2 questions about valuatioin and GM salary

Hello, all!

I have 2 REALLY, REALLY important question to ask experts!

I'm trying to purchase a full service carwash with lube. It has about $1.1M revenue from car wash and detail and $500K from lube. It's in a great location and is about 6 years old and the numbers have been fairly consistent(slight downward trend for past couple of years).

The negotiated sales price is $4.3M. Is that a fair price?

Also, I'm told by the seller that it has about 50 employees of which 40 are part-time and 10 are full-time. The GM currently gets $70K plus bonus incentive. Is that about the going rate for GM of this calibre car wash?

My background is in gas station and hotel. After reviewing the financials and tax returns, this car wash turns up good cash flow and has capitalization rate of 14%. 14% cap rate in hotel world is impossible. So, to me, this seems very attractive, but then again, I'm not really sure how this deal stacks up in the general car wash industry.

Could you please lend me some advice?

Thank you!

dam that's a lot of employees! How do you spell HEADACHE? One dollar bill at a time until you reach 4.3 million bills! And you ask about cameras? I'd ask about BRINKS!

Honestly... if this is swhat that wash is doing... and that GM is not stealing... he's worth that $70K. Still I'd put EVERY SAFE GUARD in place. Cameras, cash managment systems, Auto cashiers.... anything to cut back or eliminate the handling of money. Then I'd get rid of 20-30% of that staff!

I never owned a business that threw out that kind of cash... I'm not the guy to advise you on this. But people are people...everyone of them will steal from you! The less you have, the less chemical you will miss, the less call in's, the less UCT-6, less WC insurance. Like you said... there is a trend DOWN in the past few years and 4.3M is a lot of money! What makes you think that trend will reverse? What if it doesn't? How can that wash adapt? Can you reasonably cut 20%-30% of the labor by adding more equipment?

I manage my own wash. I keep what I can. Then agian I don't bring in 1.6M cash flow a year. Still I trust no one with money.

First off are the two business one, as in is it one company. The car wash and then the lube center. Look at it as you just buying one or the other, can they make there bills. Where is this place at, is it in a good growth area, what state, why are they selling. And where are you getting this info at? Have you looked at P/L's?? And is $1.6M gross or Net money?? Do they give a Free Car wash away with any Oil change. What are the car counts. What does the detail shop do a month in detail.
Cameras are a MUST in a Full-service wash, I just got done adding more after 5 years of business and its been a great thing. Don't know why I waited so long to add more cameras.
If you plan on living off this business(lube/Wash) then you will need to let the GM go and hire a cheaper assti. manager. I think we paid our Lube assti. manager $75k last year with bonus, Mind you he works 50+hrs and has been with us for 7 years. He just runs the lube nothing with the wash and are lube does about $2.5m not including our Wash. Just to put things in prospective we would sell are lube just LUBE for $4.5M.
If the lube does $500k a year thats $41.6k a month, 5 people should be enough to run that place. Car wash takes about oh lets say 13-17 on avg. This also depends on how much detail they do, it could be less if it does about $10-$15k a month. Keep the questions coming

Hey Doug,

As a GM who has worked in the car wash industry for several years and has run operations that generate well over a million dollars a year I take offense at the comments that "every one of them will steal from you." This statement is as ridiculous as me saying that all owners are dishonest because they hire illegals, or don't pay their withholding taxes.

John Moran

Tom,

The short answer is yes, however, you goals and an evaluation of what his duties and responsibilities are or would be moving forward, would give you a better understanding of his value to you and the success of your business.

John Moran

They all bring up good points! There needs to be more information as everyone has said. What are the car counts? Handwash, equipment wash, and what is the average time per car? What are the detail numbers? Of the 40 part time employees how many hours a day/week are they working? 40, 20hr a week employees is much different than 40, 35hr a week employees. What capacity are your 10 full time employees serving?
In my experiences with car washes I have come to this opinion. With any employee, but more so with a ticket writers and managers, these employees (if they are good)will make you more in revenue then they should ever cost you. A poor ticket writer or manager will cost you more in revenue then they will ever save you in wages/salaries. The trick is in evaluating your individual situation and finding the right people to maximize the revenue.

Danny

Is it a fair price?

At face value, it might be... except that the operation is adversely positioned against the industry trends.

Maybe the owner is smart by getting out while the value is still somewhat inflated. Full-service carwashing is in serious transition. Reason: The full-service business model is too inefficient. In fact, it's broken. It is a labor-dependent operation with ever-increasing burdens to the owner. The lube & oil change is also moving against the trend, and already being devalued by car manufacturers and oil companies alike.

Hire a consultant who deals in carwash feasibility & development issues and see if he'd recommend building a white elephant like that today. Do a feasibility study.

Looking at revenues can only indicate what the business has done in the past. Ignoring industry forecasts and buying someone else's burden isn't a very prudent move. Simply looking back five years isn't the smartest assessment. You must also look ahead, and get the most insightful forecast... for that particular business... on that site... with a changeable marketplace... and less available labor seeking a much higher wage with benefits.

So, it might be wiser to see what needs to be done to make the business more viable in the longer term. Figure what would be built in its place today... after all the assessments and projections have given you a balanced choice. Most full-service carwashes that plan to stick around very much longer... are being rehabilitated... or sold. Okay, there are the exceptions, but it's only a matter of time and circumstance.

Sorry... but somebody had to say it.