Starting a Car Wash -

Types of Financing For a Car Wash

Finding financing for a car wash is a critical step in starting or expanding your business. While there a number of ways to find financing, here are a few of the most common.

Leasing

A portion of your car wash financing may include equipment leasing and can be a good source of financing if you are short on funds or want additional manufacturer support. Leasing institutions will typically require a detailed business plan that will include proposed equipment quotes and projections of revenue and costs. Your equipment supplier should be able to provide much of this information.

Micro Loans

An entire class of small business financing that is largely overlooked, but is a powerful alternative to commercial bank funding are micro loans. There are literally thousands of micro loan programs across the U.S to finance businesses and they are available everywhere. These programs are not typically well advertised but are found through your local cities, towns, counties, chambers of commerce, etc. This money is available to lend to small businesses that are creating or retaining jobs.

Funding for these programs comes from the Small Business Administration (SBA), U.S Department of Agriculture – Rural Development (USDA), Economic Development Administration (EDA), State & Federal government, economic development agencies, not-for-profits, banks and other groups interested in economic growth through business activity.

Micro loans are typically available up to $150,000 (but some go much higher) and these business loan funds are typically at lower interest rates than bank loans (3-5%) and don’t have the same lending requirements that banks have.

www.businessloanfunds.com is a free online directory of local revolving loan funds, micro loans and loan guarantee programs for small businesses looking for alternative sources of financing.

Peer to Peer Lending

Peer-to-peer lending also called person-to-person lending or social lending is a loan directly between individuals without bank involvement. There are several entities that are developing online to facilitate these transactions, the largest being the Prosper Marketplace. Borrowers credit scores are used to evaluate the appropriate interest rate and risk of the loan. The borrower also has an opportunity to describe the situation and what the money will be used for. This model is effective because it allows people who have credit issues or no credit history the opportunity to get funding at a better interest rate than a bank.

Local Banks

Despite the media coverage of big banks failing and not making loans to businesses, the focus of these stories tend to be about the large banks who can’t make loans. While not all of the large banks got into trouble making loans, many of the small banks are still healthy and are making loans to businesses. The loan game has changed somewhat with the more strict oversight of banks which has made credit and collateral very important in the loan process, especially with a start up business. Banks are typically looking for people with a credit score in the range of 650 (as a general rule but exceptions exist) and sufficient collateral. In addition the bank has loan guarantees available from SBA and USDA to help make the loan less risky.

SBA & USDA loans are not made through these entities. The SBA guarantees a loan to the bank, so in case the borrower defaults, the bank is guaranteed a portion of the loan by the SBA. (You are still liable for the loan, so your obligation does not go away)Keep in mind that the SBA does not provide financing which is a popular myth but the give the bank a guarantee that if the loan does not get paid back, they will reimburse the bank for a percentage of the loan. The SBA and other government programs provide subsidized loan guarantees that relieve the bank’s risk in a project which increases your chances of getting funded.

Friends/Family/Investors

People are increasingly shunning the stock market and looking for other places to put their money. Bringing in outside capital brings its own set of challenges, so make sure to manage expectations in the beginning and put agreement on paper, no matter how informal the relationship. Deciding on whether to raise investment or borrow money is the subject of another article, basically equity sales are good because they don’t require any repayment (the hope is you will though), and most businesses don’t turn a profit for a significant time period, which makes paying back loans extremely difficult. The downside to equity is that it is expensive when you consider selling a part of the company. If you are an established business and have ongoing financing needs, then loans make a lot more sense. Loans are easier to deal with when a company has a financial history to prove reliable repayment and an established company likely has more collateral to secure the loan. Note that most investors are probably not going to be interested in small, home based businesses but are looking for businesses that can quickly scale and can potentially make them a lot of money.

