FIRST QUARTER 2016 | VOLUME 86
INSIDE THIS ISSUE
June 20 - 22 3 President’s Message 5 Valuing a carwash 10 Save by Reporting 13 Little Things Add Up 14 Join MCA Today!
Phone: 800-610-4512 Email: walilko.h@gcsionline.com www.midwestcarwash.com 120 N. Washington Square Suite 110A Lansing, MI 48933
MIDWEST CARWASH ASSOCIATION BOARD OF DIRECTORS OFFICERS PRESIDENT
PAUL COFFMAN Breton Auto Wash
VICE PRESIDENT JOSEPH CHATEL Ride the Tide Carwash
SECRETARY/TREASURER ROB DAVIS Vaughan Industries
DIRECTORS KEN ALLMACHER Allmacher LLC/Vcard SHASHIN KOTHAWALA Crystal Car Wash, Inc. BRAD QUAY Blendco Systems
MCA is a membership organization that promotes the interests of Midwest Carwash Operators through interaction, education and information. The Finish Line is a quarterly newsletter published by the MCA. Opinions expressed by guest writers do not necessarily reflect views of the MCA. Acceptance of advertising does not imply endorsement or approval of the product or service advertised. All articles submitted with be considered for publication and accepted at the approval of the editor and MCA Board. The MCA reserves the right to edit submissions for accuracy, clarity and length. Please send address changes, membership inquiries, and advertising requests to the address listed above.
Advertising Index Crypto Pay (Genesys Technologies)..........................................12 Diamond Shine...............................................................................14 DRB Systems, Inc..............................................................................8 Michigan Cleaning Fund...........................................................11 PDQ..................................................................................15 Schultz Inc..........................................................................................9 Warsaw Chemical Company........................................................3
SHERYL TURNER Belanger, Inc.
CONTACT INFORMATION
Midwest Carwash Association 120 N. Washington Square, Suite 110A Lansing, MI 48933 Phone: 800.610.4512 Fax: 517.371.1170 www.midwestcarwash.com
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First Quarter 2016
FROM THE PRESIDENT By Paul Coffman, Breton Auto Wash
GET INVOLVED! Join the MCA Board The MCA is extending an invitation to you to have an active role in your association and industry as a member of the MCA Board of Directors. Each year the MCA looks to its members for individuals who are willing to be decision makers in advancing the direction of the association; provide input in developing our goals, policies and services; and to act as representative of the MCA to help the MCA membership expand always in all ways. Eligibility for the MCA Board requires that you are a paid member in good standing of the MCA for 2016 and directly involved in operating or owning a car wash or provides services or products specific to the car wash industry. New Board Members are voted in by the current Board Members. If you would like more information about what it’s like to be a MCA Board Member or become a Board Member, please contact Paul Coffman at mcacarwashguy@gmail.com.
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First Quarter 2016
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First Quarter 2016
$ $ $ $ $
Valuing a carwash:
The good, the bad and the ugly Anyone looking to buy, sell or build a carwash needs to read this first. By Roger A. Pencek I PC&D Contributing Writer
T
he carwash business ... is in adjustment mode, the good, the bad and the ugly.
For anyone buying, selling or attempting to build a full-service, express and self-service carwash, this article is paramount reading. Existing owners often are in “value denial,” especially those owners that were in the carwash business during the years 1995-2008. During the past full-service car- wash years, owners got used to hearing inflated sale prices and cannot comprehend the current “price adjustment reality check.” Over the last eight years, I have crafted similar articles and seminars regarding carwash values. ... People, the market is changing with every short sale or bankruptcy our company sells. I have delivered then, as now, the “how to” approach of valuing a carwash geared toward the neophyte, with simple and reasonable tools for evaluating a wash’s value. I will offer the current equations for carwash values later in this article, but there are some dramatic components that have affected the wash values since 2006. 1. Full-serves having to adapt to the express model 2. Self-service customers converted to express 3. Express carwashes being built The reality is, the carwash customer is being converted and addicted to speed and economy. Hence, the wash industry has to adapt to the $5 express wash and meet the appetite of the frugal customer, not to the carwash owner.
