Question

Topic: Other

What Do You Know About The Car-wash Business?

Posted by mgoodman on 7/25/2005 at 8:20 PM ET 500 Points
I'm involved in the possible purchase of a local car wash. I've identified a pretty comprehensive list of the issues and questions, but the current owner doesn't have much information to give. The business has been run for personal needs, not as a real business. No tax returns, no P&L, etc. Only an attractive lease with 18 years to go, and an estimate that they currently wash about 45,000 cars a year. (Obviously, this is a business with a lot of unreported cash income.)

According to the seller, anyone who knows the car wash business will be able to figure out what the business is worth. That excludes me, even though I think this could be a good opportunity. There are lots of obvious marketing and cosmetic improvements that have the potential to grow the business dramatically. Location is excellent ... main road, growth area, near a large shopping mall, and within 0.25 mile of McDonald's and Burger King, large supermarket and drug chains, etc.

My problem is that no traditional lender will lend money for this kind of business without a business plan, and it's impossible to put one together without historical data -- or experience in the industry. I have neither.

Non-traditional lenders might accept more risk, but even they would want some kind of projections. Right now all I could do is multiply 45,000 cars times the estimated average price of a car wash, and then add some growth factor for marketing effectiveness. I don't have a clue what the expenses are, or even the main categories. (I assume they are rent, chemicals, labor, and utilities/water/waste removal, plus overhead items -- rags, mechanical repairs, etc.)

Are there some reliable guidelines? Anybody have experience in this industry? I know that P&G used to be a major supplier to the industry, but that is old knowledge, and I'm not sure how much they'd share with a casual outsider if they are still involved. They may be just an arm's-length supplier and no more, in which case their information might not be as useful as what I need.

Thoughts? Comments? Suggestions?
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  • Posted by mgoodman on 7/26/2005 at 7:58 AM Author
    Thanks, Kathleen. I have already visited that site and snooped through all the free stuff they have. Also found a manual for IRS auditors telling them what to look for when questioning reported income from car washes. (That is 91 pages of very good information!) I guess car washes and their owners are a popular target of IRS audits.

    cblase: The franchise approach is a good idea. I'm going to pursue that as well. I'm a little bit skeptical about how much they'll divulge without some sort of non-disclosure agreement, but it's certainly worth a shot. And I know some folks who are franchise consultants; perhaps they have info on car wash franchises.

    As I learn more about the industry, I'm beginning to assemble the makings of a decent pro forma P&L. It's clear that car washes can be very profitable, but it's also clear that most owners are not about to give too many details.

    Marketing/Management Consulting sure takes you into a broad range of places, eh?
  • Posted by steven.alker on 7/26/2005 at 10:56 AM Accepted
    Hi Michael

    When I saw this one, my first thought was, “If he’s looking at Car Wash as a business, maybe I ought to have a look as well” Over in the UK that is, so if you do use “Alternative Finance” you don’t need to send out the loan company’s hit-men just yet.

    The only thing that bothers me from a professional point of view is the answer to the question we put to our clients. “Should you really be getting into a business about which you know nothing?” You ought to go and find another competent Marketing and Management consultant to do a one-off contra trade with you to ask the question!

    I had a look at the materials and equipment suppliers to the trade. The UK one’s were surprisingly forthcoming about the costs someone setting-up in business were likely to incur on the disposables front and on the service and running costs for any dedicated equipment such as steam cleaners and valet-vacuum cleaners. The franchise operators were, in the short term, unforthcoming about any details apart from wanting to tell me that I could earn £££ for an investment of £46,789. Where do they get these numbers from?

    Working backwards and talking to a few guys in the “Legitimate” end of the business, it becomes apparent that the average cost of a hand wash (£5.00, which I guess works out at $5.00 in your country) does not cover many of the overheads unless you are proposing to do a lot of the work yourself.

    The real profit is in the value added services which add surprisingly little to the time spent washing a car or the cost of materials. It seems that the basic price is to lure them in and the operator is either self incentivised to sell a more comprehensive package or is on a bonus relating to the added value. In a range of £5.00 for a basic hand wash (15 minutes) though to £10 for a wash, wheels and polish to £15 - £20 for a wash, wheels, wax polish and the pokey bits (They have the tools to do this in minutes) you are looking at an average of £12.50 - £13.50 for an extra 40% of time spent. Material costs go up with the waxes, but the cost is not great. Depreciation on the disposable tools is considerable but again the costs are quantifiable and low.

    Doing the Valet side means investing in some hefty hand held machinery, but here the basic price for a wash and valet is about £40-£50 depending on the location. A full valet can take an hour, but the price is £60 - £80 in commercial outfits. Of course, you need shelter to do this, so it may not apply to your site.

    With 45,000 vehicles / year as a starting point, the P&L looks very interesting – I just wish that my cost figures translated to the States, or vice-versa for the thru-put you quote and the probable ground rent! One operator can do 3 cars an hour at £13.30 for 8 hours a day. That’s £320 / day. Considering that here these guys are on the National Minimum Wage, that’s £48 in wages and about £5 in employer taxes. That leaves a lot for overheads, incentives and a return on your capital.

    I’ve decided not to pursue the matter further though for professional reasons. I asked Benson what he thought of the idea and he succinctly informed me that if “Sir was going into that line of business, sir would be washing and driving the Bentley himself” ;-)

    Steve
  • Posted by mgoodman on 7/26/2005 at 11:17 AM Author
    Hi, Steve ...

    As you probably surmised, I was dragged into this one by a friend, and I see how substantial the profit potential can be. It is, however, a local, mom-and-pop business ... not scalable in the traditional sense. You can always purchase more locations, but there isn't much economy of scale, and the management headaches multiply exponentially.

    Your numbers pretty much confirm what I have here, and that's useful. This particular car wash is an automated tunnel that can crank out 30-40 cars an hour when it's going full tilt. (There are a couple of guys who hand wipe the car at the end, but that's about the only human involvement, other than collecting money and making sure the windows are rolled up all the way.)

    They have a few upgraded services, but nothing that looks like real detailing. And the prices start at $8 (US) for the basic exterior wash. (That's comparable to the 5 pound figure in the UK, I think.)

    Thanks for your input. I appreciate it.
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