Most of my weekends from the age of 12 through 20 were spent working with my Dad in our family business; Auto Valet Car Wash in Trento NJ. I remember him saying that a car wash was like a sacred item that someone will always be willing to pay you more than what you paid for it. Those were the days when you could buy a wash with $50,000 down and the seller would hold a note for another 15 years. Today, this Industry is witnessing what most old timers would never have imagined – full service car washes selling for 6 M + dollars!
An excellent Exit plan does not just plan for the involuntary transfer of your business because of some calamity in your life but for the voluntary transfer of your business because you feel it is time to cash in.
Here are the Top 8 Factors that impact the value of a business. Focus on improving each of these areas and you can expect a higher value for your Car Wash. I have left out the three L’s; location, location, location, because that is obvious and something you don’t have much control over if you are an existing operator.
1. Cash Flow. Cash is King! The more profits your business generates, the more valuable your Car Wash. Most businesses are run to minimize the tax hit from Uncles Sam, and to maximize the cash flow to the business owner. Financial statements are “recast” to reflect what the true profits of the business are. For example, if you recast the profits of the business by taking out the car and other “miscellaneous” expenses for the business owner it may dramatically change the cash flow picture. Most businesses are valued on a multiple of cash flow (Earnings Before Interest Taxes Depreciation and Amortization or “EBITDA”). The higher the cash flow, the higher the multiple on the cash flow.
2. Growth Trends. If the volume is steadily growing, then the business will have a higher value. If the trends are negative, there will be a fairly big impact to the value in most cases.
3. Recurring Revenue. The last ten years or so have seen the impact of unlimited wash clubs. Never before has a Car Wash had a continuous stream of revenue coming into the checkbook when the doors were closed due to bad weather. A new buyer knows there is a predictable revenue and profits each month to pay overhead and possibly amortize debt.
4. Impact of the Operator leaving the business. Is the Car Wash centered on the owner? If so you can expect a lower value. One of my strategic partners, Emery Ellinger CEO of Aberdeen Advisors, likes to say that “becoming inconsequential is supremely consequential to your company’s continued success”. Buyers want to know that the business runs efficiently without having to be there 24/7.
5. Management Turnover. A good manager or Key Person improves the value of the business. A manager who can maintain equipment, is reliable and incentive based, is highly desirable. Do you have programs in place that recruit, reward and retain key people? If so, then a new buyer does not have to agonize over that and will pay you a higher multiple.
6. Margins. The higher the gross profit margins and net income margins, the higher the business valuation. There is more cash flow from higher margins. Lower margins highlight a tough competitive climate.
7. Fair Market Value of The Company Assets. A car wash has a lot of hard assets. Is the equipment modern, clean, attractive and maintained properly? Don’t be penny wise and pound foolish when offering your business for sale. It may seem obvious but spending money on paint, cosmetics, lighting, landscaping etc. Is a wise investment.
8. Accounting Records. Keeping and maintaining accurate books and records is a must today! Sophisticated Investors, Banks, Private Equity firms all require detailed financial statements. Car Wash operators today must invest in taxes today in order to sell for the highest value tomorrow. One way to do this is to have a valuation done annually so you have an idea how your business looks to an outsider. Plus, it can help you spot the metrics that need improvement. There is excellent software available that your financial advisor or CPA should have access to at a very minimal cost.
Today’s solo and multi-location operators have an enormous opportunity to cash in when the timing is right. Incredibly high valuations are rewarded to those who pay special attention to these factors. Paying strict attention to the metrics of the business and treating it like an investment rather than a personal cash cow, will pay very high dividends for you and your family when the time is right.
For a complimentary valuation using our Biz Equity valuation software please call Lou at 941-915-1084 or send an email to [email protected]
Louis Rendemonti, Registered Representative and Financial Advisor of Park Avenue Securities, LLC (PAS),
Securities products/services and advisory services offered through PAS, a registered broker/dealer and investment advisor. Financial Representative, The Guardian Life Insurance Company of America (Guardian), New York, NY,PAS is an indirect, wholly owned subsidiary of Guardian. Rendemonti Wealth Strategies, LLC is not an affiliate or subsidiary of Guardian.
PAS is a member of FINRA, SIPC.
2018-52530 exp 01/20