Purchasing a self-serve car wash

[Neo]

Hi All,

Looking for some advice on purchasing a small self-serve car wash. Here is the background:
1. This would be for my wife to run. The seller's ad says it requires 10-15 hours per week (restocking, servicing, etc.). We have a little one so it would be great flexibility for us. It is 10 minutes from our house.
2. Cost is listed at $240k which includes all equipment, the real estate, inventory, etc.
3. Cash flow is $35k before taxes. This is about the same as what my wife makes now working 30 hours a week with much less flexibility. I would consider doing an S-corp to shield some profit from the 15% small biz tax.
4. Revenue is $67k
5. Owners are selling due to retirement and have agreed to stay on to help the new owner learn the ropes for as long as the new owner likes.
6. Business has been around since 1992 (25 years)
7. Nearest competitor is 3 miles away and 75% more expensive. Current owners have never done any marketing. Potential to increase profits via price increase and marketing.
8. Business is comprised of 4 wash bays, 8 vacuums, some vending machines.
9. Not sure how I would finance at this time. I have no experience with SBA loans. We could put my wife as majority owner so it would be a woman-owned business if that would help at all.
10. I own 12 units of rental real estate (4 buildings) so I do have a little experience running a small business.

I know this won't get us rich, but we would build equity in something, give my wife more flexibility and pride of ownership, etc. Does anything jump off the page as a red flag from what I've posted here? How do people feel about the valuation based on revenue/profit? Anyone have experience with self-service car wash businesses and want to offer advice? Thoughts on how to finance this purchase? Thanks everyone!!!

[CowboyAndIndian]

Have you done the due diligence and checked the books or are the number what the owners state?

Have you checked out the number of customers per day or are you using the owners numbers?

Is there possibility for another competitor? Are the owners bailing ....

I know I am paranoid, but I do not buy anything until I am sure of the facts.

[SC93]

Well, as I've said before, Not all the time but most of the time when a person borrows money for a business, they soon regret they ever made that move. Yes, there are many successful businesses that have borrowed money and made it work but for every successful one there are 10,000 unsuccessful ones. No matter what business you borrow money for it will probably be the worst day of your life.... you just won't find out for 2 years. But on this one, I bet your wife finds out about 2 weeks in to it. lol Just because it is the only car wash within 3 miles and cheaper means nothing. Why is it cheaper? Is it a place that would draw people? Couldn't the current owners just hire someone at $20 an hour and still make 1/2 of what they are making now if it is so easy? I was actually looking in to buying a car wash a few years ago so I asked 2 people I know that own a car wash if I should and both said no.

So let me get this straight...... you want to take out a loan that will take you 10 years to pay by the time it's all said and done and you are doing this to create a J O B for your wife? Wouldn't dog walking be easier and 10 years of hell cheaper?

And by all means, before you ever do something like this call the electric company and ask if they will take "pride of ownership" as a payment this month. What ever their answer is..... I'd go with that for my answer in buying something with a loan.

[Neo]

Thanks for the opinion, SC. So what is the difference in buying with a loan v. buying with cash? In real estate we love using leverage to acquire properties. If the business is a stinker, what's the difference if it's a loan or bought outright? Just loss of collateral? It's still a huge loss. SBA loans exist for a reason. Can you elaborate on this point?

I can't do the full due diligence until I sign an NDA. For now I only know what I posted above. After signing an NDA I can get the accounting records and turn them over to my CPA for a forensic review. The business has been in operation for 25 years and supposedly has a strong customer base, but again we will have to validate that ourselves once we have the records.

I don't think my wife could make $35k walking dogs but I get your point. Your point about the current owners simply hiring an employee is also a valid one and something to dig into. Perhaps I could offer to manage the business for them and take a cut?

Why did the people you know tell you to steer clear of car washes specifically?

Again, thanks for your input! The best thing I can do is gather contrarian opinions and see if the records hold up under pessimistic scrutiny.

[Smokystache]

What could you get for just the land? I'm trying to think of worst case scenario if you wanted to unload it.

