By - Jeremiah Grant
Last Updated - October 23rd, 2023 8:21 AM
Oct 23
Do you own a car wash business, or are you interested in buying or selling one?
If so, you might be wondering how much your car wash is worth and how to determine a fair price.
Car wash valuation is not a simple task, as it involves many factors, such as the size, type, and model of the car wash, the revenue and profitability of the business, the membership and loyalty program, the environmental, social, and governance (ESG) performance, and the market conditions and trends.
So, how can you get the right business valuation firms to find out the value of your car wash and compare it with others in the industry?
That’s where we can help.
In this blog, we will share with you everything you need to know about car wash valuation, whether you are a buyer, a seller, or an investor.
Plus, we’ll provide valuable guidance on prepping your car wash for sale, locating prospective buyers or sellers, and mastering negotiation for the optimal deal.
In the simplest terms, car wash valuation is the process of estimating the worth of a car wash business based on various factors, such as its size, wash model, membership program, ESG performance, and market conditions.
Car wash business valuation can be useful for buyers and sellers who want to negotiate a fair price, as well as for investors who want to assess the potential return on their investment.
These metrics compare the value of a car wash business to its financial performance, such as revenue or earnings.
They can help you determine a fair price for a car wash, as well as investors evaluate the return on their investment.
Car wash valuation multiples vary depending on the type, size, and model of the car wash, as well as the market conditions and trends.
Let’s discuss these metrics a bit further.
Cap Rate
Cap rate, short for capitalization rate, represents the return on investment for a car wash property owner.
To calculate it, divide the property’s net operating income (NOI) by its value. A higher cap rate signifies a greater return, but it also indicates a higher level of risk.
Presently, a reasonable cap rate stands at approximately 7.01%. This means that an investor would be willing to pay $300,000/.07 = $4.3 million for a property that generates $300,000 in NOI per year.
EBITDA Multiple
The car wash EBITDA multiples is the proportion of a car wash business’s enterprise value (EV) to its earnings before interest, taxes, depreciation, and amortization (EBITDA).
This ratio mirrors a business’s profitability and its potential for growth. A higher EBITDA multiple implies a greater valuation but also indicates higher expectations for future performance.
Car wash EBITDA multiples typically fall within the range of 4x to 6x, excluding real estate.
Among car wash types, self-service (SS), in-bay, and full-service washes tend to have the lowest valuation, with flex and express models following closely behind.
The average EBITDA multiples for various types of car washes are:
Self-Service (SS) Car Wash
A self-service car wash allows customers to independently clean their vehicles using coin-operated equipment. SS car washes are known for their cost-effective operations with minimal labor and maintenance expenses. However, they typically experience lower customer loyalty and transaction volume.
On average, the EBITDA multiple for self-service car washes falls within the range of 3.0x to 4.0x.
In-bay car washes are the type where the car remains stationary, undergoing cleaning by automated machinery. These car washes are favored for their cost-efficiency, boasting low labor expenses.
However, they are typically associated with relatively lower quality and transaction volume. On average, in-bay car washes command an EBITDA multiple ranging from 3.5x to 4.5x.
Full-Service Car Wash
Full-service car washes combine both manual and automated cleaning methods. These car wash establishments are known for their commitment to quality and customer satisfaction.
Although they do incur higher labor and maintenance expenses, on average, full-service car washes have EBITDA multiples ranging from 4.0x to 5.0x.
Express Car Wash
Express car washes exclusively utilize machine cleaning processes. These car wash facilities are characterized by their cost-effective operations, boasting low labor and maintenance expenses.
Simultaneously, they enjoy strong customer preference and high transaction volume. On average, EBITDA multiples for express car washes typically fall within the range of 6.0x to 7.0x.
Flex Car Wash
Flex car washes offer customers the choice between full-service and express options. These establishments maintain a balance with moderate labor and maintenance costs while enjoying strong customer preference and transaction volume.
On average, flex car washes have EBITDA multiples within the range of 5.0x to 6.0x.
The revenue multiple signifies the relationship between a car wash business’s enterprise value and its annual revenue.
This metric serves as an indicator of business efficiency and scalability. A higher revenue multiple equates to a greater valuation, but it also points to heightened competition and market saturation.
Revenue multiples for car washes typically span from 0.6x to 1.4x, with variations depending on the business’s size and type.
For example, a small car wash with $100,000 annual revenue and a 1.0x revenue multiple has an enterprise value of $100,000.
Meanwhile, a larger car wash with $500,000 annual revenue and a 0.8x revenue multiple has an enterprise value of $400,000.
SDE Multiple
The SDE multiple represents the relationship between a car wash business’s value and its seller’s discretionary earnings (SDE).
SDE, which encompasses net income before taxes, interest, depreciation, amortization, and owner’s compensation, offers insights into a business’s cash flow and profitability.
