Step by Step Overcoming a Downturn
By Trent Walter

Car wash owners know the country is in a serious recession. There is no need to watch the news, read the paper, or listen to the radio to figure this out. Simply looking at the revenue generated, or lack thereof, illustrates this fact. That being said, many economists are predicting a turn for the better in 2010. Optimistically, let’s suggest that the economic rebound starts late first quarter or early second quarter of 2010. Secondly, let’s assume the weather gets on the same page as the economic upturn — hence the “Perfect Scenario”. One has to ask “Can my business survive another 60 to180 days with low to non-existent cash flow and decreased revenue?” Pessimistically, what happens if the economic upturn takes longer than predicted or expected? What happens if the upturn is over 180 days away? Strategically, what is the recipe to get one’s wash back on track?

Overcoming a downturn is not simple — there is no blueprint solution. As many owner/operators have figured out, there is not one, two, or even three simple things that must be done. There is a continual list of items that must be evaluated, investigated, and acted on in order to pull a wash out of the downturn. Every facet of the business must be observed, understood, and improved upon. Here’s how you can start on the road to operating a leaner and more cost effective business.

EXERCISE

For the purpose of this exercise, we will assume a self-service car wash with in-bay automatics, vacuums, and vending. Start by breaking down the business into two main columns: “Revenue” and “Expense.” The Revenue column can be further broken down into the following categories: Self-Service Bays, In-Bay Automatics, Vending, and Vacuums. The Expense column can be broken down into Utilities, Supplies, Labor, and Payments. An example of a simple breakdown can be seen below.

Looking at the bottom line, the location has several categories to be evaluated individually. Viewing the business from 10,000 feet presents a daunting task and it may seem impossible to turn around. Using this method will expose ways to improve revenue and reduce expense one step at a time. Inches will add up to miles using this approach.

Start with the Utilities category on the Expense side. It’s broken down into three sub-categories Gas, Water/Sewer, and Electric. Using the observe, understand, and improve method, let’s begin with the Gas sub-category.

Observe

1. What was my rate one year ago?
2. What was the lowest my rate has been in the past twelve months?
3. What is my current rate?
4. How long have I been a customer of my current provider?

Understand

1. What are other providers in the area charging?
2. What are my neighboring businesses’ rates?
3. Are there any other contract plans available from my provider?
4. What other gas suppliers or carriers can service my needs?

Improve

1. Leverage current provider using collected information to gain lowest rate.
2. Lock in rate for next eight months to ensure savings/stability in budgeting cost.

The format of this approach seems very intuitive, and many times it is used without it being recognizing. When this approach is not followed, savings can be left on the table. For example, if you buy gas from Acme Gas Company and have been for the past five years, your kneejerk reaction might be to call and ask, “can I get a better rate?” With the current economic downturn, Acme Gas Company expects these types of calls, having pre-set price reductions ready to offer when the call comes in. After you get off the phone you feel good because the gas company may have cut your future bills by 5 percent. In reality, you could have missed out on additional savings. The key is having the correct information available. Knowing neighboring businesses’ rates, other suppliers’ rates, and leveraging years as a customer can be beneficial when negotiating pricing. Knowledge is power when leveraging rates. Do your homework before calling.

Using this format, you should be able to negotiate better rates for all of your utilities. If you don’t get the rate you want, do not get frustrated. Move onto the next sub-category and re-apply the method. Once you’ve run through all of the utility sub-categories, total the savings, post it, and move to the next set of sub-categories.

Jumping over to the Revenue side, specifically the In-Bay Automatic category, lets re-apply the observe, understand, and improve methodology.

Observe

1. What is the average revenue over the past 12 months?
2. What is the highest revenue generated in one month (over the past 12-24 months)?
3. What is the lowest revenue generated in one month (over the past 12-24 months)?
4. In the last year, how much has been spent on marketing the in-bay wash to the community?
5. What facility improvements and changes or additions to wash packages or equipment have been made over the past 12-24 months?

Understand

1. How far off is the current monthly average compared to years past?
2. How has the cash spent on marketing in the community positively affected the wash?
3. How have the changes made to the facility affected the revenue generation?

Improve
1. Marketing in the local paper for weekly special on Tuesdays is generating 10 washes more on average, so continue weekly ad.
2. Spent cash to build and maintain website for wash. One
discount coupon per week coming from website. Discontinue site and maintenance fees. Re-direct savings to ad in local High School Basketball Program.
3. Invest in new sign package for automatic.

After going through this exercise, you may ask, “how can I spend money if I am not making any?” Starting with the expense column provides an idea of the savings that can be expected on a monthly basis going forward. That should enable you to budget how much to reinvest into marketing, facility improvements, and getting caught up on general maintenance.

CATEGORY TIPS

Without going through the exercise for each of the sub-categories, the following are a few tips to consider.

Self-Service Bays
Evaluate all the rotary switch positions. The goal is to keep the customer in the bay as long as possible. If there are functions not being used, change it to a new chemical or selection. In-the-bay drying and vacuuming is increasingly becoming a trend.

Vending
Work with your daily service manager to determine which vending item is moving the slowest. Contact your local car wash supply company to find out what the “Top 10” selling items are. If all the items are moving well, look at upgrading to a larger in-wall vendor. They offer 18-plus selections and can help spur business.

Vacuums
There are several items to evaluate when looking at vacuum/fragrance/shampoo machines. Investigate placement, usage, and function. More often than not, car wash owners do not test all the machines. Hence many are not functioning correctly. Spruce up the machines with new decal packages and the islands with a fresh coat of paint. Show the customer you are investing in your facility.

Utilities
The government is offering several tax-based incentive plans for improvement to businesses. Examples include more efficient boilers, addition of solar-power panels, and other renewables and efficiencies. Visit www.dsireusa.org for more details on what rebates and incentives are available through your state government.

Supplies
Chemicals are one of the largest expense items at the car wash. Partner with your chemical provider to find out how to optimize chemical usage. Each in-bay automatic wash package should have a calculated “cost per car.” The self-service bays should have dilution ratios verified by completing titrations for each chemical.

Labor
Many car wash owners contract out pit cleaning, lawn care, snow plowing, and general maintenance to individuals and/or companies. Investigate what discounts are available if you award all of this business to one company.

Payments
Lending institutions dealing with the money crunch find it difficult to re-finance loan payments. With that said, you should at least check into their current rates and what it would take to reduce them.

FOLLOW THE PLAN

If you truly take the time to write out and apply this methodology, you will be able to sustain business during difficult times. The methodology supports reduced expenses and increased cash flow. Revenues will start to climb as customers see a reinvestment into the business and experience the new options available for their use. You are, in essence, cutting the dead weight from both expense and revenue columns. If this is the first time you have ever evaluated your business in such a manner, be sure to take good notes on what worked well and what did not. Set a date on the calendar to review again every year. This will keep your business lean and ready to reap even more benefits when the economy swings upward.

Trent Walter is general manager of Ashland, OH-based National Pride Equipment Inc. You can visit the company on the web at www.nationalpridecarwash.com.