Friends and family typically need fewer assurances than investors because they are investing in you as much as the idea and are usually more patient if the business takes longer than expected to be profitable. Regardless of whether you are borrowing from family and friends instead of asking them to invest, maintain a very businesslike and impersonal relationship. Be aware of the old adage that friends and money sometimes don’t mix, which is especially true in business and can strain relationships. Profits rarely come in as you projected and cash flow during the first few years can make it really difficult to pay back on a consistent schedule. To avoid putting strain on the relationship, don’t over promise and draw up a formal agreement.

Outside of friends and family there are people in the community looking for investment possibilities. People such as doctors, dentists, accountants, attorneys and other business people either invest individually or join groups of other investors to make investments in small businesses. Typically investors look to invest in businesses within a certain industry that they know.

What Type of Car Wash

A car wash business can take on a variety of formations but what type of car wash is best for you? Everyone is familiar with the standard coin-operated car wash business. The type of coin-operated car wash that is brought to most people’s minds is the exterior-conveyor wash. With this type of car wash, the car is placed on a motorized track and dragged through a tunnel. There is also the in-bay automatic, or rollover, car wash. With this type of car wash, the car owner parks in the bay as the machine “rolls over” the car and cleans it.

Many coin-operated car washes are also self-service. With these car washes, the car owner pays to utilize special brush and hose combinations that dispense soap and water to wash and rinse the car. Many of these coin-operated car washes are also full service, which means they supply equipment for cleaning the interior of the car or provide workers to perform this service. Less people, however, are aware of the money making potential of a mobile car wash business. No matter which car washing opportunity a person decides to pursue, it is possible to make a comfortable living while working out of the home and operating a car wash.

Americans are proud of their cars. Along with that pride comes the desire to keep the car looking good. Therefore, car washing is a service that is always in demand. Similarly, it is a service people are willing to pay for because it is just too much trouble to do it themselves. At the same time, certain parts of the country are more likely to support a successful car wash than others. This is largely due to the effect weather has on the customers’ desire to have their cars washed.

The exact outlook and earning potential for a car wash business also largely depends on the type of car wash that is opened. To help decide the type of car wash to open, the entrepreneur must consider three important factors: how much money he or she is willing to invest, how much time he or she can spend running the business, and how much money he or she hopes to earn from the business.

For the most part, a full service car wash requires the largest investment of time and money. The exterior-conveyor car wash is the next highest investment, followed by the in-bay automatic car wash, and then the self-service car wash. The mobile car wash, on the other hand, is by far the cheapest car wash business to open. In general, the more services the car wash provides, the greater the profit.

Another factor affecting the amount of money a car wash business earns is the location. Car washes in a business area or high-income area will perform better than those in a low-income neighborhood. In addition, the type of car wash best suited to certain areas may vary. For example, a full service car wash may be better placed in an affluent area, while a self-service car wash may be better for an area with moderate income.

After all factors are taken into consideration, a full service car wash can earn anywhere from $400,000 to $750,000 per year. An exterior-conveyor car wash can bring in anywhere from $100,000 to $375,000 per year, while an in-bay automatic car wash that combines self service bays earns about $50,000 to $100,000 per year. A self-service car wash with four bays can earn anywhere from $40,000 to $80,000. Mobile car washes, on the other hand, can earn about $50,000 per year.

An entrepreneur interested in starting a car wash business other than a mobile car wash will most likely need to get a bank loan in order to get the business started. In this case, he or she will need to write up a business proposal. The business proposal should include information such as to who will own the company, where the company will be located, and how much money is necessary to get the business started. It also should highlight any expertise the owner has in the field of car washing or in business in general. Finally, the proposal needs to include a breakdown of the individual costs associated with starting the business. This includes insurance, equipment, building materials, building labor, and advertising expenses.

Starting a mobile car wash service does not require these steps because it can be started for less than $100. In fact, all that is really needed is a bucket, water, and soap. Wax and other specialized cleaning supplies, such as tire cleaner and window cleaner should also be added to the supplies in order to guarantee the best cleaning. Many mobile car wash owners also purchase a canopy under which they can park the cars as they are washed. This is because a shaded area is ideal for washing a car.

