http://www.carwashplan.com car wash consulting

INDUSTRY OVERVIEW

Sufficient economic growth is not available to keep the carwash industry growing at its former pace. Slow, steady growth may come from improving household finances and home building which has not kept pace with demographic trends.

Industry leaders believe equipment spending over next several years will come from improving installed base within assimilated capacities of existing markets, meaning replacement of aging equipment, selling small tunnels to gas/c-stores, tools for green washing and development/expansion of regional chains. Absent this spending is reference to a deep pool of new start-ups.

Certain markets have overbuilt and closures are up which implies there is pent-up demand to help investors develop more realistic business plans. Trends suggest tough times may be ahead and more consolidation (manufacturers, suppliers and operators) even as new businesses are forming. Most of new businesses will be opportunistic folks who find ways to meet consumer needs created out of the great change that has taken place. The next wave of start-ups will need to focus first on identifying good opportunities.

OPPORTUNITY

Start-ups should start to return first in areas where home values have dropped least and last in boom-bust markets. The market one lives in determines the opportunity. Opportunity is identified by finding public need for a new wash based on evidence there is a shortfall in supply and would a new wash be reasonably convenient/useful to the public.

Start-ups may find advantage in distressed markets because real estate values are low, investment is low and equipment has depreciated faster than been replaced and banks have carwash properties they don't want. Also, shrinking market points our mismatches in supply/demand that exist in a developed area. This can make for a buyers market as well as opportunity for fresh faces armed with business models that are more attuned to the demand of area households.

FUNDING

There is less money being invested in small businesses or lent to start-ups. Start-ups will need to find more creative ways to raise capital and launch with less external help as before. Advantage may come from buying a wash in a distressed area rather than building new and betting on uncertain growth. Bank-owned owned real estate and seller financing may be available at more competitive costs.

Creating confidence to bootstrap cash to launch a new wash would come from an excellent market opportunity and experienced management. Forming relationships with consultants and solid investment partners has greater value today in demonstrating sufficient management experience, increasing the chances of obtaining capital and managing risks. Bootstrapping cash requires a business plan and funding proposal. Preparing a business plan begins with research including scoping and feasibility study.

FUNDING SOURCES

The most likely chance for bank financing a carwash start-up would be to borrow money from a bank that participates in the SBA programs. Today, emphasis is placed on credit worthiness, experience and excellent, not marginal, market opportunity. Investors should have credit score of at least 700 or partners that do. Be prepared to contribute at least 25 percent of the total project cost - cash, real estate, etc. Investors must have sufficient collateral and give personal guarantee. Experience means that "someone" on the team must have sufficient industry experience and tis person should have at least a 25 percent ownership. Excellent opportunity means commercially viable, not just strong.

Angel funding may become more popular in the future. An angel is a welathly person who understands needs of start-ups and is willing to take a vested interest in the business. Angles can provide smaller funding at the beginning stage of a start-up than many private equity firms or venture capitalists are ablle to invest at. Before approaching an angel, complete research, prepare feasibility study and start-up business plan and presentation. The plan should be an executive summary. Page one must have highlights that convince the angel there is good opportunity as well as a good reason to keep reading.

RESEARCH

Start-ups need to make each opportunity to borrow money count. You have to have your act together. Most private investors will only give you one chance to ask for money. Start-ups must do their homework beginning with scoping and feasibility study.

A scoping study is a tool to determine if a property has the potential to become a viable project. This study include general features of the project, outline of scope and benefits, review of technical issues, preliminary order-of-magnitude capital and operating costs. The study has three possible outcomes; abandon the project, wait for conditions to improve or proceed to pre-feasibility study. The purpose of feasibility study is to develop sufficient detail to support decisions to commit funds and obtain approvals. The stuidy addresses market, technical, business model, management, economic and financial and exit strategy viability.

COMPETITIVENESS

Start-ups must address critical factors of being competitive, access to capital and retaining it is one factor. Another aspect of competitiveness is creating brand identity and image. This can be accomplished by offering innovative products and services into existing markets. Consider a small region containing 30,000 people that is densely populated with prototypical self-service format - four wands, one in-bay and a dog wash. The last thing a start-up would want to do in this case is to build another self-service. Instead, start-ups would take overall market and remove pieces presently tapped. Eventually, the start-up will be left with the relevant portions of the market. For instance, this region of 30,000 people may not need a $4.0 million full-service conveyor but it may support a flexible service, exterior express or small-scale full-service conveyor, pay-one-price conversions or other business models costing less than half as much to build.

