Past Issue

Prepare for the Sale - The Real Secret to Selling a Car Wash Property

By Mark W. Gerhart

07/01/15

After many years of building up your car wash business and promoting and marketing your services, a decision is made to sell the operation. Perhaps you own a chain of large, full-service car washes with convenience stores, fueling centers, lube shops, and detail shops or a small, standalone four-bay self-service car wash. As with any investment, you will need to sell it to realize its full investment potential. The big payday is in the sale of the investment, not in the weekly draw. There are a number of steps to follow to prepare your investment for sale.

You ask, “How do you communicate the value of the business that you have built up? How do you attract a buyer? I know there are buyers out there. How do I attract prospective buyers and tell them about the value of this very profitable business I created?”

ACCURATE FINANCIAL RECORDS

The secret is accurate, consistent bookkeeping. Sounds simple right? It is. If records are entered systematically and financial statements are produced on a timely basis, you have a much better chance of selling your commercial property quickly and at a better price than those who cobble records together.

Waiting until the end of January of the next calendar year to enter records is a sore issue for any business operator. This is dreadful because there is a giant pile of accumulated invoices and deposit receipts in a box. There is nothing of value to show the prospective buyer. Frequently the operator is in a hurry to collect and enter all the year’s transaction records before 1099 forms are due. In-voice notes are absent or you just don’t remember what the invoice was for, so a guess is made and entered in the incorrect subaccount. Or a piece of equipment that should be capitalized is expensed and throws the entire profit and loss statement into a net loss for the period, when in fact the operation had the best quarter all year. Nice going. You’ve just hindered your sale.

First step: Be committed to the sale.

Accurate, well-organized,  standardized financial records comport with professionally prepared documentation to generally accepted accounting principles or US GAAP profit and loss statements and balance sheets. Professionally prepared tax returns are necessary to have a clean sale of any investment property.

As a broker, I spend most of my time during listing appointments working with sellers on the organization of their business records. There are other real estate properties that are competing for the prospective buyer’s investment dollars. Therefore records and reports must be organized and prepared for professional presentation of the materials to the buyer. A pile of unorganized receipts in a folder will turn off just about any buyer. It will cause most buyers to throw their arms up and walk out of any showing appointment. You are wasting their valuable time and ruined your goodwill with them. That buyer will not be back, and any information provided now looks suspiciously inaccurate to the buyer. The buyer asks, “What is the seller hiding by not providing organized reports?” Accurate, organized business records help to solidify the sale of the business to a buyer and generates interest in the project by the buyer’s lender. Without the money people, we go nowhere.

Regardless, the owner/operator must participate in the sale process and be committed to provide whatever reasonable information the broker or the potential buyer has requested. Without continued interest, there is no sale.

CPA

The first step in selling is to be committed to the sale. Once you are committed to selling, get together with your certified public accountant (CPA) and discuss the tax implications of the sale. Notice I did not misspeak; I did not say just accountant or bookkeeper. Ask someone who professes in federal, state, and local tax laws and is licensed in your state, to provide advice, the absence of which could significantly harm the profits of the sale in the process. Bookkeepers are not CPAs and are not by law qualified to professionally answer those tax questions. Period. If you don’t have a CPA, get one, now.

ATTORNEY

The next person that should be contacted is a competent business and real estate attorney in the area. They will provide specific legal advice on the transaction and sale of the property and business assets. Ask questions such as:

• I am in a partnership; do I have the authority to sell the assets under the terms of the articles of the organization?

• Is my former partner still active on the deed?

• Do I have a marketable title to the property?

• Does each partner need to sign the listing and any purchase and sale agreements and subsequent amendments?

• Is my attorney required by my state to prepare a standardized purchase and sale agreement (or does he recommend that it be done) for my real estate broker to use?

• Are there other naming or property rights, logos, or trademarks that will be transferred in the sale?

 • Are there restrictions on the sale of my property? Do I have a first right of refusal?

• What additional documents will my state or the buyer’s lender or closing agent require to complete the transaction?

 

You do not want your former business partner’s attorney accusing you of fraud after the sale. Get it right. Make a clean sale. Trust me, this is usually money well spent. It is also necessary for the attorney to work with the commercial real estate broker to list and complete the sale transaction. The attorney should be prepared to review purchase and sale agreements and other documents. They may want to draft a non-disclosure agreement that may include a non-compete clause to avoid scofflaw buyers and/or consultants getting hold of the business financials and competing against the business that is being sold. Make sure the attorney is not planning a long vacation that starts the day or the week leading up to the sale date. If the transaction is very complex or involves many properties, the attorney may need to attend.

LICENSED BROKER  When the property is put up for sale, the books are open records.

I recommend that the seller contact an experienced, licensed commercial real estate broker who sells car washes or other similar use properties to help organize and market the property. Yes, the owner knows the business better than anyone and is its best marketing agent. However, most owner/operators do not have the training or experience as a commercial real estate broker to avoid common pitfalls most owner/operators make when trying to sell their properties. Just as any commercial car wash property owner would, residential real estate brokers and attorneys alike frequently hire me. The sale of commercial properties is somewhat more complex and involves more details and has far greater potential liabilities than selling a residence.

If the soap or equipment supplier wants to market the property for you because they have lots of connections, tell them to forget it. They are generally not licensed brokers and may be prosecuted for practicing real estate or business sales without a license. See the business and real estate attorney for more details.

Let’s focus on the broker. He is the first person the property and business must be sold to. If the owner cannot sell the real estate broker, it is likely the business cannot possibly be competently sold to a buyer. The broker is, however, like the seller, motivated by the payday at the sale of your property. If there is something to sell, tell the broker. The way that the owner attracts the broker’s interest, as he would most buyers’, is to have accurate financials for the business. Businesses are bought with a calculator; houses are bought with an emotional reaction. Any owner/operator who tries to sell a prospective buyer on partial or inaccurate reports will not be taken seriously, or the price will not be achieved regardless of how much persuasion is used.

Brokers are usually compensated, on a contingency basis, by sharing in a portion of the proceeds (commissions) when the property sells. If it sells, they get paid. Every broker is specifically trained in federal and state real estate laws, procedures, and limitations on marketing practices. Federal law specifically prohibits real estate brokers from providing future income projections for your business. They may only present factual data about the property and business to potential buyers.

It is therefore imperative that you keep accurate, timely financial records of your profits (even losses) to be reviewed by others. Provide updated monthly statements to the broker. Old financial statements (more than 60 days old), inaccurate, or hurried statements are not useful. When the property is put up for sale, the books are open records that will be reviewed by third parties that the buyer hires to help assist in the process of the sale. These include buyer’s attorney, CPAs, the buyer’s lender, and others.

 

Mark W. Gerhart is a licensed real estate broker in the state of Colorado and focuses exclusively on automotive-use properties, concentrating specifically on car wash property sales. You can contact Mark at (303) 884-4485 or via e-mail at markgerhart@msn.com

 

 

 

 



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