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Full-service wash (FS) Values have declined by 30-40 percent generally across the U.S. Yes there are exceptions in affluent venues, but the dis- cretionary income that fueled the 1995-2006 “carwash boom” era ended when the economy dictated our existing financial epidemic. The express wash concept has converted many of their customers. We can concentrate on exceptional service to woo customers, but the budget carwash customers generally just want value and are willing to compromise on some quality. The antidote for the express concept added to an existing fullservice operation is difficult since they are gambling on converting their own $18 ticket customers to a $5 ticket for fear of losing them. Guess what, the payroll doesn’t change, just the gross sales. Gasoline prices that are rising are a barometer of carwashng frequency, need I say more. The values to calculate a value for a full-service are based on gross sales and EBIDTA, and have drastically changed from the 2006 benchmark era. From 1995 to 2006, full-service washes were increasing in gross sales and price increases with little customer objection. Simply put, carwash owners made more profit when customers had discretionary income to spend. Carwash owners’ “exit strategy” was also easy and profitable, with a history of rising sales and the real estate raising, all the components added up to an insulated winning exit sale equation for FS sellers. Washes are valued by a multiple based off the gross sales called EBIDTA which is approximately 30-33 percent of the gross, times a factor. Gross sales go down, so does the EBIDTA drop, hence
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Valuing a carwash - continued from page 5 values go “boom.” Over the last six years the recognized factor of EBIDTA has declined from 6.8-8 to today’s 4.6-6. As an example, gross sales excluding any fuel sales is $1.5 million times 30 percent = $450,000 EBIDTA, times a factor of say 5 = $2.225 million (that includes the real estate and business). In the event there is fuel at the site, take .08 cents per gallon for the current year and times it by the gross gallons pumped and add it to the gross sales times 30 percent. Yes, I know it costs over $3.5 million to build a “generic” FS site. Land (40,000-60,000 square feet at $10-25 per square foot) + Building ($150 per square foot) + Equipment ($450,000) + Convenience Store ($150,000) + Lube ($300,000) + Landscaping ($100,000) + Signage ($50,000) + Water and sewer hookups ($100-$200,000-400,000 ) + Soft Costs ($200,000) + Start Up ($150,000) + ADVO ($25,000) = $3.5-$4 million So educate me, how attractive is buying an existing wash today versus building a new one? The goal here is to get the gross sales back to $2.1 million + per year and FS washes can command the past $3.8-$4.2 million sales range. A few caveats to the above FS equations is you need at least three current consistent years of books, absent any records that the wash is just worth the depreciated assets. All books and documented records are essential, and a lender has to bank the deal, and requires a minimum of 30 percent down. Lastly, if you are trying to assess the business only, use the EBIDTA times 2-2.5. Notice the difference, the FS 4.66 mul- tiplier for the land and business vs. the business only; it’s the land and building component.
Express washes (EX) Values are calculated as a multiple of the gross sales, not EBIDTA. This hybrid wash started evolving in around 2006 as an alternative to the long wash time and high priced FS carwash. It resembles the FS model except that it has typically a longer tunnel, about 140 feet, and can wash
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7,000-10,000 cars per month, typically offering free vacuuming. The price point starts typically at $3, and goes to $5, $7 and then $9. Pretty simple, for a five minute wash with a national average of $5-6 per car, is defiantly the “wave of the future.” The key point here is the payroll, 1118 percent for EX vs. the FS 40-52 percent, which makes this EX wash investment a superior value, especially for the absentee owner. In 2006 the FS was 66 percent of the Total Available Market (TAM), and EX wash 20 percent. Today the percentage has reversed. Since the advent of this aggressive hybrid EX model carwash there have been many con- versions and new builds. Building an EX from the ground up, dependent on the land prices, generally costs $2.7-3.1 million. The first two-year goal for the EX is 8,000-10,000 cars per month and a realistic average of $5-$6 per car in the U.S. After a maturity of three years, the wash should be generating $750,000-$1 million in gross sales. We use a multiplier of 4.3-5 times the gross sales “all in” to calculate the value. The example here of $1 million gross sales times 4.3 equals a value of $4.3 million. It is still premature to value an EX without the land, since there is not enough sales history to for the EX business to date. Unfortunately, many of the EX new builds and conversions have entered the sacred three-mile radius of an existing EX, the TAM then becomes congested, and 10,000 cars per month per location is compromised. The “old adage” of the three Ls (location, location, and location) in successful real estate prevails. The antidote for excessive EX washes in any venue, is two- fold: Carwash equipment suppliers and chemical suppliers discourage neophytes to build within an existing EX’s three-mile radius, and planning and zoning keeps the supply of building permits released related to the population. Remember, there are only so many carwash customers in a three-mile radius. An additional flashy new EX doesn’t add customers, it just splits the pie.
