The carwash industry has experienced an unsustainable level of growth over the past decade. With a global market size of $29.3 billion in 2021 and a projected CAGR of 5.7% from 2023 to 2030, this growth is driven by a number of factors.1,2 These factors include:
■ Increasing car ownership rates around the world
■ Rising demand for premium carwash services
■ Growing awareness of the importance of car maintenance
■ Technological advancements in the carwash industry.
Plus, the one many people do not say out loud, especially outside the professional carwash market — private equity funds driving present equity movement and increased cash flow.
The carwash market is also fragmented, with a large number of small and medium-sized businesses operating in a variety of markets. This makes it an attractive market for buyers, as there are many opportunities for consolidation and growth.
Tips for selling your carwash
If you are considering selling your carwash, here are a few tips to help you get the best possible price and minimize your tax liability:
■ Consider your tax options. There are a number of tax strategies that carwash owners can use when selling their businesses. Speak with a tax advisor to determine the best strategy for your individual circumstances.
■ Not all tax advisors are equal. Tax advisors differ in their ability to navigate the sale of your business. Look for a professional who will consider your “net assets remaining after sale.”
• Consider that you may not have the best person for the job as your accountant if you are not getting the below counsel.
■ Get your carwash in top shape. This means making any necessary repairs and updates and giving the place a thorough cleaning. You want to make a good impression on potential buyers, so it is important to show them that you have taken good care of your business.
■ Hire a qualified business broker. Good brokers have the experience needed when selling carwashes and other businesses and they can help you get the best possible price for your business.
■ Market your carwash for sale. Let people know that you are selling your carwash business by listing it on business marketplaces and advertising in local publications. You can also reach out to potential buyers directly.
■ Be prepared to negotiate. It is likely that you will need to negotiate with buyers to get the price you want. Be prepared to compromise, but do not undervalue your business.
■ Don’t rush the process. Selling a carwash takes time, so do not feel pressured to rush into a sale. Take the time to find the right buyer and get the best possible price for your business.
■ Don’t be afraid to walk away from a deal. If you are not happy with the terms of a sale, don’t be afraid to walk away. There are other buyers out there, and you don’t want to sell your business for less than it is worth in your eyes.
■ Don’t sell your carwash without a plan. Once you have sold your carwash, what are you going to do with the money? It is important to have a plan in place for your future before you sell your business.
Risks and rewards of selling now versus later
Timing is everything when it comes to selling your carwash business. Similar to most industries, the professional carwash market has its ups and downs and buyers notice these trends as well. There are both risks and rewards to selling your carwash now versus in the future.
Risks of selling now
■ You may not get the best possible price for your business if you sell now. The carwash market may be down, or there may be fewer buyers interested in purchasing a carwash.
■ You may regret selling your business if the carwash market improves in the future or if you come up with new ideas for your business.
Rewards of selling now
■ You can lock in a good price for your business, even if the market declines in the future.
■ You can use the money from the sale to invest in other opportunities, including in the carwash market.
■ You can retire early or start a new business.
Risks of selling later
■ The carwash market may decline in the future and you may not be able to get as good of a price for your business.
■ You may have to deal with unexpected repairs or other expenses, which can reduce your profits.
■ You may miss out on new opportunities if you do not have the money to invest in them.
Rewards of selling later
■ You can increase the value of your business by making improvements and increasing profits.
■ You can sell your business when the market is favorable and get the best possible price.
■ You can continue to run your business and enjoy the benefits of ownership.
Ultimately, the decision of whether to sell your carwash business now or in the future is a personal one. Weigh the risks and rewards carefully and make the decision that is best for you.
Here are some additional things to consider when deciding whether to sell your carwash business now or in the future:
■ Your age and health. If you are getting older or your health is declining, you may want to sell your carwash sooner rather than later.
■ Your financial situation. If you need the money from the sale of your carwash to pay off debt or invest in other opportunities, you may want to sell sooner rather than later.
■ Your business goals. If you are happy with the current trajectory of your business and you have plans for future growth, you may want to wait on selling your business.
Tax opportunities for selling a carwash
There are a number of tax opportunities that carwash owners can take advantage of when selling their businesses. These opportunities can help to reduce the seller’s tax liability and increase the proceeds from the sale. After years of ownership, cashing in sometimes provides a once-in-a-lifetime opportunity.
One of the most common tax strategies for selling a carwash is to structure the sale as an asset sale. In an asset sale, the buyer purchases the individual assets of the carwash business, such as the land, building, equipment and inventory. This can be advantageous for sellers because it allows them to allocate the sales price to different assets based on their tax basis. This can result in a lower capital gains tax liability.
Another tax strategy for selling a carwash is to use a Section 1031 exchange. A Section 1031 exchange allows sellers to defer capital gains taxes on the sale of their businesses if they reinvest the proceeds from the sale in another qualified business of equal or greater value. This can be a good option for sellers who plan to continue investing in the carwash industry or other businesses.
In addition to asset sales and Section 1031 exchanges, there are a number of other tax strategies that carwash owners can use when selling their businesses. These strategies can vary depending on the specific circumstances of the sale. For example, just to name a few, installment sales, ESOP (Employee Stock Ownership Plans) and CRUTs (Charitable Remainder Unitrusts) are some strategies owners can use when looking to sell their carwash businesses.
Selling a carwash can be a complex process, but it does not have to be. By following the tips outlined in this article, you can increase your chances of selling your business for a good price and minimizing your tax liability. Do your research and weigh your options carefully.
If you are still unsure whether to sell your carwash now or in the future, it is a good idea to talk to a financial advisor or business broker. A qualified advisor and broker can help you assess your situation and make the best decision for your individual circumstances.
Red Rock Tax and Consulting Group is a solution-oriented firm. We suggest new methods on tax filings, deductions, credits, entity structure, changes in accounting practices, compensation models and even how frequently you talk to your advisor. We establish regular communication intervals, allow unlimited access to your advisor via emails and scheduled calls. Your goals are paramount to our interactions. We have more than 20 years in advising the automotive service industry. Reach out and together we’ll explore your path forward. For more information, call 435-635-2494 or visit www.redrocktax.com.