Am I understanding your terminology: Revenue = $67k; net profit before taxes = $35k (so annual expenses are ~$32k?)? If so, I think their price is really high, but it depends on how much the land is worth.

I'm also trying to think creatively about difference uses. Could you put a few walls/garage doors on it and use it as a covered place for people to store their RVs? Likely less income, but also a lot less work. Are their any other businesses/uses you could easily convert it to? Car-painting facility?  Again, trying to think of ways you could sell it for profit if necessary.

Are they willing to owner-finance some of it?
What is the worst case scenario with weather? Will your wife be ok with the 10-15 hours of work during the coldest/hottest parts of the year?

[bwall]

Spending $240k to 'buy' a job that only pays $35k seems like a really bad deal to me if you are buying. If you're selling, that's a great deal!

Unless the land is worth $240 or more, I would walk away.

Your wife is making about the same money now, but with no debt to pay off. Why would you pay $240k for the right to earn the same money? Where is the upside? Machines that need to be repaired/replaced, building that needs maintenance, I see just headaches.

[Neo]

So what would be an appropriate price (ballpark) for that amount of profit? I dont see it as just buying a job but as another revenue stream that can build equity and be sold later. A simple job has no risk but no equity either. Also the chance to increase the profits. Of course this all assumes the numbers check out.

I domt know the exact location until i sign the NDA but its on the west side of town where I live. I would ballpark the real estate at $50-70k without knowing specifics. The current owner values the equipment at $20k if that helps in determining a valuation.

[SC93]

Just so you know, there are lots of people that make $35k and a lot more walking dogs. Would you guess in my best year I made $428k cleaning houses? All of those service business owners are making a killing from the people that think they have great office jobs. lmao

Risk is the difference in buying with credit vs cash. I've bought everything from cars to houses with cash but I can tell you.... I've never had a credit card nor a credit score or a loan but I can tell you if I did buy something on credit I'd be worried as hell until I got it paid off. Even back when I had no money I drove crappy cars that I could pay cash for..... now I drive crappy cars because that's what I was used to driving. lmao

They said the carwashes they own can and sometimes do make money but there are many more things better to invest your money in because it takes so long to make a return. Speaking of return, I just did some quick math.... do you think 32 people wash their car there every day of the year including holidays? If each spends $5 that's what would need to happen in order for $67k to be in the till. I don't know how much one of those car washes cost but I go down the street and pay $3 to drive through.

I'm with bwall all the way on this one!!

[Neo]

Thanks all. You have given me some things to consider for sure.

[bwall]

I believe that the rule of thumb is that you shouldn't need more than two or three years profit to pay off the business. But I think that some of the CPA's here have seen actual sale numbers and may be better positioned to answer that question.

I guess an exception could be made if the price includes high value real estate, which doesn't seem to be the case here.

Example:
Machine value: $25k
Real estate value: $75k
Brand value: $0 (no marketing = no branding)
Total value = $100k
Total cost: $240k
Total profits = $0 (!!!)

$35k in positive cash flow paid to the manager and can't be booked as profit since that labor is needed to run the car wash. If the business doesn't pay for itself, it's not a business, but a hobby. If you can find an employee to do the part time work needed to run the business for, say, $20k, then you'd have total profits of $15k with the option of employing yourself instead of outside help.

[bwall]

I agree with SC93's math. Calculate for yourself:

$67,000/year = $1288/week = $184/day.

Now; you have to figure out: How much does a car wash cost there and how many people wash there car there per day?

Best way to find out: spend a day (!) there and watch how many people wash their car. Seriously. You wanna spend a quarter million, so spending one day on your butt counting cars isn't too much to ask--it's not like you have to work all day in the hot sun or something. Even better; spend two days, one Saturday (busiest time?) and one weekday. Count how many wash and how many vacuum (or don't vacuum). Maybe even talk with a couple of customers if you can find a way to do it without seeming too creepy; why do they go there and not the place down the street? How often do they wash their car? Why did they go there on that day?

Then, and only then, you'll know what the owner already knows now; how well the business actually does.

