The Basics
Contrary to popular opinion, valuating a car wash for buyers, sellers, lenders, and appraisers is not complicated. The current market values of full-service, express, and self-service washes are best determined using gross sales multiplier (GSM) equations.
Factors that affect this equation include geography, condition of equipment, local economic factors, memberships, road construction, and competition. Neophyte buyers are recommended to have representation of a broker, consultant, or attorney with seasoned knowledge evaluating all variables that affect a wash’s market value.
This article provides a “snapshot acid test’’ of value for a seller/buyer wishing to determine the current value of a site. There are two common equations used to determine a wash’s value, employing the gross income approach and applying a gross sales multiplier or an EBITDA multiplier (earnings before interest, taxes, depreciation, and amortization). The equations are explored for three key wash categories below.
Full-Service Valuation
Full-service washes with land are valued on a multiple of EBIDTA. This wash type has historically had high labor costs, a $30 base wash, and requires on-site ownership. Determine the EBIDTA (net) recast from the current 12-month rolling P&L gross sales and multiply by 7.5-8.5.
Example: Gross sales of $1M with land, EBIDTA (33%) $333K times 8 = $2.64M. Many variables can affect the multiplier, including: competition, payroll, wash pricing, economy, and most of all the price of land the wash is located.
Get a seasoned representative to carefully recast (all the add-backs) off the P&L to get a solid EBIDTA. This concept is reasonable only if the wash has been in operation for more than three consecutive years. If there is fuel, c-store, lube center, or detail business in the gross sales it must be extrapolated out ― each profit center has a separate value multiplier.
Express Valuation
This wash type evolved aggressively around 2006, as an alternative to full-serve’s long wash times, high ticket pricing, and high labor costs. The express wash model was crafted for speed, convenience, economics, and security for the car wash customer (since the customer stays in the car throughout the wash experience).
This model typically features a longer tunnel (110-140 feet) designed to wash more than 10,000 cars per month, employs four staff members, offers a base entry wash of $10, and provides complimentary vacuums. Wash customers can get addicted to speed, economy, and quality express offers, and investors enjoy lower payroll and absentee ownership.
The value multiplier for an express with land is easier: 4-4.5 times the yearly gross sales or 7-8 times the EBIDTA with three years of consistent history.
Example: An express with land and 12-month rolling gross sales $1.5M x 4 = $6M. Remember, these percentage multipliers have variables, most notably geographic location.
Self-Serve Valuation
The typical four- to six-bay self-service car wash emerged 80 years ago. Generally built on half-acre lots, these washes, called “wand “or “coin washes,” evolved in rural areas in the mid-1930s as the “go-to place” to wash the family car and motorized toys.
The gross sales income approach is the basic equation for valuing self-serve washes with land, using a multiple of 3.8-4.8 times gross sales. Remember to get the highest value operators must report all revenue.
Owners of these washes are generally absentee, with a part-time, repair/clean-up guy on site every day. There are ways to determine the true gross sales, depending on the wash’s water usage, utility bills, and chemical receipts, if you want to conduct a forensic review of the seller’s books.
If you’re not an expert in the wash industry, hire a broker and/or consultant to walk you through the deal. Often operators employ lots of creative accounting which can make matters difficult.
The industry standard for income per month is $2,000 per self-serve bay, plus combined vacuums ($300), and IBA sales (the total sum of all the self-service bays per month is about 60 percent of what the automatic typically grosses).
Example: The 12-month rolling gross sales for a six-bay self-serve + six vacuums + one IBA with land is estimated at $180-240K, times a value multiplier of 5 = $1M-1.6M as a reasonable estimated market value.
Dos and Don’ts
• Don’t rely on only the seller’s two years of P&Ls. Ask for back-up bank deposits and IRS returns.
• Don’t buy the wash and ignore it, “marry it” for the first year.
• Do your homework, observe the wash, and look at all the records.
• Do have a broker, consultant, or attorney represent you.
Summary
The above valuation approach is an art, not a science ― each wash has its own personality, and therefore, an arrived value is only an estimate. Rely on seasoned car wash brokers, accountants, attorneys, and consultants who are unbiased to clearly evaluate the wash’s hygiene (books, records, and trends).
Be mindful of equipment salespersons in your evaluation. They could be eager to convince you they are an expert, only to provide an inflated, embellished performance.
There is no substitute for on-site ownership versus absentee ownership. An owner’s consistent ethos of service, marketing, character, site condition, and management of qualified employees all contribute to the wash’s ultimate value.
The value multipliers discussed above are estimates to be used as a guide only. The most important insurance policy for a buyer or owner obtaining a current value is to hire a car-wash-savvy expert to evaluate the wash and/or pay for an appraisal and/or opinion of value.
Roger A. Pencek is a licensed real estate broker, selling, marketing, and consulting in the car wash business since 1985. He founded and owns ABI LLC (www.abibiz.com), which specializes in the sale of companies in the $900K – $25M range. For the past 40 years, he has gained a reputation as “ The Car Wash Broker,” specializing in 800+ confirmed car wash closings in the U.S and Europe. He also founded and owns Car Wash Brokers Inc. (www.carwashbrokers.com), a firm specializing in the sale of full-service, express, and self-serve car washes in the U.S.