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THIRD QUARTER 2016 | VOLUME 86

INSIDE THIS ISSUE

3 President’s Message 4 Boost Express Wash Profit 8 2016 Expo Review 10 MCA Carwash Tour Don’t Miss it! 12 Financial Advice you can’t Afford to Ignore

Phone: 800-610-4512 Email: walilko.h@gcsionline.com www.midwestcarwash.com 120 N. Washington Square Suite 110A Lansing, MI 48933

MCA Bus Tour Details, page 10


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 Unitec

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)..........................................19 Diamond Shine...............................................................................17 DRB Systems, Inc..............................................................................6 International Drying Corporation.............................................18 Michigan Cleaning Fund..............................................................18 PDQ..................................................................................11 Warsaw Chemical Company........................................................13

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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FROM THE PRESIDENT By Paul Coffman, Breton Auto Wash

The Wheels on the Bus Go Round and Round

I

am so excited about the upcoming first MCA Carwash Tour on October 20th. Looking forward to not only sharing knowledge and information to help fellow members continue to be successful, but learning as well. Space is limited for this first tour so if you haven’t registered, do so right away.

The Annual Bill Boal Memorial Golf Outing is September 27th. That means it’s time for all of us to become one with a little white ball, a club and the beer cart. It should be a great day enjoying fun with fellow car wash owners and vendors. If you haven’t registered, no worry, there is always room to add another foursome, pair or single golfer. Additional details are available on the website for both events at: http://midwestcarwash.com/events. I’ve been hearing back from operators and vendors alike and overall things have been looking up for this industry and 2016 is showing indicators of finishing strong. Looking forward to seeing you all at one of our outstanding events.

~Paul

IN MEMORY OF Jake Naber

The MCA is deeply saddened to learn of the passing of Jake Naber of Quality Carwash - Cutlerville. Jake served briefly on the MCA Board in 2015 and had many friends in the association. Third Quarter 2016

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Four Tips to Boost Express Wash Profit

W

By Del Williams

ith millions at stake in a typical express wash, here is how owners can increase profit now and long-term while minimizing risk.

Whether car wash owners are new or experienced, they have a lot of capital riding on their investment, so they need to be strategic about how they operate. Getting past viability to long-term profitability with express car washes, a fast growing area of the industry, is all about performing consistently excellent so as to attract loyal long-term clients. “In the past few years, a surprising number of people have jumped into the express tunnel wash business,” says Dan

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Pecora, who opened the nation’s first exterior conveyor car wash in Appleton, WI in 1963, along with others in six states. “An express car wash can cost several million dollars today and is essentially a single use facility,” adds Pecora. “Get something wrong and you could drive customers away. Get it right, and continue getting it right, and the reward can be decades of healthy profitability.” Modeling the success of car wash pioneers like Pecora is perhaps the surest route to success. With millions at stake in a typical new express wash, here are four tips on how owners can boost their profit now and long-term while minimizing the risk.

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1) First Impressions Count One tactic that express car wash owners use with a new facility is to hold a grand opening, where the washes are heavily discounted or even free for a limited time. This brings customers in but does not always turn them into repeat customers, particularly if the operator is inexperienced and does not deliver a quality wash and a friendly experience. “An express car wash grand opening can bring in many thousands of new customers over the promo period,” says Pecora. “If the owner can turn many of the new customers into long-term clients, and continue the friendly experience, he will have a successful wash. Do a poor job, however, and they won’t return and neither will their friends or family.” Since customers usually ride through exterior tunnel washes today, it is important that each step of that process be gentle whether the owner is holding a grand opening or not. “Customers have a close up view of the tunnel wash on the ride through and notice every bump and noise,” says Pecora. “So the transition onto the conveyor should be smooth and the brushes gentle. Failing this the customer is not likely to return.”

2) Brush Up on Your Brushes and Cloths According to Pecora, the surface that you are cleaning, brushing, or polishing will determine the stiffness of the brush you should use. In conveyor washes, Pecora says that firmer synthetic filaments are appropriate for tires and wheels while soft cloth or gentle foam is better for the painted car body, where a softer approach is required to produce a shiny car. “Tough cloth or tough foam might last a long time, but won’t clean the car’s nooks and crannies,” says Pecora. “Soft cloth or gentle foam, when done correctly, is gentler on paint and will clean these hard to reach areas.” According to Pecora, an exterior car wash using a highquality “gentle foam” with smooth car wash equipment, can further reduce damage claims to near zero, while offering a quieter wash and better final polish. Unlike typical foam, which is usually offered at standard levels of softness, gentle foam significantly increases the level of softness. For any trouble spots that commonly need to be touched up on your conveyor wash, such as around headlights, license plates and door handles, Pecora recommends using a hog’s hair brush at the car wash entrance.