[Cpa Cat]

FIL owns a car wash. You can expect to need to put extra hours in on holidays - especially Christmas and Thanksgiving. Cars are dirty, people are bored, if the weather is nice, the car wash turns busy.

Think about being there on Christmas Day with a shovel, mucking out the drains because a combination of a recent snow and a warm Christmas has led to a ton of mud.

People who sell car washes like to make it sound like the easiest job in the world. Totally carefree! Runs itself! Don't assume this isn't a job, though. It is. The maintenance is dirty and labor-intensive work. The busiest days are on holidays, so getting repairmen out there will be difficult. Holiday travel is out - someone has to be on call with the car wash.

[SC93]

Cpa Cat, I was wondering if it is still like it was back in the 70's. My childhood friend (JoDale) had the job of getting in that hole and shoveling it out in to a wheel barrel and then emptying the wheel barrel.

Great idea bwall!!

I bet if you can give me the zip code of the town it's in I can figure out which one it is.

[calimom]

OP, I think you're on the right track with wanting an investment and a small business enterprise. Not sure this would really be the one. It sounds like a lot of money would be tied up for so little immediate gain. Since you or your wife are good with a basic type of business providing a service that people want/need, how about a laundromat? Any available in your area? Just a thought. You guys sound like you're not afraid of a little hard work.

[cchrissyy]

even if their projected revenue and profit were true, their proposed price is very high

I agree with the others who say this ties up a lot of money, and saddles you with risk and responsibility, and the return is just nto work it. she could find a job making the same figure without any of the debt and risks.

[SC93]

As I was driving back from Kroger just now.... late night cookie run.... I happen to think, maybe your wife should check out Christy Wright. She has a podcast called business boutique. I think it's a podcast. If you do a search I'm sure she will be there. It's for women. It might make something ((click)) and find the perfect business for your wife!

[Neo]

Thanks everyone for the additional input. SC, I will look for those podcasts. And Calimom yes there is actually a laundromat for sale locally too.

I think I will sign NDAs and request the financials for both the car wash and the laundromat. I think it will be a good exercise to look them over and evaluate the deal. My dad is my CPA so he will look at them for free too.

[Rufus.T.Firefly]

Because the car wash includes the real estate, that could change the valuation considerably. You would want to view it somewhat more similarly to an investment property that could be run passively - much like your rental homes.

As others have pointed out, this is not a great job to buy for yourself or your wife...but when you get the financials, you can run the numbers as though you were to only spend very minimal time at the business (i.e. include any extra employee hours). In this way, you could find out if the real estate is worth it as an investment property.

[Michael in ABQ]

I appraised a proposed express car wash a few years ago. At that time the typical going concern value (real estate, equipment, and business value) was a 3-4x multiplier on EBITDA. In you case that appears to be about 35k so I would say the value should be around $105k to $140k. Probably towards the low end as self-serve car washes generally end up being land value as the improvements have minimal value for another use and the equipment depreciates over 10-15 years (maybe longer, I haven't checked in a while).

The business value portion of this is probably pretty minimal as it's not like you have long-term contracts or a great brand. If you built a new facility next door you'd probably capture at least half the business of this one (assuming similar pricing an amenities) or more. The thing is there's only so much demand for car washes and the market can easily get flooded as the barriers to entry for self-serve car washes are pretty low.

[Turnbull]

I don't think my wife could make $35k walking dogs but I get your point.

She's not going to be making $35k on this car wash either after she pays the payment on that loan.

[FiftyIsTheNewTwenty]

People who sell car washes like to make it sound like the easiest job in the world. Totally carefree! Runs itself! Don't assume this isn't a job, though. It is. The maintenance is dirty and labor-intensive work. The busiest days are on holidays, so getting repairmen out there will be difficult. Holiday travel is out - someone has to be on call with the car wash.

The quality of the equipment and how well it's installed varies a lot, and with it the repair cost and downtime.  Also...  people steal the nozzles and brushes with alarming regularity.  They also break into the coin machines, or try to.  Security is easier these days and they may not get away with it, but they'll still break your stuff.