Self service (SS) The typical 4-6 bay self-service (coin operated) carwash with a single in-bay automatic tunnel has currently adjusted negatively to 3-4 times the gross sales “all in”; if the business only, 2-3 times the gross. The operation has not experienced any dramatic technology changes, with the exception of the customer base declining. Again, since the EX washes have infiltrated the FS market it has affected the SS perception. The current wash statistics reveal a $3.75 income per bay per customer. The once loyal SS customer is now, too, being converted to the $5 EX profile with free vacuuming. The owners of these washes are generally on-site and do all the collections. There are ways of determining the true gross sales dependent on
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the percent of an owner’s water usage, utility bills and chemical receipts, on the owner’s P&Ls and utility bills. If you’re not an expert in the wash industry, the neophyte needs to hire a consultant or walk from the deal. The cost to build a SS wash today has not changed much over the last five years, but is almost prohibitive based on the following costs: Land (30,000 square feet at $10-20 per square foot) + Building and equipment (4-6 bays at $70,000 per bay) + Building & automatic ($250,000) + Water and sewer hookup and utilities to the site ($150,000) + Soft costs and zoning ($100,000) + Landscaping ($50,000) = $1.5 million-$2 million for a 6-bay SS with one automatic bay with land. The challenge today with SS survival is that the average customer in the self-serve bay has to justify not going to the EX wash with a base wash of $3-$5, with free vacuuming. Notwithstanding, there is a “saving grace” of the SS wash customer, especially in rural areas that have a need for ATVs and other sport related vehicles that will always require the SS applications. The problem is the SS market today has to maintain a minimum of $180,000 gross annual sales to make a 28 percent profit. This is generally based on a typical four to six bay self-service with one automatic. The industry standard for income is $2,000 per SS per month, and the total sum of all the bays per month is about 60 percent of what the automatic should gross. If you use that equation the gross sales for a typical 6 + 1 should be at $180,000-$240,000, times a value multiplier of say 5 = $900,000-$1.2 million. Remember what it costs to build a reasonable SS wash.
So, what does it all mean?
As I have stated in the past, the above current valuations are at best an art not a science, since each wash has its own personality and therefore each value is only an estimate. Rely on experts, buyer brokers, CPAs and carwash consultants who are unbiased to clearly evaluate the wash’s hygiene (books and records and trends) and please be careful of salespeople who are eager to convince you they are an expert, only to provide you with an inflated and embellished estimate. The values discussed are only estimates and to be used as a guide. The most important insurance policy for a buyer or owner in obtaining a current value is to spend the money and hire an expert to evaluate the wash who is savvy to the wash industry and/or pay for an appraisal or opinion of value. Conversely, to the respected certified MAI appraiser, there is a common report called an Opinion of Value (OOV). Buyers who would like an unbiased “opinion of value” as to the value of a wash prior to making an offer, or a lender who wants a spot check as to their carwash loan port- folio, will be eager to have an OOV from an expert in the carwash field rather than an appraiser who is a general practitioner. There is no negotiation to the Carwash Golden Rule which is: Get an expert to evaluate each model and have an exit strategy. It has historically saved 10-20 percent devastation for over or under paying for washes, I have found in the last 28 years. Roger A. Pencek molded his mergers and acquisitions career in management capacity at General Motors Corporation and International Harvester upon graduating from Western Illinois University in 1974. In 1985 he founded ABI L.L.C. (Acquisitions, Businesses & Investments L.L.C.) which specializes in the sale of businesses in the $250K-$20MM range. For the last 20 years he has been gaining the reputation of being the “Car Wash Broker” specializing in the sale of washes in the Pacific Southwest. He also owns “Car Wash Brokers, Inc.,” (CWB, Inc.) a national company specializing in carwash sales.