“Hog’s hair – actual hair that comes from hogs – has the smallest diameter tapered filament, which helps to make it the softest,” says Pecora. “Since it is soft, tapered, and feathered at the tips, it tends to release grit when properly lubricated and will not grind it into the car surface. Because of the taper, the hairs still retain stiffness for washing up close, if scrubbing is needed.” To prevent potential paint marring from grit, Pecora advises washing any grit from the brushes before use. During the wash, he says that employees should dip the brush head into a soap solution in a tall drum. The employee should stroke the car a few times, then re-dip the brush, allowing the grit to fall to the bottom of the barrel.

3) Quality Counts While there is always the temptation to save a little on materials, sacrificing quality to save a dollar or two is the definition of penny-wise and pound-foolish. Because the brush touches every surface of a vehicle, cutting back on quality can virtually guarantee a sub-par wash that will turn-off customers. Beyond this, sub-par materials generally do not last, while quality supplies can often perform well for years. “A poor quality brush can do an awful job right off the bat,” says Pecora. “It can have the wrong filaments, can be too hard or soft, or the backing can be wrong, allowing the filaments to pull out or the employee to bump the client’s car.” “A quality brush starts with quality filaments, laid in correctly at the right angle, so that it is neither too hard nor too soft for the job,” adds Pecora. “Conferring with the car wash supply manufacturer can help you tailor your materials to the job, provided their focus is on the car wash industry and not something unrelated, like construction or scrubbing steel.” Pecora advises that using quality chemicals is also necessary. “While a conveyor wash could get by with just a few chemicals when I started out, today a dozen or more are typically used in express washes,” says Pecora. Pecora recommends that owners consult with the best car wash chemical specialists.

4) Keeping Customers Long-Term Car wash owners looking to increase profit often offer add-on services for a few dollars more. These typically enhance protection or shine, such as a wax arch or tire blackwall service. While such services can boost sales dollars, Pecora cautions that the sales bump may only be temporary and decline over time unless consistent highquality and high-value is delivered.

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Is Your Current Unlimited Wash Plan Delivering Average Customer Results?

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Crank up the Volume with DRB Systems. ONLY DRB Systems, through years of marketing, operational and technical KNOW•HOW, can provide complete Member Programs and IN•KNOW•VATION™ that can change the way your customers see your business. IN•KNOW•VATION™

It’s what makes DRB Systems different. AND...It’s the difference between a Good Car Wash and a Great one! Trust DRB Systems to get more customers and members. • Complete Member Program Technology • Best Practices for Marketing Member Programs • Secure Recurring Payment & Cash Plan Handling • FastPass® RFID Technology GET TO KNOW US 800.336.6338 LEARN MORE AT DRBSystems.com

To start the conversation about Member Programs contact your regional sales representative:

800.336.6338 Finish Line

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32 OF THE TOP 50 U.S. car washes choose DRB Systems. FIND OUT WHY.

Third Quarter 2016


continued from page 5 “One trouble spot in getting a quality tire shine, for instance, occurs when tires are not thoroughly cleaned before brushing in the chemical shine,” says Pecora. “This usually happens when wheels and tires are very dirty and are not cleaned properly.” Having grown up with brushes in his DNA, so to speak, Pecora put his mind to creating two brushes for conveyor car washes specially designed to clean tires and wheels. With unique names like the “Wheel Wonder” and the “Poodle Brush,” these brushes’ filaments gradually vary in length between three to seven inches to create a wavelike pattern, or resemble a well-manicured poodle. As a vehicle travels through the automated car wash, the longer bristles reach deep into wheel crevices while the shorter bristles clean the tire and wheel surface. “Use the right cleaning material, followed by the right tire shine brush to buff the chemical into the blackwall, and the tires will shine so they turn heads at stoplights,” says Pecora.

