Business valuation of car washes

If you own a car wash business or looking to buy one, here is a piece of good news: car washes are one of the most profitable sectors of the service industry with above average profits. These businesses are known to generate steady income due to the necessary and recurring nature of the service they offer.

While changes in car designs and energy alternatives may have lasting effect on many auto service businesses, the car wash will continue to provide the same basic service. This, of course, means that you can expect the revenues in the car wash sector to continue growing steadily.

The car wash service is a typical small business industry: classified under SIC code 7542, there are over 29,500 car washes in the US alone. The industry generates a very respectable $4.4 billion each year in gross sales and employs just under 138,000 people. Yet the average car wash is quite small, employing a staff of 5 and having the annual gross revenues around $200,000.

Established, profitable car wash operations are very marketable – the up-front investment of starting a new business can easily tip $2 million! Buying an existing business offers a very attractive alternative of immediate cash flow and steady business growth prospects.

Car wash businesses come in several types: the self-service, conveyor and the highly automated in-bay. The more profitable establishments tend to offer additional value-added services which include on-site detail services, gift and coffee shops, and periodicals for sale.

Business valuation methods for car washes

Given that car washes sell often, there are plenty of market comparables data to do your business valuation. Typical pricing multiples used are selling price to gross annual revenues, discretionary cash flow or EBITDA. The price to cash flow multiples are especially well suited for valuing a business with the above average profitability.

Well-established car washes may have considerable goodwill. In these cases, the Capitalized Excess Earnings method is an excellent choice. In addition to showing the value of the business and its tangible assets, you can use this well-known business valuation method to demonstrate the value of business goodwill.

For younger car washes or businesses in a rapid expansion mode, the Discounted Cash Flow business valuation method may be more appropriate. You can demonstrate the value of a business to partners and outside investors based directly on your earnings forecast and risk assessment.

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