6 Figure Cashflow on … Car Washes 💦🚗💦

Welcome to your September Playbook

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Episode #8 - suds in a bucket...and quite a few dollars in your pocket.

In 2019 alone, there were 276 million vehicles registered in the US… and significantly less car washes to service them. From self-service bays to automated washes that take care of the most luxurious of cars seems to us there just may be a lucrative opportunity for everyone to cash in on this clean asset. Alright enough puns, already.

The truth is that we love boring, straightforward businesses that are so easy a 23-year-old college dropout could do them. Oh wait, she did.

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Hannah Ingram a 23-year-old Tennessean college dropout makes around $7k a month from her car wash. Our team sat down with her to discuss what made her approach this opportunity as a young 20-year-old, how she negotiated the finances to do the deal with little credit and work history, and how you can replicate her success. Hannah says "If I can do it, so can you."

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Playbook

We are actually, as we speak, reviewing a few car wash deals (walking the talk). So here’s our step-by-step guide on how we are potentially reviewing a carwash business for our portfolio:

Step 1 - Research & source the business - Before you go and buy any business, you need to do your own homework. Unlike real estate with comparable numbers, all washes are different based on their numbers.

1. Where to find them - Loopnet, BizBuySell, Car Wash Advisory, and Commercial Plus. Or follow Hannah’s example and start cold calling different car washes.
2. Drive around the city looking at different car washes. Check out the area, the nearby competitors, and the traffic. If you’re out of the area, have a trusted friend scope the location. I like to go and utilize different locations and then ping them directly on yelp, via email and phone after I’ve surveyed them.
3. Evaluate the valuation - Car wash advisory gives us the averages on valuation based on revenue and each type of wash. Small circles are <$500k, medium are $500k-$1.25 mil and large are >$1.25 mil in revenue. We also like to buy somewhere around a 2-3x multiple. BUT often car washes sell along with the real estate they sit on. So you need to insure #1 the real estate independently without the cashflow is worth the price and then #2 back out the cost of the carwash and independently verify you like the business on it’s own merit. We like to buy car washes in regions and cities where we may just want to hold the land and cashflow while waiting for appreciation, we get paid. That is how the best deals go.

4. Due diligence list of materials needed​

5. Value add - Anything you can do to increase your cashflow through additional revenue streams. Can you add another bay? Is there an option to add a brush rolling segment? Can you add an ice vending machine on the property? Additional soap or accessory bays?

6. Turnaround - We don’t buy broken businesses. We buy businesses that are strong and profitable and look to get ‘em a little TLC. Look for businesses with opportunities to boost the revenue of the car wash using your skillset. If you’re a marketer and you see a car wash that can do a better job with their marketing, there’s room for growth. Perhaps you can get better on operations or financing. Take your skills and add to the business.

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Step 2 - Understand The Implications of the Types of Washes - From self-serve to automated there are pros and cons of each ranging from upfront capital involved to scalability.

1. Full-service - These typically have an automatic wash that cars are put through, and employees who will polish the car and vacuum the interiors. These are not 24/7 and have a much higher reliance on low wage employees, but are high on human capital. Full service car washes have higher labor costs (20+ employees, 30-50% total revenue) thus higher operating margins, but you can charge a premium.
2. Exterior express - These are the most popular types being built today due to efficiency, but they thrive on volume. Each site can run on around 2-3 employees, which is around 15% of the total revenue. Exterior express #s are a lot more appealing given higher traffic volume and lower labor costs, so generally expect EBITDA margins to be ~40-60% of gross revenue depending on traffic volume. Your exit strategy will be stronger and you’ll have more predictable recurring MRR if you offer monthly unlimited wash plans.
3. Self-serve - Like Hannah’s, these are open bays with machines that allow customers to wash their own vehicles. These would rarely have an employee on-site and are open 24 hrs most of the time. Hannah specifies that she factors this type because some automatic can damage the exterior coating of cars. These are slightly more seasonal than other types but have far less overhead to manage due to lesser equipment. She says she spends around 2hours/week servicing her wash and the maintenance guys are out pretty infrequently. While they might not render the highest monthly revenue, your purchase price will be lower… could be better for first-time acquirers.