I've never owned one of these but a couple of friends have, and I've researched it for myself.  I'd still do it to pay off a nice piece of real estate.  But I'd be careful about the above, and make sure I had help I could count on.  As DIY as I am, I would probably approach this as an investment that must be profitable w/ paid staff, vs. buying a job and DIY. 

[Capt j-rod]

You are essentially buying a job for $35K/ yr and assuming all the liability and maintenance. I would research the useful lifespan of the equipment and then try to project some expenses. How long do the pumps and wands and vacuums last and how old are they. How well was it maintained with the owners planning on selling? Do you put $1500 in your car and then sell it? How much do replacements cost so you know how much to have as an emergency fund?

Ok, enough devils advocate... Now for some good news. I can see where a cash business that has no way of knowing how many quarters were collected can be a plus... Water bills will give away how many washes were there, but the vacuums would be hard to track. I am by no means encouraging bad behavior, but I can see where there might be some "slippage"...

For me I would not be interested. It's too easy to make money elsewhere.

[M5]

You say you already own several rentals, what makes you want to invest in a car wash instead? You are already successful in real estate and have the experience, so why not take that 240K and buy more rentals? I'm guessing the ROI for that would be significantly better than a car wash. As someone else mentioned, I feel being tied down to the wash is a pretty big deal. A friend's parents own a wash and someone has to go there every day to collect/deposit cash, empty trash, clean out bays, and be ready to repair anything that breaks. It may only take a couple hours of time each day, but they still have to do it. I'm not sure it allows for the freedom you seek.

As SC93 and bwall know, I have had many business ideas run through my head (I'm always looking for the next best thing), but when I've crunched the numbers real estate is by far the best bang for my buck. And the least risky. Other than simply investing in an index fund or similar, of course.

[SC93]

Real estate might be the best bang for the buck but sometimes other things are more fun! lol But I don't think anything about a carwash would be fun!

If it was easy to screw the government out of most of those quarters I'd go buy 100 carwashes tomorrow. The more money I can screw them out of the better!

By the way, every time I go to the carwash now I think about cleaning the slime pit (drain). That thing makes me gag just thinking about it.

[M5]

Real estate might be the best bang for the buck but sometimes other things are more fun! lol But I don't think anything about a carwash would be fun!

If it was easy to screw the government out of most of those quarters I'd go buy 100 carwashes tomorrow. The more money I can screw them out of the better!

By the way, every time I go to the carwash now I think about cleaning the slime pit (drain). That thing makes me gag just thinking about it.

Since I know you're a sprint car guy.. think about all the money the car wash in Knoxville makes every Saturday night! Lol

[SC93]

Yeah but think about the poor guy that has to clean all that black clay out of the drain! Yuck! lol

[Capt j-rod]

The real estate is a secondary consideration. I know and keep track of the sale price value of my rentals, but I bought them for the rental income not the sale price of the house. The real estate value is important for my wife so that if anything happens to me she will sell off the properties. The investment has to stand alone and carry it's weight WHILE making money. Speculating the Realestate market is a bonus for me not a function of the purchase.

[tralfamadorian]

Piggyback on the comments mentioned by several others. My top thoughts:
1) The price is too high
2) I would never consider purchasing a business where the profit with an owner working for zero salary is equal to a reasonable salary for a manager.
3) It's dirty work where most of your hassles will come on holidays and weekends.
4) How old is the equipment? I would be concerned with older owners that pretty much everything needs to be replaced.
5) What is the cost of water in this area? If water goes up 10%, what does that do to the profits?
6) Is it so much cheaper than its competitor because this is an old fashioned wash with hoses and the others are drive-throughs? In my area all the former are being replaced by the latter because people are too lazy to get out of their cars.

I'm with SC93. How about brainstorming with your wife a couple dozen lean start up ideas focused on service and spend that down payment money on initial equipment and advertising?

