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Posted on October 28, 2009

Contributed by Peter Siegel

Buying A Carwash: Three Types To Consider


One of the most popular business offerings is the carwash. It’s considered easy to run, the number of cars on the road continues to increase, while it doesn’t seem that carwash installations are being added to keep pace.

But there are some challenges involved in buying a carwash business.

Three Models:

Small business buyers considering this industry will be aided by understanding its three basic business models.

The "tunnel" wash uses a long building for soaping and rinsing as each vehicle travels on a conveyor and later is dried and vacuumed by hand. This is the costliest way to get into the business--usually priced over $1 million, and the one producing the highest revenues and profits. With employees to manage, and a seven-figure cost, this is the most demanding of the carwash models. The owner of this business type often is a corporation or partnership, with two or more people involved, each investing capital, borrowing ability and management time.

Much smaller installations are the "drive through" arrangements that require the customer to stay in the car while it’s being washed. There is no hand labor involved except the customer’s do-it-yourself vacuuming at the end.

Least costly and also the lowest revenue producer is the "self-service" installation using individual bays with wash wands, soap brushes and, once the customer has cleaned the metal finish--front to back, some coin-operated vacuum cleaners to do the same to the interior.

A review of carwash businesses currently available on this site reveals there are opportunities in each of the three categories, with some businesses that seem to be hybrids, offering a mixture of facilities. And while some for-sale carwash businesses involve an installation on leased property, other offerings include the real estate.

Most carwash buyers are particularly interested in businesses with real property offered in the package. It means security; no risk of losing the right to conduct business on the site, and the possibility of enjoying property appreciation.

Other buyers in this category, however, want their investment to go strictly for revenue production. The more money they can put in, the more immediate income they expect to receive. For this part of the market, a carwash with a long lease, perhaps an option to buy the property in the future is the most appealing opportunity.

Valuation

A carwash for sale might be a relatively uncomplicated business to operate. But determining its value usually is a challenge.

Various appraisal approaches are advocated, and the valuation problem is complicated by the question of whether real property is involved.

One popular guideline suggests starting with a determination of market value for assets, including equipment and improvements, inventory and--if this is the case--the real estate. Arriving at the total will involve taking inventory of parts and supplies at their costs, and adding the appraised value of the property, buildings and equipment.

To this value, add what the business is worth. That’s a figure determined by using a factor between two and three to multiply against the annual discretionary income of the seller. And whether the appropriate multiplier is closer to two, or to three, depends on the same factors taken into consideration when evaluating any business, such as location and condition of the equipment.

On a cautionary note, it should be pointed out that many municipalities are concerned about the land use, water use and wastewater discharge associated with car wash businesses. A visit to City Hall should be part of the investigation of any carwash business, to make sure there are no planned changes in laws or ordinances that will negatively affect the business.

See all carwashes for sale on BizBen at this time.

Do you have feedback on buying carwashes? Feel free to comment below on your experiences with either buying or selling California carwashes.

About:  Peter Siegel is the Founder & President of BizBen.com. He consults with business sellers, business brokers, and agents on marketing & advertising strategies when selling businesses and has written three books on how to buy & sell small businesses. If you have a question about the buying or selling a business process please feel free to phone Peter Siegel at: 866-270-6278.

Watch for more blog posts answering viewer questions in the future!

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 Posted at 6:23 am in BizBen Blog Contributor, Buying A Business

Comments:

One point about car wash businesses. It's the fallacy that you run the business absentee. It helps taking time off if you have good management that you can trust. I know a big one that is run by partners and they both work almost full time. They have 20 people or so. You need to be there a lot just to manage that. If there's a gas station also, that takes time because it takes time to deal with the oil company. And if you hire a lot of managers, especially with long hours, that takes much of the profit.

Posted by: Lawrence Ing

I have looked at a few carwashes to buy and I'm not sure I completely understand how to evaluate them. 2.5 to 3.0 X adjusted earnings PLUS all the hard assets is just too much to invest in this kind of business. When you buy this kind of business you pay for the equipment separately. Then you have to set aside money to replace the equipment because it wears out and it is very expensive to buy and to install. That depreciation expense is not really an add back because you're going to need the money to continually upgrade the equipment.

Posted by: Ron F.

From what I've learned about car washes, including three deals that involved car washes where I was a broker, the value is at least three times adjusted earnings, assuming there isn't some problem such as a bad lease or broken down equipment. Like you said, a good car wash will sell quickly. They are popular because they are pretty easy to run part time. And they are desirable because if you want to sell, there will be buyers out there who want to buy it.

Posted by: Steve C.

I think this helps somewhat. It's a pretty complicated subject, actually. Especially when you try to figure out what they are worth. Like you said, there are so many different factors. Every carwash has different aspects going on for it. You say the multiple for the business is in the two to three range. I think it's usually at the top or over 3. That's just a result of demand and supply.

Posted by: Louis Tek


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