Inside express automatics you have:

a) In-Bay automatics - They have different cleaning materials...One can be a touchless "laserwash", the other is a friction wash that has cloth arms that touch the vehicle to clean it. These in-bay automatics also rarely have employees on-site and they are also many times 24 hrs. One of these typically generates the rev of 3-5 self-service bays.

b) Tunnel wash - Last is a Tunnel Wash. These are the vast majority of washes being built today. Tunnel Washes use a conveyor system to pull cars through with a friction wash system. Typically there is an employee attempting to sign up customers on recurring monthly subscriptions at the entrance. There is also an employee that helps customers get their car onto the conveyor and their vehicle into neutral. This employee also pre-treats the tires and the side of the vehicle. These washes usually have free vacuums on-site for customers. These washes are not 24/7 but are typically very reliant upon subscription revenue, so there is a fine line between being open too much and not enough. Institutional capital is beginning to flow into this space in a major way because of predictive MRR, and development costs for a tunnel wash are likely > $2m in most areas of the country. For time allocation of volume calculations and depending on tier, the typical wash takes between 2-5 minutes.

You can have a site with a combination of different types of bays, self-service, and automatic, but it is important to note that you want to maximize your revenue potential wherever you can...offering premium washes with additional materials where possible.

Step 3 - Understand the implications of location- In the car wash business, you’re married to the location. It will make or break your business. So what should you look for? Corner lots with easy in and out for cars, growing cities or neighborhoods, highly trafficked areas such as near apartment complexes or condos, proper zoning, and little of differentiated competition. Most importantly review the documentation of the location for the volume of cars sent through the wash per day.

​Here’s a location analysis worksheet from Car Wash Investment Guide. ​

Step 4 - Financial and business planning - Take a look under the hood for the P&L and cash flow statement for the wash. Also, we’re giving you a retooled full financial model to plan your acquisition. Access it here.​

1. Understand what’s needed to keep your wash supplied. These are covered under costs but outside of capital costs, if applicable, supplies will be your second highest recurring expenditure. It’s always best to have an advisor experienced in acquiring the specific asset to help you with what to stock it with...and which products to choose to save on the bottom line. What you’ll need most:

• Hot Foamy Presoak
• Tire Cleaner Applicators On-Board
• Undercarriage Wash
• Scrubbing Action Oscillating
• High Pressure Wash and Rinse
• Soft Touch Brushes
• Rocker Panel Sprayers
• Wheel Brushes
• Triple Shine Foaming Conditioner
• Spot-Free Rinse
• On-Board Blowers
• Rollover Design for Faster Wash Cycle

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For business planning, just have an actionable plan, rough numbers of different income opportunities, and a few inspirations. Here’s a plan template. As well as an example of a planned out car wash. This is most important to present to potential investors if you're funding outside capital to finance the acquisition.

Step 5 -Financing the acquisition-If you don’t have enough money to cover the full purchase, you’ll need an investor or lender to buy the car wash. You have a few different options, and you need to figure out which one makes the most sense. Quick tip, if you’re going the traditional loan route, get prequalified with an institution that specializes in car wash loads BEFORE searching for locations to buy. Most acquisitions of $5mil or under are financed using 1 or more of the below:

Own funds: Most lenders require that buyers contribute 10% to 20% of the acquisition price as the equity injection. Funds for the equity injection must come from you and your partners. They cannot be financed by lenders or the seller.

​Debt financing:​

Traditional debt financing - Here are the needed materials you’ll have to have when applying for financing of the property. ​

SBA loans - SBA loans are good for first-time car wash investors. Here are some SBA loan guidelines on this asset. These loans provide up to $5,000,000 in financing, with very competitive pricing and flexible requirements.

Seller financing - traditional seller financing is a great way to structure the deal in some parts. It ties the owner to the business for a certain period being paid with a portion of your (new owners) revenue until it equals the full sale price.