“Putting your friendliest employees at the point of customer contact and having them act as consultants helping improve the clients wash where needed can influence how customers feel as much as anything else,” says Pecora. “Customers must like and trust them or they may resist coming back if they feel they are being sold unneeded services.” Pecora says that without a friendly professional to greet and consult with customers, the next best option is to have an automatic payment system with no interpersonal contact. By following these tips to ensure consistent quality and value, and always considering the end result from the customer’s viewpoint, Pecora concludes that car wash owners can keep their clients profitably coming back for the long-term. Del Williams is a technical writer based in Torrance, California.

Another vital aspect to keeping clients for the long-term, Pecora points out is having a caring, smiling, professional at the car wash entrance.

MICRO PAK SYSTEM! Micro Pak Station

The economical, ecological, ergonomic alternative. • Saves equipment room space • Specifically designed for easy maintenance • No handling of heavy drums • Unique top pierces induction sealed containers for easy and automatic product delivery

Third Quarter 2016

The Micro Pak System features a new line of hyper-concentrated products packaged in easy-touse 2.5 gallon containers. Our new Storage Station is easier, safer and faster. Get the whole story at warsaw-chem.com.

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Warsaw Chemical Co., Inc. P.O. Box 858, Warsaw, IN 46581 Phone: 800-548-3396 Fax: 574-267-3884

warsaw-chem.com Car Choice ®. “If your car could choose.”

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EXPO 2016 June 21 st & 22 nd FireKeepers Casino Hotel In 2016 we returned to FireKeepers Casino Hotel for another successful Expo held June 21st and 22nd.

SHOW SPonsors

Day one kicked off with our round-table breakfast with industry leaders discussing up-to-the-minute topics including Chip Cards, Workers Comp Claims, Belt Conveyors and more.

DRB SYSTEMS GALLOP BRUSH COMPANY KLEEN-RITE CORP. MICHIGAN CLEANING FUND SCHULTZ INCORPORATED VAUGHAN INDUSTRIES, INC.

The first day of the show ended with a great on-site dinner attended by over 60 vendors and operators. Day two included breakfast and more time to visit exhibitors and network. We want to again thank everyone who participated in the 2016 Expo, and stay tuned as we start planning for 2017!

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THANK YOU!

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Exhibitors ALLMACHER LLC / VCARD AMERICAN CHANGER BELANGER, INC. BLENDCO SYSTEMS / C.A.R. PRODUCTS, INC. C. STODDARD & SONS CHIA-MA CAR WASH SYSTEM CON-SERV MFG. CUL-MAC INDUSTRIES INC. D&S CARWASH EQUIPMENT, CO. DIAMOND SHINE CAR WASH SOLUTIONS DIXMOR DRB SYSTEMS EGENUITY ELECTRO-MATIC VISUAL ERIE BRUSH & MFG. CORP. ETOWAH VALLEY EQUIPMENT FSHS, INC. GALLOP BRUSH COMPANY GENERAL PUMP HAMILTON MANUFACTURING CORP. HARRELL'S CAR WASH SYSTEMS HURON VALLEY SALES HYDRO-SPRAY WASH SYSTEMS, INC. INNOVATIVE CONTROL SYSTEMS KLEEN-RITE CORP. LAGUNA INDUSTRIES, LLC MICHIGAN CLEANING FUND MILE HIGH LED SYSTEMS

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MOTOR CITY WASH WORKS/OSCAR W. LARSON CO. OCTAFORM INC. PECO CAR WASH SYSTEMS PREMIER DRYERS & VACS PRO EQUIPMENT CO. SCHULTZ INCORPORATED SIMONIZ USA, INC. SOBRITE TECHNOLOGIES SYNERGY SOLUTIONS® TOMMY CAR WASH SYSTEMS TSS, INC. UNITEC VAPORLUX, INC. VAUGHAN INDUSTRIES, INC. WALTON INSURANCE GROUP WARSAW CHEMICAL CO., INC. WOLTCO, INC. ZEP VEHICLE CARE

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MCA Carwash Tour October 20th Grand Rapids, MI

MCA is having a Carwash Tour! Thursday, October 20th - 2:30 PM (bus departs at 3:00 PM) Founders Brewing Company - Grand Rapids

We're Visiting 5 Fabulous Locations! • Thunder Mountain (Michigan St.) - A location in the heart of GR making use of limited space with an 80' tunnel, vac • • • •

service, and dog wash. Waterworks (E Beltline) - an exciting double tunnel showing the latest in both express and full service cleaning. Southland (M6 and Kalamazoo) - Southland's newest facility displaying amazing technology in express washing. Jenison Carwash (Baldwin St.)- A remodeled facility that is inviting to customers. Tommy's (44th) - New Tommy's Express building and wash you won't want to miss!

