Features

Mom and Pop - Choose from Several Business Models

By Robert Roman

12/01/20

The express-exterior business model has been getting most of the headlines for a long time and rightly so. Nothing has impacted the car wash industry as much as express, which the industry continues to converge on. So much so that pundits have asserted big express conveyors are the future, and the rest of the industry matters less.

This might be a great attitude if you are selling conveyor equipment. However, it is not for folks without sufficient funds for a $4 million or $5 million investment. Family-owned and -operated businesses and sole proprietors fall into this category. The principal reason is they do not have the same access to capital as larger companies do.

Undercapitalized small businesses cannot unlock scale economies which usually put them at a competitive disadvantage. However, this is not necessarily the case in the car wash industry. Entrepreneurs can choose from a number of business models that do not require $1 million in equity.

MOBILE CAR WASH

A mobile car wash is a home-based business that can be started up for around $10,000. This includes vehicle lease deposit, inventory, and six months of operating expenses.

Alternatively, there are franchises available such as Spiffy which requires a cash investment of $50,000 and total investment of between $100,000 and $200,000. Spiffy also requires a $40,000 franchise fee as well as a royalty fee of 7 percent of sales revenue and an advertising fee of 2 percent.

The principal advantages of a mobile operation are low start-up expenses, freedom to go when and where the business is, and no expensive equipment to buy or maintain. For example, most mobile washes today use steam or waterless car wash products to clean vehicles. The disadvantages are limited hourly throughput and approval required from property owner to perform work.

Profitability of mobile car wash operations varies considerably. The more successful mobile operators tend to top out at sales of around $50,000 per employee. Some mobile operators offer detail services. Detailing expands market reach but it also raises the skill level considerably.

HAND WASH

Most hand car washes are former used car lots or gas stations or similar properties.

Ideal specifications are 10,000-square-foot lot and an existing building measuring 1,200 square feet to 1,500 square feet that is drive-through capable.

The typical investment is around $125,000. This includes renovations, insurance and lease deposit, inventory, support equipment, and six months of operating expenses.

The principal advantages of a hand car wash are greater throughput than mobile operations and no expensive equipment to buy or maintain. The main disadvantage is labor. A hand wash requires people, and labor expense is normally around 50 percent of sales revenue.

In terms of profit, the more successful operators generate sales of up to $400,000 or pre-tax earnings of $75,000 or so.

SELF-SERVICE CAR WASH

Historically, people built self-service facilities to create a passive income and build equity by investing in property that could be leased or operated.

Lot size varies from between 18,000 square feet and 22,000 feet and depends on the number and type of bays (wand or in-bay automatic). Typical investment is $800,000 to $1.2 million.

The principal advantages of a self-service wash are a comfortable profit margin, remote or absentee ownership, and demand (DIY, open 24/7). Disadvantages are difficulty in keeping the site clean, malfunctions require a site visit, and occasional vandalism.

As for profit, small sites (three wands and one in-bay automatic) can net $50,000 to $75,000 per year. Larger sites with more profit centers can do a lot better, but the cost to build and operate increases significantly.

IN-BAY AUTOMATIC

The panacea of passive income is an in-bay express car wash. The in-bay express has the same advantages of a self-service wash plus it has greater profit potential like a conveyor.

As shown on page 26, an in-bay express can be placed on a 14,000-square-foot lot whereas a dual set-up would require 20,000 square feet. The typical investment is between $750,000 and $1 million. Dual is a bit more.

The principal advantages of an in-bay express are it does not require attendants to operate, turnkey 60 to 90 days, seven-year depreciation, remote or absenteeownership, and demand (DIFM, open 24/7). Disadvantages are difficulty in keeping the site clean, malfunctions require a site visit, and mobile marketing is a must.

In terms of profit, an in-bay express can be described as a 50 percent or more gross net business.

BUSINESS OPERATING RISKS

Risks involved in bringing any one of the business ideas we discussed to a commercially viable state are categorically similar to those found in any car wash project. Mitigating these risks is crucial to the continued operation of the business and meeting the financial goals and objectives:
• Create a strong value proposition. Today’s customer wants better products, selection, and service without the premium price usually associated with better.
• Instead of competing against a big outfit that is trying to dominate the market, choose a location where there is a measurable gap in product or service.
• Look for real estate opportunities closer to where people live rather than where they shop or work.
• It is a lot easier for a small wash to fit in a smaller shopping area or suburban setting than it is for an express with a giant parking lot full of customers vacuuming cars.
• Develop a website that plays well on mobile devices and integrates e-commerce.
• Create a strong presence with social media to stand out from the competition and attract the attention of consumers.
• Offer customers a phone app (third party). Apps allow customers to find you, order and pay for products and services, and manage loyalty memberships with their mobile devices.
• Offer a subscription membership. The subscription economy is in high gear for the foreseeable future, and smaller businesses need to keep pace.
• Create a virtual public relations program and give back to the local community.

 

Bob Roman is president of RJR Enterprises — Consulting Services (www.carwashplan.com). You can reach Bob via e-mail at bob@carwashplan.com.



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