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.