a week of my time.

I keep thinking should I just put money in the market as in the long run with compounded interest maybe they come out close to the same in 20 years and it will require non of my time. "market scares me right now but love the idea of investing and forgetting"

But I do also like the fact I know close to what my returns will be in the foreseeable future with buying this business.

I am in a toss up here if you can't tell...

lemanfan

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Re: Business Valuation?
« Reply #9 on: September 21, 2018, 11:41:37 PM »
Don't fall in love with the first business you look in to.  If you keep checking more similar businesses for sale, you'll learn a lot and sooner or later you'll find one that is the right combination of quality and price for you to buy.

BicycleB

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Re: Business Valuation?
« Reply #10 on: September 27, 2018, 11:15:02 AM »
Voting "just say no"!

:)