On average, the SDE multiple for car washes typically falls within the range of 2.39x to 4.23x.
10 Factors That Can Influence Your Car Wash Valuation
There are 10 factors that can greatly influence your car wash valuation multiples. These factors can play a significant role in determining the valuation and profitability of such businesses:
1. Size
The size of a car wash can have a substantial impact on its multiples. Larger car washes tend to generate higher revenues and benefit from lower per-unit operating costs. This can enhance their profitability and valuation multiples.
In the industry, a car wash is typically considered large when it exceeds $1 million in annual revenue.
2. Membership Programs
Offering monthly or annual subscription services to customers can be a great strategic move for car washes. These programs provide a consistent and recurring source of revenue.
Additionally, membership programs can foster customer loyalty and retention. By reducing the reliance on sporadic customers, you can mitigate the cash flow volatility associated with weather-dependent businesses.
According to a press release by Mister Car Wash, Inc., one of the largest car wash chains in the US has notably garnered 1.8 million members as of December 2022.
Businesses that proactively address environmental concerns, such as water consumption, waste management, energy efficiency, and chemical usage, are often rewarded with higher multiples.
Demonstrating a commitment to ethical and transparent operations resonates positively with customers, investors, regulators, and employees.
4. Wash Model
As we have discussed earlier, the choice of wash model can significantly influence EBITDA multiples.
Different models offer unique advantages and disadvantages, including customer preference, volume, labor requirements, quality of service, and maintenance costs.
The most prevalent models in the car wash industry include:
Self-Service
In-Bay
Full Service
Express
Flex
Out of these 5, express models are particularly appealing to customers and investors due to their efficiency, minimal labor requirements, and high customer demand.
5. Profitability
The profitability of your car wash business is a paramount indicator of its financial success. It reflects the revenue generated after deducting all expenses.
The higher the profitability, the greater the value of your car wash business.
6. Location
The geographical area in which your car wash is situated plays a crucial role in determining its value.
Location directly influences demand, competition, and pricing of your car wash services. A prime location with favorable market conditions contributes to a higher valuation for your business.
The size and loyalty of your customer base are fundamental in reflecting the reputation, quality, and satisfaction of your car wash services.
A larger and more loyal customer base enhances the value of your business, as it represents a stable and thriving customer relationship.
8. Equipment and Facilities
The type and quality of your car wash equipment and facilities have a substantial impact on the efficiency, capacity, and overall appearance of your business.
Investing in newer and more advanced equipment and facilities elevates the value of your car wash enterprise.
9. Growth Potential
Assessing the growth potential of your car wash business is crucial. It encompasses weighted forecasts for revenue and margin increases, which reflect the opportunities, strategies, and risks associated with expanding your business.
Higher growth potential indicates a greater value for your car wash.
10. Capital Structure
Your car wash business’s capital structure, particularly the debt-to-equity ratio, significantly affects its cost of capital, cash flow, and overall risk profile.
A lower debt-to-equity ratio enhances the value of your car wash business by reducing financial risk.
By carefully considering and optimizing these factors, you can improve your car wash valuation multiples and its overall attractiveness to potential investors or buyers.
So, the question remains: how much is a car wash worth?
The simple answer is there is no definitive answer to how much a car wash business is worth.
We have learned that the value of a car wash business depends on various factors, such as profitability, location, customer base, and the equipment and facilities of the business.
To give you an idea of how much a car wash is worth, here are some examples of recent car wash sales in the US:
1. Full-Service Car Wash in California
With an impressive annual revenue of $1.8 million and EBITDA of $600,000, this business fetched a selling price of $5.4 million. This indicates an EBITDA multiple of 9x and a revenue multiple of 3x. The prime location in California and strong profitability contribute to its high valuation.
2. Express Car Wash in Texas
Generating annual revenue of $1.2 million and EBITDA of $400,000, this Texas-based car wash was sold for $3.6 million, resulting in an EBITDA multiple of 9x and a revenue multiple of 3x. The high demand and efficient operations in Texas played a crucial role in its valuation.
3. Flex Car Wash in Florida
With annual revenue of $800,000 and EBITDA of $200,000, this Florida business was purchased for $1.6 million. This translates to an EBITDA multiple of 8x and a revenue multiple of 2x. The flexibility offered by the flex model and a good location contribute to its value.
4. In-Bay Car Wash in New York
Despite its smaller scale, with annual revenue of $400,000 and EBITDA of $100,000, this New York-based in-bay car wash still commanded a selling price of $800,000. This indicates an EBITDA multiple of 8x and a revenue multiple of 2x. The location in New York and the convenience of in-bay washing influenced its valuation.
5. Self-Service Car Wash in Ohio
Generating annual revenue of $200,000 and EBITDA of $50,000, this Ohio-based self-service car wash was sold for $400,000, yielding an EBITDA multiple of 8x and a revenue multiple of 2x. Despite its smaller revenue, the low labor cost and self-service nature contribute to its value.