Then we'll return to Founders for brews and grub around 7:00 PM Registration includes: Carwash Tour and Reception at Founders Brewing Company. Space is limited, register today! We also have a block of hotel rooms reserved at the Holiday Inn Grand Rapids Downtown for $119 per night plus tax. Reserve a room by calling 616-235-7611 and mention Midwest Carwash, or use the following link.

We want to thank our sponsors for making this event possible

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CARWASH TOUR REGISTRATION October 20, 2016 Grand Rapids

Visiting 5 fabulous locations! Reception at Founders!

Name ____________________________________________________________________________________________ Company Name ____________________________________________________________________________________ Other Business Name (if applicable) ____________________________________________________________________ Address ___________________________________________________________________________________________ City __________________________________________ State _________________________ Zip _________________ Phone ________________________________________

Fax ______________________________________________

Email _____________________________________________________________________________________________ (Please provide an up-to-date email to ensure that you receive all MCA communications)

Primary Area of Business

q q q q

Conveyor Oil-Lube Chemical Distributor

q q q

Detail Shop Carwash Mfr. Credit Card Processor

q q q

In-Bay Automatic Equipment Mfr. POS

q q q

Self-Serve Soap Mfr. Insurance Provider

Other _____________________________________

If you are registering multiple attendees please enter their first and last name and email address

Name

Email

1 2 3 4 5 REGISTRATION

PRICE PER ATTENDEE

MCA Member

$59

Non-Member (includes 1-year MCA Membership)

$150

QUANTITY

TOTAL

TOTAL _______________

PAYMENT METHOD q Check payable to MCA

Check # _________

q AMEX

q VISA

q MasterCard

q Discover

Credit Card Number: ___________________________________ Expiration: _____________ Code: __________ Zip: _____________ Name: ___________________________________________ Signature: _________________________________________________

Midwest Carwash Association 120 N. Washington Square, Suite 110A, Lansing, MI 48933 Phone 800.610.4512 Fax 517.371.1170

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FEATURE STORY

can’t

You afford to ignore

When it comes to running a business, money management and financial planning is more than just dollars and cents. It takes keen organization, knowledge, expert advice and an arsenal of other tools. To help car care owners better equip themselves with their financial disposition, we turned to three experts: Roger A. Pencek, president and founder of Carwash Brokers Inc., who has been brokering and consulting carwashes since 1985; Reuven Birnkrant, president of PetroCal Associates, a commercial mortgage brokerage firm; and Jim Phelps, president and owner of Capital Equipment Leasing. By Roger A. Pencek Buyers applying for a loan to close their ESCROW, and existing carwash owners applying for a loan for refinancing, have the same challenge: How do we get the money? This loan dilemma is the same challenge for existing wash owners who choose to convert antiquated full-service washes to today’s popular express or flex operations. [Previously], the biggest obstacle for sellers is the fact that the last three years of Profit & Losses (P&Ls) are generally in a “declining to steady income” trend. Lenders are putting more credence in the past three years’ performance than ever before. Small Business Administration (SBA) government lending is the most popular borrowing vehicle (20-30 percent down) for buyers and has tightened their already tough lending requirements []. Alternatively, conventional lenders like, Wells Fargo and Bank of America, require (35-40 percent down) and specifically shy away from funding gas stations and carwashes due to their “single purpose” real estate profile. So, the good news is seller carry back is the “new bank” which can be a win-win situation assuming the buyers and sellers have luck on their side.

Institutional (bank) financing Banks and borrowers unanimously have a love-hate relationship. Banks love to talk lending money, but hate to give money up, and they’re relentless when it comes to debt collecting. To make the process easier, borrowers need to be prepared with what lenders require. The specific information that a bank wants is commonly accumulated in what is called “a package.” When a carwash is typically listed for sale, the seller transfers bitby-bit information relating to the business to a broker for a potential buyer. The big problem is planning, pricing and organizing books and records in preparation of marketing their business for sale. To maintain the attention of the lenders’ consideration, pertinent information must be assembled at the beginning to avoid buyers and lenders losing interest. Paramount to the sales/financing process is getting all of the complete information up-front for multiple lenders to review. The buyer’s accountants and lenders can then immediately start mustering the seller’s books and records; simultaneously appraisers can then begin their review. The obvious delay factor of time, which is the

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FEATURE STORY common deal breaker, is avoided when a proper package is prepared and a deal can commence. Each package will include the items on the partial list below. Any lender will require these items to do an “acid test” on the borrower as well as the strength of the carwash as collateral. Remember, the borrower and carwash business are both under the bank’s microscope, and have to be financially strong and clean.