Have more questions on financing? This FAQ is very helpful. ​

Step 6 - Negotiate the deal, planning for exit - Remember you can only have either your price or your terms. I always lean towards terms. Hannah put so little capital down because of her terms. $140k in a 2-year bubble paying back her owners (seller financing).

When analyzing the purchase price, the biggest factors are average revenue per car and volume of washes per month. However, the biggest variable in the car wash business is capital expenditure (CAPEX.) Each location regardless of type has equipment that will need to be analyzed and replaced or fully serviced every 2-4 years that will take around high 5 to 6 figures.

After it’s yours, keep thorough records for when you want to exit. Here’s a guide when you’re ready to sell. ​

Step 7 - Run the wash - Hannah only spends 2ish hours per week at her self-service wash...to check the equipment, restock if necessary, collect her money, and of course film her TikTok content. But if you’re not an owner/operator like her and you’re an absentee owner, you need to staff your wash especially if you have full service or express. If you’re not local to the location, you still need an on-site operator or 1099 manager for self-service. Here’s our take on how to source and hire this person. And get a contract with a servicing company that will keep the equipment in good order.

Step 8 - Market your wash - Website, signage, collateral, social media, and email marketing. You typically want to rely on the visibility and location of your wash to generate customers, as well as opportunities for recurring MRR like monthly unlimited payment options for automatic. However, if you buy a self-service or just want to boost your business presence, a few tips to increase presence and get more wash volume:

• Set up a bare bones website with the opportunity for people to subscribe for discounts or special offers, or a free wash as a first time customer
• Distribute printed materials to the surrounding neighborhood presenting them with a special offer
• Ensure the signage at your location is up to date and high quality, visible and stands out so people can see you driving by
• Establish a social media presence, like Hannah did, to boost awareness, using UGC or promoting offers

The takeaway? If you do your research and due diligence correctly, you can buy yourself a car wash that will grow your income over time…. and use it to buy more cashflow.

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Bonus

​Full investment guide Lots of great information to run your wash as well as numbers to benchmark costs and what to price your wash tiers.

​Property differentiation opportunities​

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Tips and Tricks: Improve the Space

My rule of thumb for assessing deals: How much money do you want to make per month? How much money will you have to spend to acquire that monthly income? Now find a location that’s profitable near that, and add your flair to it to increase the bottom line of cut expenses. In our original post, we discussed how Hannah managed to boost the revenue of her car wash by adding new revenue sources and making some improvements.

Here’s where you can start with your car wash:

1. Add food vending machines - Self service or ful service where the patron will be outside of their car some of the time? Put vending machines in the location. Here’s how Quinn makes $15k a month from vending machines.​
2. Add car wash vending machines - Hannah gets a good portion of her weekly turnover from her vending machines. She has only five products, but they are more than enough to generate consistent cash flow. Hannah buys her air fresheners for $0.20 apiece and resells for $1.25, making a 500% markup.
3. Make cosmetic improvements - it’s the little details that help. Replace your signage, upgrade your labels, fill in the paint. Hannah mentioned replacing her car wash tier stickers and it’s the small things that make all the difference.
4. Add your special skill - like we talk about with equity in companies, bring your skill to the table. This is beneficial also when looking for financing...you experience. Because Hannah rocks social media, she brought a social media presence to her location that boosted her clientele while before it didn’t have a digital front door at all. What can you do that streamlines operations, cuts costs, or increases revenue?
5. Repurpose your extra space - Hannah mentioned that she’s looking to add self storage or RV storage space to her extra lot room. Considering washing cars is more popular in the summer, reverse that seasonality by adding something you need in the winter...storage of your vehicles. Here’s where we talked RV storage. ​

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It’s time for something new. We’re trying our AMA on this topic, panel style. Join us Thursday, October 14th, 2021 at 2 pm PST for a panel discussion with multiple subject matter experts and those who’ve done car wash acquisitions.

No need to register, just directly join below, and the meeting will be recorded.

Stack cash and collect some jingle,

Codie & the Contrarian Crew