When it comes to selling your car wash, you have several options to choose from, each with its unique advantages and disadvantages, depending on your goals, preferences, and situation:
1. Brokerage Services
Hiring a professional broker can streamline the selling process. A broker can identify potential buyers, negotiate favorable terms, and handle the legal and financial aspects of the sale. Their expertise can save you time and alleviate the hassles of the process.
However, keep in mind that brokers typically charge a commission, typically ranging from 5% to 15% of the sale price.
Additionally, you’ll need to entrust them with confidential business information, relying on them to represent your interests effectively.
2. Do-It-Yourself (DIY)
Taking the DIY approach means managing the entire sale process independently.
You’ll be responsible for preparing marketing materials, financial statements, and business valuations, as well as seeking and contacting potential buyers, negotiating terms, and finalizing the deal.
DIY can save you money by avoiding commission fees and offers greater control and flexibility.
Nevertheless, it can also be time-consuming, stressful, and risky, particularly if you lack experience in selling a car wash.
3. Direct Outreach
Direct outreach involves reaching out to potential buyers through methods such as cold calling, email marketing, or social media. It can also mean responding to unsolicited offers from interested parties who initiate contact.
Direct outreach can be effective in generating leads and targeting specific buyers that align with your criteria.
However, it can be perceived as intrusive or annoying if done poorly or excessively. You may also encounter rejections and low-quality offers during this process.
So, how to sell a car wash basically depends on your preference.
Remember, selecting the most suitable method for selling your car wash hinges on your priorities, familiarity with the sales process, and willingness to invest time and effort.
Each approach has its merits, and your choice should align with your specific circumstances and objectives.
As we promised to you at the start of the blog, here are some valuable tips for you. These essential steps will guide you through the process for a seamless and profitable transition.
Step #1: Prepping Your Car Wash for Sale
Before listing your car wash, ensure it’s in prime condition and maintain accurate financial records.
Consider hiring a professional business appraiser or broker to assess its fair market value
Craft a confidential business profile highlighting strengths and opportunities.
Be ready to address potential buyers’ inquiries about your decision to sell, operational details, challenges, risks, and future plans.
Step #2: Locating Prospective Buyers or Sellers
A common method is to hire a business broker who can assist with marketing, screening, and transaction facilitation while handling legal and financial aspects.
Use online platforms and traditional advertising in local newspapers and trade publications to attract potential buyers or sellers.
Leverage your personal and professional network for referrals or recommendations from those who may know individuals interested in buying or selling a car wash business.
Step #3: Mastering Negotiation for the Optimal Deal
Comprehend your own goals and the other party’s expectations to set a clear negotiation strategy.
Conduct thorough market research, understanding industry trends and competition, to make informed decisions.
Stay flexible during negotiations while preserving non-negotiable aspects critical to your success.
Maintain a respectful and open line of communication with the other party throughout the negotiation process.
Do not hesitate to ask questions and express concerns to ensure a transparent negotiation.
Hire experts such as lawyers, accountants, appraisers, or brokers to navigate the legal, financial, and technical aspects of the transaction.
Valuing and selling a car wash business is a multifaceted process that involves numerous factors, from the type and size of the car wash to its location, profitability, and growth potential.
Understanding the various valuation metrics, such as cap rate, EBITDA multiple, revenue multiple, and SDE multiple, is crucial for both buyers and sellers to determine a fair price and assess the potential return on investment.
Ultimately, there is no one-size-fits-all answer to how much a car wash is worth, as it varies depending on individual circumstances and market conditions.
To ensure a successful and profitable transition, it’s essential to prepare your car wash for sale, locate prospective buyers or sellers, and master the art of negotiation.
Professional guidance, accurate financial records, and a clear understanding of your goals are all key elements to a smooth and rewarding sales process.
That being said, if you’re in search of a seasoned business appraiser specializing in gym valuations, look no further than Arrowfish Consulting.
We understand the importance of working with experienced, knowledgeable, and reliable professionals when it comes to assessing the value of your business.
Arrowfish stands out as the premier choice for your business valuation needs, even for consulting firms. Our team of business appraisers is highly qualified, boasting 20+ credentials, and they are trusted to handle even the most complex financial cases.
With a cumulative experience of over 200 years spanning a wide array of industries, our experts have successfully assisted diverse clients, including business owners like yourself, insurance companies, attorneys, banks, and individuals. To make things easier for you, we’re extending an offer for a complimentary initial consultation. Don’t hesitate to get in touch with us and schedule your appointment.
Jeremiah Grant
Jeremiah Grant is the Managing Partner of Arrowfish Consulting. In addition to acting as a primary liaison for many of the firm’s engagements, He primarily focuses on business valuation and economic damages expert witness assignments, in addition to forensic accounting and insurance claims analysis.
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