List of items needed: From the seller: 1. Purchase and sale agreement, with asset allocation breakdown 2. Year-to-date business financials (income statement and balance sheet) 3. Seller’s last three years of IRS tax returns 4. Seller’s last three years P&Ls with balance sheets 5. Last 12 month rolling P&Ls 6. Daily record book (DRB) or comparable monthly report for last rolling 12 months 7. All leases (including, but not limited to, landlord lease, if applicable) 8. Complete list of all equipment 9. Complete list of personal property 10. Complete list of all employees with payroll records (DRB) 11. Copy of current appraisal (if avail- able) 12. Current surveys (if available) 13. Current Phase I (if available) 14. Current plot map (if available) From the buyer: 1. Purchase and sale agreement, with asset allocation and breakdown 2. First-year sales and expense projection after purchase 3. Business profile (to support projections) 4. Personal financial statement 5. Source and documentation of buyer’s cash injection (bank statements, gift letters, brokerage house statements, etc.) 6. Last three years of buyer’s individual tax returns 7. Management resume on buyer’s and existing management 8. FORM 4506 — Request for transcript of tax form signed and dated only. Lender will complete information 9. Authorization to do a credit check

by the lender and an initial interview will be set. The selling broker and borrower should attend. A well-prepared list will allow the lender to expedite their decision. Most likely the borrower will “shop” two to three lenders, speed up the process, and give the borrower a negotiating position. Keep in mind, a full-service carwash is a “single use business” and therefore, more risky for lenders. Targeting banks that specialize in that market is to your benefit. Visit www. carwashbrokers.com for a reference list of qualified lenders. The information above is a fast track model to obtain a decision from a lender.

The process: The initial goal is to be approved by the lender within the first 10 days of the loan application with a Letter of Interest (LOI), describing the terms of the loan and approval notes. During the next 45 days, after accumulating the lender contingency data, a Letter of Commitment (LOC) is ultimately issued. A loan is then approved and the buyer is ready to sign for 20-30 years, closing 10-20 working days thereafter. The whole due diligence loan approval takes about 75-90 days. The following equation is a basic “acid test” formula that will save everyone a lot of time and generally qualify a borrower for an institutional loan:

• 2014 (25-40 percent) down payment (balance of the purchase price to be banked);

• Excellent borrower credit (see page XX); • Experience in the carwash business; • Carwash business includes the land; and

• Three years and year-to-date carwash • P&Ls plus tax returns, minimum of • 30-35 percent Earnings Before Interest, Taxes, Depreciation and Amortization (EBIDTA).

These five items can assure most borrowers that a loan will be approved

Seller carry back This form of carry back financing is when the carwash owner (the seller) is the “bank.” As an example, the buyer will typically put 20–35 percent cash down and the seller will take a promissory note for the:

Note: Once the information is gathered call the lender to pick up information. Prequalification or a decline notice typically will be provided within 48 hours by the lender. A prequalification letter will be delivered to the buyer directly

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$1 million Sales Price $250,000 down (25 percent) $750,000 Promissory Note from Seller to Buyer including 8 percent interest amortized over 10 years payable in equal amortized payments of $6,273.30 (no pre- payment penalty) commencing 30 days from Close of Escrow.

Third Quarter 2016


The buyer will give a personal guarantee note with a Due on Sale clause. This type of financing is typically designed when the carwash is on leased land or if there is soil contamination. The caveat here is that the sellers must have a long and desirable lease on the property.

To review Institutional (banks and insurance companies) and SBA financing is a process that may typically take four months or more to complete. SBA is generally more expensive to obtain a loan (fees $15,000-$45,000), but requires 25-30 percent down versus conventional lenders who require 35-40 percent down. All lenders will have to order current appraisals, environmental reports, surveys and title policies which all consume valuable time. There are very strict guidelines for both conventional and government SBA loans. Currently, bank commercial lending rates are very desirable; therefore, the conventional and SBA bank financing can be unpopular. The challenge, of course, is in proving your business to the lender. Borrowers have to qualify, the business has to show 30 percent or more EBIDTA, and impeccable records, to confidently qualify.