[boarder42]

could be a reasonable play for the future if you manned it - once all these self driving cars hit the road and everyone cashes in their old cars b/c its cheaper to hail a ride than own one they will need to be washed somewhere and a human will need to look it over for a bit to make sure the owners arent sending dirty cars into the world.  but they could also own their own services to clean the vehicles while they charge so could play out either way. 

but the self service car wash will be useless in 10 years so its a bad investment IMO. regardless of anything else mentioned up thread.

[aceyou]

$240,000 invested into VTSAX could yield you 20k/year on average after gains/dividends are added together.  10-15 hours per week could probably make you an extra 15k no problem doing some job.  There's your 35k/year.  Seems like a simpler and safer way to make 35k for 10-15 hours per week to me with $240k of capital. 

[jpdx]

I think being a successful and satisfied business owner requires passion. Are you and your wife really passionate about care washes and laundromats?

There's only one plus with this business: free car washes!

[Fishindude]

A car wash can be a very good business.   Some things I would look into:

1. Does owner have legit books so you can see what kind of revenue the car wash actually does, or is he pocketing most of the money and not reporting it?   
2. What kind of shape is the mechanical equipment in?  At 25 years it may be about shot, and this may be his reason for wanting to sell now. 
3. There are people that sell car wash equipment.  They would likely evaluate the condition of the current facility and let you know what updates are needed, what approx. expenses for new equipment would be, etc.
4. You need to keep legit books and make your money post taxes if you ever expect to be able to easily sell the place down the road.
5. A car wash owner needs to be kind of a jack of all trades handyman as you will have constant little plumbing, electrical and housekeeping issues to deal with.
6. Know your cost of utilities and how that all relates, taxes too.
7. The constant "wet" conditions means things wear out quicker, require more periodic upkeep, painting, cleaning, etc.
8. Exterior appearance needs to look sharp to attract business; clean, well lit, updated signs & paint, etc.
9. Be prepared for the guys that come in and blast off their muddy 4wd trucks leaving you with plugged drains and a stall full of mud.
10. I'd plan on someone working there at least 4 hours per day every day to keep the place up, and pay yourself or that individual a fair wage for this time.
11. Is there mowing and snow removal associated with the property?

None of this is meant to discourage, just to make you aware.   I know several people that have done very well owning car washes.

[Goldielocks]

Look into / ask about environmental use of water.   How is it recycled now?  How old / large is the oil/water interceptor?  Are there new regulations that will require a large investment in the near future?

Also - property condition -- look for cracking in the concrete paving, deep cracks are expensive to fix, and shut down traffic for several weeks while the new concrete cures.  (But an owner selling can put off these repairs for a few years, if needed).

[retirementnestegg]

Everyone has had some very good input here in this thread.

My concern that no one seems to have mentioned, is I would be very concerned about my wifes safety if she was emptying the machines and taking $1000 in quarters/dollars. But then again I live in a big city where crime is everywhere, so I am concerned about safety. Perhaps the original poster lives in a small town where crime is not a concern.

[Proud Foot]

I think everyone else has given you good information.  Something else to think of is how payments are made.  Is it cash only? If so, how much would it cost to upgrade and maintain equipment to allow card payments? Or would you consider an on-site ATM (a big security problem)? If it is cash only I would almost guarantee you could increase customers by upgrading to accepting cards.

[Suzanne]

I took loan to buy a car at my place.
The interest is around 11%. It is so high in our country.

[SC93]

^^I find it very odd when someone doesn't read the thread and then post something that doesn't make sense^^

[Gronnie]

I wouldn't pay more than the liquidation value of the land and equipment. Probably less than half of what they are asking.

[AccidentalMiser]

Spending $240k to 'buy' a job that only pays $35k seems like a really bad deal to me if you are buying.

This.  For 20k, DW could be a dental hygienist and make 70k per year. 

No one owns a business.  Small businesses own you.  I wouldn't take your deal on for free.  15 hours a week to make 3k per month (according to the seller) isn't a winning formula. 

My opinion, worth price paid.

[retirementnestegg]

^^I find it very odd when someone doesn't read the thread and then post something that doesn't make sense^^

Suzanne has several posts that don't make much sense, and it seems that perhaps she (or he) is not a English native speaker.