Since 2006 I have been writing and delivering seminars on “valuing your carwash” and the values have all been declining, whether it’s due to the economy or excessive completion. But I believe we have seen the worst, and we are on the mend. There are less short sales and there’s a gain in traditional bank approvals for reasonable carwash re-sales.
© Copyright 2016 Grand View Media Group. Reprinted with permission from Professional Carwashing & Detailing ® magazine. For free subscription to Professional Carwashing & Detailing ® magazine call 866-721-4807 / www.carwash.com PROFESSIONAL CARWASHING & DETAILING® May 2012
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First Quarter 2016
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First Quarter 2016
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Dealerships
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Save by Reporting Your Workers’ Compensation Claims
S
hould you report that sprained ankle, cut hand or sore back? What’s more expensive, reporting the claim or paying it out-of-pocket? While paying the “small” claims in many other lines of insurance such as auto and home may make sense, it’s a fairly expensive alternative when it comes to workers’ compensation. Because of the workers’ compensation rate making structure, reporting claims verses paying them out-of-pocket, often results in significant cost savings.
The Cost Impact of Claims The workers' compensation system uses a "modification factor" (or mod) to increase or decrease your premium based on the number and size of the claims you report. If your claims are equal to what is expected of your business, you’ll have a 1.0 mod. Claim activity that is more or less than expected, will create a mod over or under the 1.0 average. Your mod is multiplied by your premium, creating a debit or credit. For example, if your mod is 1.20, you are
Modification Factor Annual Premium
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paying a 20% surcharge to your premium, while a mod of .80 would indicate you are receiving a 20% reduction to your premium. Your mod is based on three years of data, not including your most recent policy year. For example, if your policy is renewing in 2015, it will be based on loss and payroll data from the 2013, 2012, and 2011 policy years. The mod calculation is based on a rolling average, therefore, the 2015 mod will be based on 2013, 2012, and 2011 data. The example reflects the impact claims may have on the mod and premium. The illustration is based on a Fund business with $150,000 in annual payroll. The impact of claims on this company’s modification is proportional to the impact they’d have in other industries and for businesses of all sizes.
Fund Member The table reflects the difference in the mod factor and premium, over a three year period, as a result
Claims of $500 a year paid out-ofpocket
Claims reported to carrier
.86
.90
$8,700
$9,000
Premium increase due to higher modification factor (.90 vs. .86):
$300 (per year in higher premium)
Premium increase due to mod:
$900 ($300 x 3)
Claims paid direct (3 x $500):
$1,500
Total cost to a Fund Member:
$1,500
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$900
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of paying $500 in out-of-pocket claim costs a year verses reporting the claims. If a Fund Member was to pay their own claims, they’d have a modification factor of .86, resulting in a premium of $8,700. If claims were reported, a higher modfication of .90 would result, creating a premium of $9,000. At first glance, it would appear to be more cost effective for them to pay their own claims. However, once the cost of paying out-of-pocket is factored in, the Fund Member would net a savings of $600 ($1,500 - $900) or 40%, by reporting their claims. These numbers, although relatively small, illustrate the significant difference that can result when claims are reported verse paid out-of-pocket.
Key Point
Legal Reasons/Fines. Section 111 of the Medicare Extension Act of 2007 makes it mandatory that all workers’ compensation injuries be reported to Medicare. Paying your own claims may reduce your administrative reporting time some and may seem to be the best alternative from a cost and management standpoint. However, as this article outlines, there are other factors to consider. If you’re interested in learning more about the impact of claims on your premium or to learn about the benefits of being a member of the Michigan Cleaning Fund contact Joe at Regency Group at 800-686-6640 extension 204 or by e-mail to jclifford@regency-group.com.
Paying claims out-of-pocket does not normally save you money. In most cases, the savings that result from a lower mod and premium, are not as great as the cost of the claims.
y’s
Your Industr
Self-Insured Workers’ Compensation Fund
Other Reasons to Report Claims Pay Discount Rather than Retail. When claims are reported, the amount paid to the provider is normally reduced by 40%. Control the Process. When a business pays their own claims, it’s guessing whether the sprained ankle, cut hand, or sore back is serious enough to warrant an adjuster’s review. The Time-Value of Money. When a business pays $1,500 dollars in out-of-pocket claim expenses, the money is in today's dollars. Safety. Having an accurate record of the who, when, where, why and how of accidents is crucial to accurately reviewing your safety program.