Carry back financing, commonly referred to as a “land contract” since the 2008 financial meltdown, is becoming more popular and by far the easiest financing to obtain. Depending on the comfort level of the buyer and seller, due diligence from the time of opening ESCROW to closing, can take 15-30 days. Often, in a typical sale, the seller’s tax implications, take all the money from a sale at closing, which is ultimately not tax favorable (capital gains tax). The synergy of this type of lending is generally beneficial to both parties. Both buyer and seller can speed up the sales process with a carry back promissory note, a lower down payment for the buyer (20-25 percent), and a balloon pay off can be structured, and the seller can do some tax planning. Buyers do not have to muster the strenuous red tape loan requirements and sellers know their collateral is valuable. Disclaimer: Each U.S. state is different as some are mortgage or deeds of trust states; Check with your CPA or attorney as the crafting and repercussions of this type of carry back financing; generally the seller retains ownership to all the assets (as collateral via a recorded lien, known as a chattel security agreement and UUC filing) until the note is paid in full.

MICRO PAK SYSTEM! Micro Pak Station

The economical, ecological, ergonomic alternative. • Saves equipment room space • Specifically designed for easy maintenance • No handling of heavy drums • Unique top pierces induction sealed containers for easy and automatic product delivery

Third Quarter 2016

The Micro Pak System features a new line of hyper-concentrated products packaged in easy-touse 2.5 gallon containers. Our new Storage Station is easier, safer and faster. Get the whole story at warsaw-chem.com.

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Warsaw Chemical Co., Inc. P.O. Box 858, Warsaw, IN 46581 Phone: 800-548-3396 Fax: 574-267-3884

warsaw-chem.com Car Choice ®. “If your car could choose.”

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FEATURE STORY Loans and credit score advice A Q&A with Jim Phelps of Capital Equipment Leasing Inc. Q: What’s new in the financial world since last year? A: Credit is easier to get. However, you may notice that interest rates are starting to creep up. Historically, interest is still at the lowest rates in years. I remember a bumper sticker on a real estate agent’s car in 1972, “Happiness is 6% interest.” Q: What do today’s car care business owners need to know if they are looking for a loan? A: I’ve said this before and I think it bears repeating: Poor personal credit. Most businesses are closely held or have a limited number of shareholders. In those instances, a personal guarantor is always requested. You must take care of your personal credit as well as your business credit. Not enough cash flow. This is usually demonstrated by the average daily bank balance. Many businesses try and show little or no profit for tax planning reasons. That may be good for reducing tax liability, but when you deal with a lender, they want to see net worth and enough extra money above operating costs to service the loan or equipment lease. Sometimes your CPA can be “too good.” No experience or not enough time in business. It doesn’t make sense for a garage mechanic to start a restaurant. Length of time in business also demonstrates staying power, so the longer you are in business the better chance of getting a loan. Business shows a negative net worth. Business shows operating losses. One year may not kill you. It will hurt you. Several years of operating loses will kill you.

The traditional lending criteria and restrictions are forcing most sellers who have no debt on real property to consider being the “bank” since they can take the down payment and use the carry back note, which is a recorded first lien on the property; and then use the payments as an annuity backed by collateral. They can then go in and resell in the event of a default or hypothecate if they need to borrow against the equity of the property. The borrower (payer) and carry back lender (payee) should be aware that legal representation is highly recommended due to an array of issues:

• Prepayment penalties • Due on sales clause • Personal guarantees • Balloon payments Finish Line

Q: What do today’s car care business owners need to know if they are looking for credit score information? A: The credit score you get from the free credit score services are not accurate nor necessarily a true reflection of the credit score that lenders use. Various lenders have their own scoring system and credit models created for them by the credit reporting agencies. Those agencies make it clear that we are not to share that information with the applicants. The best you can do is to follow the steps outlined above. Also, try to keep your revolving credit card debt limited. Lenders are concerned if you show a lot of credit card debt. Typically you should have no more than $30,000 to $40,000 of credit card debt and have used 50 percent or less of that credit limit. Q: What do today’s car care business owners need to know about the importance of good record/book keeping? A: Good record keeping is very important. You can secure an equipment lease based upon your time in business, but generally that is limited to companies that are two or more years’ time in business. The longer you are in business the more you can secure, usually up to $100,000. However, we will want to see the last three months’ business bank statements to show that you have the cash flow to make the payment. You have to run all of your receipts through your bank account. If you want a major loan from a lender or a lease over $100,000, you will have to present financial statements and tax returns. The better those look, with backup information, the better your chances of approval and the better the loan/lease terms.