[chasesfish]

I was pretty late to this discussion, I've looked at a lot of car washes to finance.

In my opinion, the best car washes are "placeholders", something an owner constructs on a valuable piece of land to generate enough income to cover property taxes and deliver a little bit of cash flow while anticipating the real value is from selling the land 10,15,20 years from now.

Price out the cost to replace all the equipment and assume you have to do that day 1.

If its a self service/bay wash, then get tax returns for the last three years to evaluate the cash flow. Only pay for Net Income plus Depreciation, Interest, and Amortization.  Don't assume any owner "Add backs" are real as your starting point then go from there.

[EXLIer]

Car wash owner here.

I’ve owned a few business in my life.  Liquor store, bar, and now a car wash.  My main investments are commercial real estate - retail strip centers and office buildings.

I bought my wash from an asset company.  I wanted the corner for future use.  It’s a 4/2 (4 self serv bays and 2 IBA’s(In Bay Automatics))with a dog wash.

When I consider my investment and the hours I put into ( less than 6 week) it’s been the best return of investment I’ve made to date.  Roughly 35% COC .... so I’m happy with that..

A few things You should consider.

1.  Is your wife mechanically inclined?  A car wash has many systems - 240,120,24v AC. Compressed air.   Tons of things from solenoids to check valves.  You will eat all your profit if you are unable to replace simple parts or find a attendant that can do so.  For example.  I was out of the country and a simple $57 solenoid would up costing me $1750 to repair my automatic. 

2.  How old is the equipment? Is there floor heat, furnaces, water softeners?  What kind of change machines?  Do they accept credit cards?

3.  Find out if an Express Exterior is coming to town.   They are killing SS washes.

4.  Who is cleaning the pits?

The avg gross for the industry is $1500/bay/month. 

If you have any specific questions, PM me or ask here.

[SC93]

Just so we all know for the future..... $1500 per.....? Day/week/month/year? Thanks

Do you clean your own pits or have someone do it for you? That was the worst!! Yuk!

[EXLIer]

Just so we all know for the future..... $1500 per.....? Day/week/month/year? Thanks

Do you clean your own pits or have someone do it for you? That was the worst!! Yuk!

I have a Ring O Matic clam shell pit cleaner.  Usually my attendant(lives at the wash) does it.

[SC93]

That thing is cool. I was wondering if they had built something to clean the pit nowadays. I used to help my friend Jo-Dale and we would have to get down in there and get sloppy!!! :(

[Fishindude]

Sheesh ..... cleaning those pits isn’t that big of a deal if you’re not afraid of a little dirt.  Drain the water out and just scoop the mud into a wheelbarrow, then dispose of it.  Have done a whole lot of worse jobs than this.

[SC93]

Yep, did it many times when I was a kid. Personally, I don't go that far with manual labor nowadays. I do things where I don't get dirty these days. As for the OP of this thread, I'm not sure his wife would be so gung-ho about it either. lol

[EXLIer]

Sheesh ..... cleaning those pits isn’t that big of a deal if you’re not afraid of a little dirt.  Drain the water out and just scoop the mud into a wheelbarrow, then dispose of it.  Have done a whole lot of worse jobs than this.

Maybe at your location....but 6 yards of wet mud every 3-4 months at my location ..... then we have the interceptors...would kill you.

Older washed had narrow and long pits.  You could clean them with a shovel if you wanted.  Newer places are designed differently.  More square and 4-6’ deep

[BTDretire]

Can your wife do the maintenance, or are you getting a job also.
There will be maintenance!

[Slow&Steady]

Look into / ask about environmental use of water.   How is it recycled now?  How old / large is the oil/water interceptor?  Are there new regulations that will require a large investment in the near future?

Also - property condition -- look for cracking in the concrete paving, deep cracks are expensive to fix, and shut down traffic for several weeks while the new concrete cures.  (But an owner selling can put off these repairs for a few years, if needed).

OP, I don't know if you are still considering this but do not forget about any environmental regulations/concerns for your area.  If this place has been there for 25 years and the owners haven't done any updates, you could be buying an environmental liability.