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Writing in favor of purchasing an existing site

April 11, 2006
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Writing in favor of purchasing an existing site
Gary Pendleton

Look, this is simple. The full-service carwash business, to say the least, is one of the riskiest small "multimillion dollar" business enterprises there is; not to mention one of the most difficult to manage.

So now add to the equation that you're new to the business and you have your life's fortune and a whole lot of debt tied up in making this work.

My advice is to buy. You've probably done your homework, studied the business, and gone to your regional carwash associations.

Moreover, you've got some great ideas and can see where the carwash you've targeted is missing the ball or the owner has simply become complacent.

The pros and cons to buying

Let's look at the benefits right up front:

  • Observe and analyze the business operations in real time;

  • Available financial information for due diligence;

  • Path to profit in less time;

  • Complete the transaction in 90-120 days;

  • Bankers are more likely to lend with historical information; and

  • Lots of available and talented consultants with carwash experience.

Building a carwash in today's not so "pro-business" environment is a great challenge and a difficult task even for an experienced developer.

Remember that today there is more bureaucracy, greater competition for resources and property, greater restrictions, and increasing development costs.

Most city councils may understand that a carwash is a necessary business, like a gas station, but no one wants one in his back yard.

The drawbacks to building are just as self evident and the risks are multiplied by:

  • No historical information, all pro forma's are at best an educated guess;

  • Path to profits take up to three years as you build up the business from scratch;

  • Development cycle in most parts of the country take over two years;

  • You add development risk to business risk;

  • Fewer sources of capital for financing a project and financing cost are higher by several percentage points; and

  • Very few experienced contractors specializing in building carwashes.

I have recent examples to demonstrate the benefits of purchasing existing locations and then applying a business and operational plan to the carwash, as well as making changes to equipment, signage, the boutique and the products used at the wash for washing and waxing vehicles.

Although we had the benefit of having the existing wash as a starting point, we had to, like a new development, infuse our own system and style into the business.

If the business you are buying is really a dog, then be prepared for the time and financial considerations (working capital) necessary to weather the transition.

We've been told that it is harder to clean up a bad reputation than start with a clean slate. If you're buying an existing wash be certain you have a clear plan for the improvements.

The Wilshire case

Wilshire West Car Wash in Santa Monica California had a great location with exceptional demographics and a high traffic count.

By the time we bought the business, however, the ownership had really let the carwash deteriorate. We took possession of this facility in October of 1999.

At the time of our acquisition the facility was 43 years old and looked its worst.

The equipment was old and in disrepair. There were no production or sales procedures in place.

The carwash, unbelievably, still washed about 8000 cars a month, but with a low dollar per car.

At just over 30 cars per hour, processing became one big bottleneck. It was virtually impossible to pull onto the property.

Understanding the limitations imposed by the physicality of the layout, we set out to make changes in the following categories.

  • First, we trained all the employees in production processes-to make up for our lack of space and sales to offset our ultimate volume restrictions.

  • Second, we replaced all the equipment in the tunnel-to allow for the cleaning demands and speed of the operation.

  • Third, we remodeled the interior and gift shop area as well as painted the buildings.

The transition took about 12 months and we steadily increased our profitability over each past year.

Currently, at our busiest times, we do over 100 cars an hour averaging in excess of $24.00 a car.

The La Quinta model

We took possession of our second wash, La Quinta Car Wash, in August of 2004.

This facility also had a great location and good demographics. The wash was only eight-years-old, but under-performing.

Having the advantage of proving our system previously, we were able to quickly identify the issues with the wash and create the plan that would get us to profitability quickly.

We had established systems and procedures that we duplicated within 100 days of the acquisition. The business responded and we actually exceeded our first year expectations and often equal or exceed the performance of our first wash.

Having the advantage of monitoring what the current business was doing, we also have the advantage of seeing the current mistakes and making the corrections without to much guesswork.

So, having experimented with a host of carwash issues the benefits of purchasing an existing carwash further include:

  • We were able to make specific changes and see the results in real time as, for example, in our ability to compare one type of equipment with another or seeing the advantages of changing certain product lines while still washing cars and producing revenue;

  • We were able to hire better employees as the word quickly got around that there were professionals at the helm of the business. Good employees gravitated to the business more quickly than to a start-up with no reputation;

  • We impressed our existing clientele with the changes and quickly increased their frequency of use and willingness to trust the wash by allowing us to perform higher ticket services; and

  • The dramatic changes we made gave us similar advantages to building a new wash — the look and feel compared to the way it was quickly caught the eye of the public.

In conclusion

We found that people are creatures of habit. Most often, they don't often like experimenting or testing something totally new.

The advantage in our investment philosophy was to buy existing washes and make them "new and improved."

Gary Pendleton is the senior advisor of ProWash Consulting in Beverly Hills, CA. He can be reached at