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Returning Millions Back To Members $19.6 Million since 1981 SAFETY | SAVINGS OWNERSHIP GREAT RATES PREMIUM RETURNS LOSS CONTROL INDUSTRY-SPECIFIC
• Workers’ Compensation Insurance with a 50% Average Premium Return • Safety & Loss Prevention Services • Competitive Up-Front Pricing • Endorsed by MCA
• Request a Quote from your Current Agent
micleaningfund.org | administered by Regency Group | 800.686.6640
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First Quarter 2016 2/22/16 8:43 AM
Little Things Add Up Three Ways to Save Money By Steve Arnovick, Blendco National Sales Manager
W
ith so much focus being put on conservation and our economy these days, things such as reusing and recycling water, energy efficient equipment and eco friendly chemicals are becoming prevalent topics in today’s car wash industry. Along with these very important areas, which can largely affect the environmental and economic aspects of a car wash, there are other, sometimes ignored, measures which can have an impact as well. First, I recommend checking for water leaks. I frequently visit car washes throughout the country and commonly see multiple small leaks at a single site. These leaks may seem inconsequential considering the volume of water used at a typical car wash; however, according to USGS data, a single small drip can leak over 2000 gallons of water a year! If you have several of these, you could be wasting 6000+ gallons in a single year. Depending upon the type of wash you operate, that annual leakage could wash as many as 400 vehicles! To make matters worse, some leaks not only hemorrhage water, but chemical as well, further exacerbating the economic and environmental waste. Most of these leaks can be fixed easily, in many cases by simply applying Teflon tape to the joint or by re-tightening.
Lastly, make it a point to check timers and clean photocells that control your site’s lighting. I frequently notice lighting that is activated unnecessarily. You wouldn’t want to operate your location with inadequate lighting, but, at the same time, there is no sense in having security or bay lighting turned on in bright sunlight! These are just a few conditions you may notice at your wash that, once rectified, will help you save dollars and the environment. Small things can and do add up to large things, and any time we can save a buck – we earn a buck – and the planet thanks you too! Blendco manufactures a full line of detergents and waxes for the professional carwash industry. You can contact Blendco at: www.blendco.com.
Next, take measures to prevent chemical waste. I often see uncovered chemical containers which allow for potential contamination and evaporation of some ingredients. This is another issue which invites waste. One solution is to drill a hole through the container cap or bung screw and thread the delivery line through it. This will help alleviate this problem.
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2016 Associate Membership Form Company Name _________________________________________________________ q Renewal
q New Member
Other Business Name (if applicable) ____________________________________________________________________ Business Type (check all that apply)
q q q q q q q
Conveyor In-Bay Automatic Oil-Lube Chemical Distributor Carwash Mfr. Equipment Mfr.
q q q q q q
Detail Shop Self-Serve Credit Card Processor Insurance Provider Soap Mfr. POS
Other _____________________________________
Address ___________________________________________________________________________________________ City _____________________________________ State ______________________________ Zip _________________ Contact Person _____________________________________________________________________________________ Phone ________________________________________
Fax ______________________________________________
Email _____________________________________________________________________________________________ (Please provide an up-to-date email to ensure that you receive all MCA communications)
q Operator Member Annual Dues $150
q Supplier/Distributor/Manufacturer Member Annual Dues $150 PAYMENT METHOD q Check payable to MCA
Check # _________
q VISA
q MasterCard
q Discover
q Amex
✔
Credit Card Number: ________________________________________ Expiration: _____________ Code: ____________ Name: _______________________________________ Signature: ____________________________________________ MAIL FORM AND PAYMENT TO :
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Midwest Carwash Association 120 N. Washington Square Suite 110A Lansing, MI 48933 Or Fax to 517.371.1170 Page 14
QUESTIONS?
Contact Hillary Walilko at walilko.h@gcsionline.com or call 1.800.610.4512
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PRESORTED STANDARD U.S. POSTAGE PAID LANSING, MI PERMIT NO. 664
120 N. Washington Square Suite 110A Lansing, MI 48933
Not an MCA Member? Join today at www.MidwestCarWash.com