There are a couple different approaches a mobile car wash business may pursue. Some set up a canopy somewhere, such as in the parking lot of a mall, and provide hand washed car services in that area. Throughout the week, they may move to different areas. Most choose to set up a regular routine. In that way, customers know where to find them every day of the week. Many customers prefer using a mobile car wash service because there is no risk of the car being damaged by car wash machinery. In addition, they can drop their car off and have it washed while they go shopping or perform other necessary tasks.

Other mobile car wash services actually go to different locations to wash people’s cars. For example, an executive who parks his or her car in the parking garage may hire a mobile car wash service to come pick the car up once per week and wash it. In this case, the mobile car wash owner may actually drive the car to the location of his or her car wash business – which can be at his or her home. The car wash owner than washes the car and returns it to the parking garage. This service is particularly attractive to busy professionals who do not have the time to take their car to the car wash or to wash their cars themselves.

Marketing a Car Wash

Marketing a car wash requires looking at the value you provide to customers. If you have a competitive market and everyone is at the same price, what is going to make a customer loyal to your establishment? What value do you offer to the customer to entice them spend their money with you, rather than the competition. In the car wash business, you have a few options for marketing a car wash for differentiation:

Convenience – location close to the customer’s route, ease of access to the wash, good equipment
Quality – nicer/fancier/cleaner location
Price – being the cheapest location can bring in more traffic, but often a losing strategy as the competition can quickly copy and bring down revenues for everyone.

Customer satisfaction is known to create customer loyalty. As you know, there are a lot of things at a car wash that can cause customers to be dissatisfied other than price; poor wash quality, pit odor, poor vacuum suction, dirty parking lot, lack of product selection (one size doesn’t fit all), poor customer service, waiting lines, dark dingy looking tunnel, not getting what they paid for, etc. Focus on making the experience positive and the customer comes back.

There are lots of tactics to advertise a car wash, but the process is always the same. First, you have to create awareness. That leads to trial. Once a customer, then there are only two ways to grow their business and it is to change behavior. Either increase frequency or increase volume.

A few tested advertising ideas to improve sales at a car wash include:

A monthly program to secure your best customers. The most cost effective way to get volume increases at a car wash is from the existing customer base and get them to come to the car wash more frequently or spend more per occasion. This effort will give new and existing customers a reason to come back.
Fundraisers car market your car wash to all the local youth group, churches, high school programs, and girl scouts. Set it up where the charitable organization will meet their fundraising goals which in the end will help your car wash increase sales. By having these organizations sell coupons to your wash it is a guarantee that some of your competitors customers will be passing through your bays.
Extend special offers to the business community through larger businesses Human Resources departments. You can offer every employee a corporate card with special discounts. One popular way to use this is to provide a discount for a slow day of the week, which is usually Tuesday. (many restaurants use this type of promotion as well). This way you can spread out demand and make more money.
Coupons provide an immediate call to action and are an effective car wash advertising method. With popular mailers such as ValPak, you can give a free exterior carwash. It will bring in about 2.5% to 10% depending on the area. With self service you will have to have someone there to give them free tokens for one cycle at the self service washes. You will never get anywhere near the response from any other kind of advertising scheme that you get from a free car wash. And even if some of your existing customers use the free car wash, great a good customer experience, this customer will likely be loyal forever. Be sure to provide a great customer experience because when customers come in and try your car wash, the free coupon may confirm that they never want to come back.

What Does it Cost to Start a Car Wash

There are probably more variables involved with determining the cost to start a car wash than any other yet it is the most frequently asked question. If you are going to invest in a business your first question should be “How much money can I plan to make with a self-serve car wash?” The biggest mistake you could make is to under-build for the location since it makes it more difficult to evaluate or recover your investment and leaves the door open for a competitor to move in and take away customers with a nicer facility. A competent equipment supplier can be worth their weight in gold because they can advise you on expected costs based on the area, the scope of the project, and average or typical experiences of their customers.

