Buying a Car Wash - Would love to get some advice

[Nathan Smith]

I'm looking at buying a car wash and would love to get some feedback and comments to help make my decision.

2016 sales were $225,000. Net profit is $116,000. Asking price is $1,000,000

Below are a few of the details about the facility

6 Gin San Self Serve Bays with new electric drying system

1 Automatic Drive thru Laser wash 4000-REBUILT

Wash Select II Auto Teller with cash/credit card acceptance

Standard Change Maker dual change machine

Gin San Reverse Osmosis “Spot Free” machine

Water softners with 2 alternating tanks for production and delivery

Air Compressor

6 vacuums,( 3 regular, 2 fragrance combo, 1 carpet shampoo

6 drop shelf vendors for product purchases

Compaq PC for credit card processing

ScanCoin Currency counter

Semacon Coin Counter

16 channel DVR plus 9 cameras with remote viewing capability

Honda Power washer

Full supply of tools, ladders, etc

Inventory of spare parts and chemicals,Roadside Marque sign

[Joel Owens]

Why are you spending 1,000,000 to get an 11.6 return for owning and running a business?

That is low for running a business. Key is checking with the water department what the water and sewer rate has been in recent years? Some utility companies kept rates down during the economy and did not raise to keep up with inflation. If water rates go up a lot it could really eat into your returns as you could not raise pricing to maintain the same profit levels.

You mention the equipment but are you buying the land and building or leasing it? There could be a big jump in rent coming up. Lot of gotcha's with this kind of stuff.

I don't buy any businesses unless it is making 200k or more a year profit and I am NOT,NOT an owner operator. Has to be an established business for over a decade throwing off consistent returns with full management in place. I generally want 20% plus returns to consider it.  Anything less I can own commercial real estate and let the tenant run the business and be passive. I would want to see consistency over time with profit and an upward trend year over year for stability. Check if 116,000 is before or after an owner draw. If it currently has an owner operator then you will have to pay a manager which will reduce your net. I see sandwich places have this all the time. They claim 80,000 a year net profit but work there 50 hours a week. If I want to be passive I have to pay a manager 40k to 50k so it makes only 30k to 40k profit a week. If food cost,rent,labor go up or store needs to be re-imaged or machines need replacing etc. then I can have next to zero profit.   

If you have this kind of money you might want to buy and own passive commercial real estate directly or invest in sponsored deals with upside and spread out your money.