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:
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)
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
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 firstname.lastname@example.org. For more information, visit www.fredgrauer.net.