While the final number can and will vary, here are some rules of thumb to keep in mind. Your minimal investment when working with bank financing is about 25%-30% down. Self service washes run $60,000-$80,000 per bay to build and add $100,000 for each in-bay automatic to the wash. A lot of used self service car wash sites are going from $600,000-$2,000,000. To build a car wash, a common rule is 1/3 of the total project cost goes to land, 1/3 to equipment and 1/3 to the building. The cost to start a car wash can vary but expect pricing for a new wash in many markets to range from $1,250,000 to $4,000,000 which is a big price to pay. Make sure you have enough traffic to be profitable.

Financing a Car Wash

You have put together the perfect business plan, the drawings or purchase agreement is ready, now financing a car wash is the next step. Not so fast, choosing the wrong financing can doom your car wash from the start.

I have seen so many people over leverage their car wash purchase with mortgages lasting 20-25 years to make the deal work which is crazy. Go look at 20 year old washes and think about how they compare to today’s washes

When looking at the numbers do them on a ten year loan. Remember this isn’t a residential real estate sale where a 25 year loan is common. Once you see the numbers will not begin to work, then walk away. If you must, do the numbers on a 15 year loan but be sure you note an expected rate of return, of course in addition to your management salary, of at least 20% or more. Don’t kid yourself that appreciation will make up for a bad deal. This is a quick way to go broke.

When buying an existing facility ask the owner for three years of tax returns and see how his business is really doing. If the owner claims the tax returns don’t really include all of the sales that were really made, you had better think twice about this deal. Not only has the owner admitted to tax fraud but you have to ask what else are you being lied to about. While I can appreciate saving money on taxes as the next guy, this is a bad way to start out, plus the bank will only loan a certain amount based on the document income on the property. Also if the owner won’t give you the tax returns to protect their privacy or other bogus reason, run from this deal.

Here are some things to look for when buying an existing car wash

1) Look at the water bills. Only compare gallons used, not dollar figures. This helps you to figure whether the increase in sales over the three years of tax returns and not inflated to justify a higher selling price. If an owner is devious enough (most don’t think out far enough to manipulate their numbers) but they can show their sales as being higher that actual and get someone to pay a higher price. The water bills will verify how much water is being used which is in direct relation to sales.

2) Request bank statements from the seller and cross-reference those with the tax returns. Bank deposits will show if the cash generated over the year was actually deposited and is real.

3) Ask to place security tape on the cash boxes on a certain day and come back the same day the following week with the seller to count the money, verifying that the security tape has not been broken and can verify the boxes have not been stuffed with cash. Sellers can easily stuff the changers and bill acceptors as well as falsified tax returns as cash is easy to manipulate;

4) Have a written document certifying the tax returns you are viewing for the car wash is only for that property and does not include any other businesses.

Work hard on your due diligence. It is well worth to keep from making an expensive mistake.

Car Wash Refund Policy

In my years of running a car wash, the best car wash refund policy is to refund money when requested. Even though you may have the rare customer who claims to have put $10 worth of quarters in a bay that isn’t working, most requests are going to be legit (and if they aren’t is a few dollars worth fighting over?). Also refunds can be a way to build lifetime loyal customers. Although there are a few that will try to abuse this type of refund policy, most of the folks taking the time to report a problem are legitimate. By quickly responding and giving them more than their money back, they are very appreciative and become a very solid customer. When you consider the volume of revenue, typically isn’t worth the worry to fight giving most refunds. Refund requests will also be more legitimate if you are using tokens versus coins. By refunding tokens, your potential loss is lower (tokens cost less than coins) and there isn’t much to gain if they are scamming.

Track every name, address and phone number of people calling for money lost in the changer to keep tabs on repeats. Almost every time it will probably be verified by the changer count.

Cameras can help solve most of the refund requests too. By verifying lost money by equating the time customer said they were there, to the problem they are reporting. Some operators will verify every single refund request, even those for less than one dollar which seems like a huge waste of time for the operator. How much did it cost in the operator’s time to track and deny a $1 request?