Car Washes
With predictable revenue and high margins, car washes have been a staple of cash flow entrepreneurs for decades
With its straightforward business model and potential for high profit margins, car washes are a favorite for brick-and-mortar cash flow entrepreneurs. However, car washes can have significant operational complexity, and entrepreneurs looking to purchase an existing car wash should understand what they’re getting into.
Typical start-up costs for a new car wash can range from $100,000 for a small, self-serve establishment to over $1 million for a large, full-service or automated facility. These costs include land acquisition, construction, equipment, initial inventory, permits, and marketing efforts.
However, many entrepreneurs opt to purchase an existing car wash to enjoy immediate cash flow and avoid the risks associated with opening a brand new location. However, the price for an existing business can vary widely based on its condition, profitability, and specific site. On average, a buyer might expect to pay anywhere between $200,000 to $2 million. Car wash businesses generally trade for between 3 to 6 times EBITDA, with smaller, less profitable operations at the lower end of that range and larger, more profitable operations with strong growth potential at the higher end.
Profit margins for car washes can be significant, with gross margins often above 60%. However, net profit margins after all expenses tend to be in the range of 15-35%. Here’s a typical P&L of a small car wash business in a suburban location:
Revenue:
Car Wash Revenue: Assuming 100 cars per day, with an average price of $10 per wash, the annual car wash revenue would be 100 * $10 * 365 = $365,000.
Additional Services (waxing, interior cleaning, etc.): If these services are opted by 20% of the customers and charge an additional $10, these could add another $73,000 annually, bringing the Total Revenue to $438,000.
Expenses:
Rent: Depending on the location, for larger volumes this can vary greatly. Let's estimate $100,000 annually.
Utilities (Water, Electricity): Significant for a car wash, for this volume estimate around $40,000 annually.
Maintenance and Repairs: Varies but could be around $10,000 annually.
Supplies (Soap, Wax, etc.): Approximately $12,000 annually.
Wages: Assuming six part-time employees at $10/hour, wages could be around $62,400 annually.
Insurance: Let's budget $3,500 annually.
Marketing: For higher volume, this could be around $5,000 per year.
Adding these up, Total Expenses = $100,000 (rent) + $40,000 (utilities) + $10,000 (maintenance) + $12,000 (supplies) + $62,400 (wages) + $3,500 (insurance) + $5,000 (marketing) = $232,900.
Net Profit:
Revenue ($438,000) - Expenses ($232,900) = $205,100.
The required space for a car wash can range from 1,500 sqft for a small operation up to 3,000 sqft or more for a larger full-service or automated car wash. Factors to consider when choosing a location include visibility, ease of access, local traffic patterns, and proximity to complementary businesses such as gas stations or auto repair shops.
There are several types of car wash businesses: self-serve, in-bay automatic, conveyor, and full-service. Each type has its own set of requirements in terms of equipment, staffing, and operational complexity. You can find an overview of the different kinds of car washes from a consumer perspective here.
Self-serve car washes have lower operating costs as they don’t require any staff, but they also have lower revenue potential. In-bay automatic and conveyor car washes can wash a larger number of cars per hour, increasing revenue, but they also require more maintenance and higher initial investment. Full-service car washes offer the highest revenue potential with detailing and other high-margin services but require more staff and have higher operating costs.
Running a car wash doesn't require specialized expertise, but a basic understanding of machinery, good business acumen, and customer service skills are valuable. In-bay automatic and conveyor car washes typically require one or two employees to guide customers and handle any issues. Full-service car washes require a larger staff including wash technicians, detailers, and customer service representatives.
Evaluating an existing car wash for purchase presents certain challenges. Ensuring the equipment is in good working condition is critical as repair or replacement costs can be substantial. Additionally, verifying the accuracy of the financial information provided by the seller is crucial, as many wash business don’t keep detailed or accurate financials..
While the car wash business can be highly profitable, potential entrepreneurs should carefully consider the start-up or purchase costs, location, type of car wash, and staffing requirements. It's also crucial to be aware of the challenges in evaluating an existing car wash business for purchase, and ensure accurate assessment of equipment and financials.
— Emily Bannerman