Selling A Car Wash
Car washes represent a very attractive investment for many different types of investors in South Florida. Car wash business owners often also own the underlying land and real estate, which must be valued as an income producing property. A car wash business which rents space should be valued using a multiple of its annual adjusted owner benefit. Many different buyers ranging from private equity investors, serial acquirers, and individual entrepreneurs invest in car washes because of their predictable returns and recurring revenue. One must carefully evaluate the income of a car wash along with its equipment in order to determine its best asking price. Car wash business owners can prepare their business for sale by obtaining an accurate set of historical financial records, enhancing their curb appeal by upgrading and maintaining their premises, and developing a 12 month plan with a business broker experienced in car wash sales to confidentially market the business to strategic buyers.
Evaluate Land and Property of Car Wash
- The first step in evaluating a car wash is thoroughly investigating the value of its owned real estate.
- Obtaining accurate information as to the acreage and square footage of the property is mandatory.
- A comprehensive evaluation of the real estate should use comparable sales prices (‘comps’) as to the land and property of similarly situated nearby properties.
- Preferably such ‘comps’ should be on the same main thoroughfare of the car wash, and one should compare sales volume between the ‘comp’ and subject property for the past 12 months.
- Special attention must also be paid to any licensing issues or restrictions that prevents (or significantly delays) any competitive car washes in the nearby area.
- Many other factors such as the car count (daily number of cars passing the car wash), visibility, and overall location will heavily influence the valuation of the real estate.
Equipment and Facilities of Car Wash Affect Business Valuation
The real estate of a car wash incorporates all of its improvements that are physically attached to the property. Movable equipment is valued separately and is part of the valuation of the business. Buyers will put a higher premium on car washes with up to date and automated equipment (which saves on labor and increases customer satisfaction) which use more environmentally friendly and efficient cleaning services. That is certainly the wave of the future when it comes to car washes and what the customer expects. The valuation of a car wash should incorporate the equipment value along with its efficiency and technological prowess.
Adjusted Owner Benefit of the Car Wash
After one evaluates the real estate and physical assets of the car wash, one must evaluate the sales and net profits (or adjusted owner benefit) of the car wash. A well established and well run car wash normally exhibits steady sales and income, and thus attracts buyers willing to pay high multiples of the car wash’s adjusted owner benefit. The adjusted owner benefit is calculated by first determining the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) of the car wash from its most recent financial statement. Then any hidden assets such as unrecorded sales, the owner’s salary, and the owner’s personal expenses which flow through the financial statement are added back to EBITDA to determine the adjusted owner benefit.
Absentee-Owned Car Washes Receive Higher Valuations
In assigning a valuation to the income generating capability of a car wash, one assigns a higher multiple of owner benefit if the car wash is absentee owned. There are varying degrees of owner absenteeism depending on how active or critical the owner is to the car wash. If, for example, the owner acts as the manager and the owner’s family members work in the car wash, then the buyer of the car wash would have to replace the owner (and family members) with either paid employees or with their own labor. An absentee-owned car wash – or turnkey business – generally receives a higher multiple of owner benefit.
Using A Capitalization Rate to Derive Value of Car Wash
- Many purchasers of income-generating properties (such as car washes) employ a concept called a capitalization rate (or ‘cap’ rate) in order to best assess the asset in question.
- A cap rate of a car wash property is its net operating income (not counting depreciation any mortgage expenses) divided by its asset value (or prospective purchase price).
- For example, let us assume that Bill’s Car Wash generates $250K/year of net profits and has an asking price of $2.5M.
- A buyer may assign a 10% (250K/2.5M) cap rate to this investment opportunity.
- As discussed, if the buyer must replace the working owner with a manager, then the net income will go down along with the cap rate.
- Cap rates signify the projected rate of return on one’s investment.
- In a strong business or commercial property environment, cap rates are low because the expected rate of return from investments is relatively low.
Value Both Income and Assets of Car Wash
Any business with attractive physical assets will result in buyers placing a premium valuation to its underlying income generating abilities. For car washes, this is even more evident because car washes with more automated and modern equipment will generate more long term income with less need of repair and replacement. The capitalization rate method of valuing car washes is generally preferred so long as the valuation incorporates both its income generation and real estate value. Do not underestimate the worth of your car wash!
Give Martin at Five Star Business Brokers of Palm Beach County a call today for a FREE evaluation of your business.