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IIf you’ve been mulling over the idea of putting a “For Sale” sign out in front of your carwash business, you’re not alone. Many owner/operators have been wearily weighing the pros and cons of selling in a down economy since the carwash business started flat lining in 2008.
As some frustrated operators already know, selling your tunnel or self-serve in 2010 is perhaps more challenging than an early or planned retirement is worth. But according to Terry Mackin, managing director of mergers and acquisitions for Generational Equity, a company specializing in helping middle market business owners who are contemplating a sale, it doesn’t have to be that way.
Mackin said his company is seeing some positive movement in business sales over the last year, and offered some ideas for better marketing and positioning your business for sale in this economy.
Professional Carwashing & Detailing: What can carwash operators expect working with a company like yours?
Terry Mackin: Many important things. For starters, we provide all of our clients with an evaluation so that it helps put their financial expectations into perspective and provides them with a good understanding of where we believe the market value for their business would start.
We also put together professional marketing documents for our clients that buyers greatly appreciate. Rather than getting reams of paper, they receive a very organized booklet that provides everything they need to know about the business. On top of that, our company has national and international exposure that gives our clients a better reach into the buying market. It takes our client's business beyond the exposure you would get by advertising in the newspaper or on the Internet.
PC&D: What’s different about selling a carwash in 2010?
TM: Prior to 2008, when most companies were headed in a good economic direction, buyers were able to take a look at their financial history along with year to date numbers to paint a picture of business revenue and profit trends over the course of the next few years. With that, buyers were able to calculate value based on the direction the business was going. In most cases, this would create a seller’s market, whereby premium prices could be expected for businesses that had shown a consistent rate of revenue growth and profit.
When changes started to occur in the economy and we had a flat period, like in 2009, or a down period in 2008, suddenly what that business shows historically has an adverse affect on value. Because of that, buyers are no longer willing to pay a premium price because they don’t see an upward trend that would make it that much more valuable for them to own. This change that has moved value toward a "buyer's market" is our biggest concern right now.
The other issue we’re seeing right now is the effect of lending in the banking industry. Lenders continue to be very stringent about their requirements. In years past, an investor could look to successfully finance a deal with five to 10 percent down. Now, that same investor needs to be prepared to lay down 20-25 percent. The result is a reduction in the number of potential buyers in the marketplace.
PC&D: I gather this trend has increased the demand for seller financing. Do you have any advice for operators?
TM: Trust is very important when it comes to any deal, but it becomes even more important when a deal is structured around the seller's participation in financing. When a buyer presents an offer that requires you to guarantee certain performance levels for a period of time, as in the case of an earn out, or is structured around seller financing, you have to believe, first and foremost in that buyer's ability to accomplish what they say they will be able to do with your business. You have to be able to look across the table and say to yourself, “Do I trust this person?”
In most cases, there’s not much that can be added to the structure of a small business that provides additional financial protection. When you accept a seller note, you’re accepting the fact that this buyer is going to pay you back — and that’s all there is. There is no security, and that trust becomes a critically important factor.
I tell all of my clients, "if you can’t trust them, don’t do the deal."
PC&D: What sort of papers and business documents does an operator need to have ready?
TM: From our standpoint, there’s a great deal of information our team needs. We’re going to put together a 40-odd page book that is going to detail nearly everything a potential buyer will need to know about the business, and this book goes well beyond just revenue and net profit.
If you are talking about just the financial side of the business, most buyers like to see three years of historical data, the present year, and an idea of what the client feels the business is going to do over the course of the next couple years. Our team works with the seller to create a pro forma for the next five years to give the buyer an idea of not only their belief in the short term goals of the company, but also what can be anticipated for long term growth.
It’s also a good idea to put together some sort of a business plan that will highlight growth opportunities, as well as local and regional forecasts that could help bolster the projections. For car wash owners, this could include street access changes or plans for new housing developments in the area. These and other factors provide that “value added” consideration that a buyer needs to consider and ultimately offer a premium price for your business.