Potentially Profitable: Buying an Existing Car Wash Business

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If you’re looking to start your own business, buying an existing car wash business can be a smart move. Taking over an established car wash means inheriting existing customers and revenue streams from day one. However, before committing, it’s important to do your due diligence to ensure the business is a sound investment. Here’s what to consider when evaluating a car wash for sale. 

Assess financial health when buying an existing car wash business

The car wash’s financial statements will give you critical insight into profits, costs, and overall viability. Review at least the past 3 years of income statements, balance sheets, cash flow statements, and tax returns. Look for steady or increasing profits over time. Check that there aren’t major outstanding liabilities like lawsuits or tax debts. As a rule of thumb, the business should have been netting at least 15-20% profit margins in recent years. Also verify all equipment and assets listed are owned, not leased.

Inspect Facilities and Equipment

Take a careful tour of the car wash business sale. This is where you need to look at the facilities and equipment. Check for any signs of deferred maintenance, damage, leaks, rust, or other issues. Test out all the machinery – automatic washing equipment, self-serve bays, vacuums, etc. Ensure everything is well-maintained and running properly, not at risk of breakdown. If there are problems, factor in repair or replacement costs.

Evaluate Location and Competition

Drive around the car wash’s surrounding area to get a feel for visibility, access, traffic volumes, and proximity to complementary businesses. Also research direct and indirect competing washes in the region. Check if there have been new washes built recently drawing away customers. Ideally, the established wash you’re evaluating has been able to thrive despite competition.

Talk to Current Employees

Speaking with staff can provide valuable insights into day-to-day operations, customer volumes, marketing tactics, and the owner’s future plans. It’s also key to retaining some existing workers to ensure smooth ongoing operations through the transition. Be clear about your intentions to keep staff so you don’t scare anyone off prematurely.

Consult With Professionals

Work with qualified professionals to better evaluate all aspects of the business. For example, an equipment specialist can inspect machinery, while an accountant can verify financial records. An attorney can review contracts, titles, permits, trademarks, and disclose any liabilities. Professional guidance is invaluable for identifying red flags and maximizing your investment.

Value the Business Appropriately

Based on your due diligence findings, determine a fair price to offer for the business. Car washes are typically valued based on metrics like gross revenue, net income, customer volume, and equipment/property details. Common valuation methods include multiple discretionary earnings, multiple EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), and multiple SDE (Seller’s Discretionary Earnings). Compare to sales of similar regional washes.

Assess Financing Options

Calculate how much of the purchase price you can self-finance versus needing to borrow. Explore SBA loans, commercial real estate loans, and equipment financing options for purchasing business real estate, machinery, working capital, etc. Lenders will want to see a viable business plan and decent down payment. Be conservative about carrying debt so it doesn’t sink the business.

Develop Business Growth Plan

Think about your vision for improving marketing, operations, facilities, and profitability over time. How might you expand services, upgrade technology, or refresh branding to attract more customers? What untapped revenue opportunities exist? Plot out a 12-24 month plan for making growth-oriented changes to maximize potential.

Purchasing an existing profitable car wash business sale takes considerably less effort than building one from scratch. But you still need to enter the deal with eyes wide open about current performance, true costs involved, and possibilities for the future. Do thorough due diligence before finalizing a deal to set your new venture up for success. With the right location and vision, a car wash acquisition can wash away debt and leave your bank account shining.

Interested in more information about buying and selling businesses?

Find the pros and cons of owning various businesses on the Truforte Brokers Blog.

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