Financing Your Car Wash
Copyright 2014 by Virgo Publishing.
By: Fred Grauer
Posted on: 11/01/2004



 

Before investing in a car wash, potential investors and operators ask these basic questions: How much does it cost? How do I finance it? What options are available? How do I put this whole project together? What kind of return can I expect? These are the fundamental questions on which your decisions will be based. Let’s start at the beginning.

The car wash-industry has traditionally been segmented into three categories of operations:

Self-Service—Commonly referred to as wand-style, quarter, do-it-yourself, etc. Here the owner washes his own vehicle. You provide only the space and equipment, he handles the labor. The wash quality is variable as it depends totally on the vehicle owner. This type of facility is generally not attended; however, it does require regular maintenance and housekeeping.
  • Conveyor—Commonly referred to as full-serve, exterior or flex-serve. In this case, the vehicle is placed on a conveyor that moves it through a series of applicators, washers, rinses and dryers. Whether the owner exits the vehicle depends on the type of service selected. In a full-serve, he leaves the vehicle, and you provide the labor to clean the interior and detail the exterior. The customer enters the building to complete the sale and waits for the wash to be completed. In an exterior wash, the facility cleans only the outside of the car. In flex-serve, you offer the option of interior or exterior-only. A conveyor facility is always attended; the number of staff depends on the services offered.
  • In-Bay Automatic—Commonly referred to as a rollover, in-bay or automatic. Here the vehicle passes by an automatic teller. The owner selects the method of payment and type of wash and enters the facility. At a petroleum site, the transaction occurs at the pump. The equipment may be touch-free (relying on wash solutions and high-pressure water to clean), or it may be a friction-style unit that relies on soft foam or fiber to make contact with and clean the vehicle.

How Much Does It Cost?

Each car-wash type has a different financial commitment. The investment on a self-serve wash varies by geographic area. In cold climates, the facility must have heaters, in-floor heat and, in some cases, doors. Approximately $25,000 to $30,000 should cover equipment. In warm-weather areas, only about $15,000 to $20,000 is necessary. Buildings, like equipment, will vary by climate. In cold-weather areas, they can run $30,000 to $40,000 per bay; in warm climates, $20,000 to $30,000 per bay. Land is the big variable, but costs average $3 per square foot. When all is said and done, your land, buildings and equipment should total around $80,000 per bay.

Conveyor car washes are far more difficult to price. I find estimating price per square foot works best. A typical full-service facility will require approximately 5,000 square feet. Using $200 to $250 per square foot as an average for buildings and equipment, your cost is about $100,000 plus your land, which can fall all over the map. I have seen good sites start at $10 per square foot and go up. It all depends on the market opportunity and whether the revenue can support the investment. Overall, it would be difficult to invest in a conveyor car wash for less than $1.2 million.

In-bays are more predictable in terms of price. Most will cost around $150,000 with ancillary equipment. Buildings average $100,000 to $150,000 and, again, land is the great unknown. The total project with land for a single in-bay should be around $350,000 to $400,000.

How Do I Finance It?

First, it is important to note that start-up businesses (first-time car-washers) are difficult to finance. The risk factor involved is high and, as a result, many customary channels of financing are not available. This does not mean money is not out there. It just means you have to look hard to find an acceptable source. That’s the bad news. The good news is car washes have an excellent track record, and their failure rate is minimal. Existing business owners will be surprised to learn leasing is not an option. Of course, there are always exceptions.

There are many creative ways to finance your car wash. The first is to look at the resources closest to you: family and friends. Typically, this group produces minimal returns. An offer to pay a better rate than they currently earn on their assets could be attractive.

There are always professional investors looking for an opportunity. Your cost of using venture capitalist funds will vary by the perceived risk. In most cases, the cost will be partial control of your business as well as some loss of equity. You have to consider whether this is worthwhile.

Finally, you can investigate financial institutions that may be willing to listen to your business opportunity. Fortunately, the U.S. government understands the need to encourage entrepreneurs and the creation of new enterprises. As a result, it formed the Small Business Administration (SBA). The SBA offers several programs for business finance. Two to look at are “7a” and “504.” These are guarantee programs available through your local bank. Basically, the SBA provides an insurance policy to your bank. For more information, visit www.sba.gov. There you can download an enormous amount of information as well as details pertaining to the above-mentioned programs.

As you look at the SBA or any other financing program, you need to consult with your accountant and attorney. They will guide you through the creation of your business. Other valuable resources include:

1. The International Car Wash Association (www.carcarecentral.com)
2. Local trade associations
3. Chambers of commerce
4. State and or local real estate groups
5. Small Business Development Centers (www.sba.gov/sbdc)

Putting Your Project Together

The keys to success of any new venture are fairly straightforward. If you look at why new businesses fail, the two most obvious reasons are lack of capital and execution. So as you plan your project, there are a number of items that fall in the must-do category:

1. Due diligence regarding all aspects, risks and rewards of the car-wash business
2. Thorough analysis of resources you will bring to the venture
3. Complete analysis of the competitive environment
4. Development of realistic financial goals and projections
5. Creation of a strategic plan to include vision, customer-value statement, and operating principles
6. Knowledge, understanding and commitment of financing
7. Recruitment of competent staff
8. Development of strategic alliances
9. Commitment of all stakeholders to success of the enterprise

What Is My Return?

The financial return on cash or assets for all car washes mentioned is very similar. As you begin preparing your financial projections, you will discover the need for historical information. Fortunately, a number of the industry magazines publish financial statistics for the car-wash industry. Using past industry standards as well as information from equipment vendors, you will be able to develop site-specific projections.

Typical returns should be in the range of 20 percent or better. It should be noted that return on total investment does vary, as there are a huge number of variables that affect it. The professionals you select as well as input and guidance from your financing source should provide the data you need to make a clear-cut decision to enter the wonderful world of car washing.

Fred Grauer is the vice president of investor services for MarkVII Equipment LLC, a car-wash equipment manufacturer in Arvada, Colo. He has made a life-long career of designing, selling, building and operating car washes. He can be reached at fgrauer@markvii.net. For more information, visit www.fredgrauer.net.