Another important aspect is becoming more cost competitive in terms of production. The concept of competitiveness, the ability to compete profitably, is often misunderstood and misapplied by start-ups. For example, Henry Ford did not set the price of cars on the basis of the cost, he set the cost on the basis of the price at which the company believed more car sales would result. In other words, Ford believed that strategy, not costs, determined the competitiveness of his business. The more that carwash companies are seduced into believing that cost leadership is a viable strategy, the more commoditized their markets become, the less wealth-creating capacity and the slower the growth of the industry of which they are a part.

Start-ups should not begin by managing costs. First design the business strategy and let strategy establish the necessary cost base. Costs should be an outcome of strategy, not the goal of strategy. In other words, start-ups should not be focused on relative efficiency but on the need for a differentiating strategy. Relying on efficiency usually betrays a lack of imagination and strategic ideas. Angels and private investors rarely lend money to start-ups absent these characteristics.

MARKET

The first thing a private investor wants to see in a business plan is a good market opportunity and facts to demonstrate that the start-up has the ability to exploit it. What is the market size and its total potential value? How much do customers spend on average? What is the potential lifetime value of customers? Start-ups mus explain how competitors will be dealt with. If market growth slows, how is the start-up going to avoid cutthroat pricing competition and gain the customer's loyalty?

PRODUCTS AND SERVICES

Private investors want to invest in start-ups that have products/services with a competitive edge. Because of availability of substitutes, the tendency in retail is not to specialize in one good or service but to deal in a wide range of products and services. This means that what one store offers, customers will likely find at another store. Retailers offering products that are unique have a distinct or absolute advantage over their competitors. Consequently, start-ups need to show unique selling points. Does the product line-up reflect the company's mission and value proposition to customers which is to clean, shine and protect their vehicles? Do the products and services have attributes and benefits that make the customer experience pleasant? Is the product line-up different from the competition and would it serve as barrier to entry?

MANAGEMENT

Private investors invest in people, not ideas and business plans. Start-ups must demonstrate and sell investors on the idea that the management team understands the targeted market and has the full complement of experience and skills to deliver and execute the business plan. Equally important is identifying any skill gaps which must be addressed in order to deliver the plan. Start-ups must show how management team would mitigate real estate investment and property development risks and business operating risks. Start-ups face risks similar to those found in most convenience stores, buying a going concern wash may have considerably less risk. Start-ups must demonstrate it can obtain entitlements in a timely and economical fashion, there is no environmental contamination, the project can be built on time and on budget, it can be leased once built and it can be sold to a third party for the expected price. Start-ups must demonstrate how the site will produce sufficient gross sales and that adequate staffing and management can be maintained.

PROCESSES AND OPERATIONS

Private investors want to see in the business plan a clear, non-technical explanation of how the start-up intends to produce and deliver its products and services. Explain how the carwash works, hours of operation, labor requirement and customer satisfaction requirements. Show why the surrounding development and characteristics of the highway network make the property a excellent site and location for a new wash or renovation as well as use cases that demonstrate the success of the wash format or business model and location strategy. Start-ups also need to show the physical infrastructure (design, building, equipment and human resources) is in line with its projected growth. There must be a development roadmap showing time to acquire funds and real estate, approvals, building construction, installation of equipment, operational training and launch. Estimates of anticipated start-up expenses, operating expenses and amortization and depreciation tax shield that serve as the basis for financial projections must be presented. Start-ups must show these expenses are in line with the industry model.

FINANCIALS

Private investors want to review integrated financial projections which include sales volume projections, profit and loss, balance sheet and cash flows. Start-ups must show that each component is supported by the assumptions reflected in the business plan. Projections must balance blue sky and realism and yet reflect an attractive investment opportunity. Start-ups must demonstrate how the business model will generate income directly from selling products and services as well as any other sources of income such as pre-selling or rent, break-even analysis and the pay-back period of the investment. Private investors want to redeem the investment along with interest (dividends) within a reasonable timeframe, typically three to five years.

INVESTMENT/EXIT

If a carwash operation performs less than anticipated, owners may exercise their option to sell the asset to a third party buyer. Start-ups must show it can sell to third parties priced to yield, after operating costs and overhead, an acceptable return on the buyer's (new operator's) equity. Since price is function of multiple of gross sales or net operating income, lower the volume, lower the income and thus, the lower the price. Value is normally subject to negotiation with investors. In relating strategy to industry model, expected value is estimated on income over the last 12 months. Three years of operations typically brings a wash into its prime. A marketing period of twelve to eighteen months is normally required to schedule exit strategy.