• Interest increases • Note assignment clause • Acceleration clause Carwash Brokers, Inc. is not MAI Certified or in any way claims to be certified appraisers, and does not purport to be experts in appraisals. CWB’s “acid tets,” opinions of value or market value analysis are estimates and purely based on real estate expertise in listing and selling carwashes. For purposes of bank financing, CWB Inc. recommends a Certified MAI that specializes in carwash appraisals. Roger A. Pencek (Author) is the president and founder of Carwash Brokers Inc., and has been brokering and consulting carwashes since 1985. Roger is licensed as a broker in nine states with 14 offices within the USA.

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BEST BUSINESS PRACTICES FOR MONEY MANAGEMENT By Reuven Birnkrant

Carwash operators have differing opinions on best business practices. For every operator that prefers pay stations, there is an operator who prefers ticket writers. Put five carwash operators in a room and you’ll have five opinions on which equipment manufacturer makes the best tunnels. However, there are two practices in particular that should be universally accepted as superior for multiple-site operators. Those practices are keeping separate books and records for each location, and holding title to separate locations under separate legal entities. Whereas the simplicity afforded by only having one legal entity or one bank account for multiple locations seems ideal to some, that simplicity can quickly turn into unnecessary complexity when it comes to financing, optimizing operating efficiency, selling a location and limiting legal liability exposure.

Site-specific performance measurements When it comes to financing, the importance of measuring site-specific operating performance cannot be understated. If a multiple-site operator needs a loan, whether it’s a refinance of a real estate mortgage or a lease for some new equipment, the vast majority of lenders will underwrite the cash flow on both the individual site requiring financing and the combined cash flow of all of the operator’s locations. Even if the combined cash flow of all of the operator’s locations is sufficient to cover the requested loan, lenders will underwrite the cash flow of the location they’re being asked to finance because there can be a big discrepancy in the operating performance of an operator’s strongest and weakest locations. Though lenders might be willing to provide financing in a turnaround situation, they won’t be willing to do so if they cannot determine how much of an uphill battle the site they’re financing is facing.

multiple locations, it is important to keep track of chemical usage by location. One way to identify a delivery issue with one of the tunnel arches would be if the operator notices a spike in chemical usage at one location without a corresponding spike in wash volume at that location. However, if the operator does not track chemical orders by location, what would constitute a clearly abnormal and easily identifiable spike in chemical usage at one location might be disguised as a minor, normal fluctuation in chemical usage across multiple locations. Every gallon of unnecessary chemicals wasted is profit unrealized. This example demonstrates merely one way that tracking operating income and expenses by location benefits multiple-site operators in a measurable way.

An avoidable complication Commingled operating financials also creates an avoidable complication for a multiple-site operator who wants to sell one location. The ease of selling a location is much greater if the seller can provide a potential buyer with clean books and records for the site being sold. The more accurate the information given to a buyer during due diligence, the easier it will be for the buyer to assess the strength of the site they’re considering buying. Additionally, if the seller is not going to finance the purchase for the buyer, and the buyer requires a loan that necessitates an appraisal, the appraiser is going to request historical site level financials in order to complete their valuation. The absence of reliable site specific financial statements can cause a buyer to have both the financing and appraisal challenges mentioned above, thereby limiting the pool of potential buyers to exclusively those

Tracking income and expenses In addition to simplifying the financing process, tracking income and expenses by location can help operators increase their profits by optimizing operating efficiency. Whereas every location has its own utility meter thereby making it easy to track utility expense by location, the same does not hold true for all expense categories. For example, though an operator might receive discounts on chemical pricing based on the combined volume of

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FEATURE STORY with all cash offers. In summary, the likelihood of a smooth and simple sales transaction decreases significantly if a seller can’t produce reliable, site-specific financial statements.

Keeping things separate Whereas doing something as simple as having separate bank accounts for each location can go a long way towards improving one’s ability to track site specific performance, in most cases, it is worth going one step further by vesting each individual location in its own separate corporate entity. Legal complexities can arise if multiple locations are vested in the same corporate entity. If an event occurs at one location causing the entity to be named in a lawsuit, and the entity has multiple locations vested within it, a ruling for the plaintiff puts all of the locations vested within that entity in jeopardy as opposed to exclusively affecting the location where the event occurred. Prudent business practice dictates that any practical method of protecting one’s assets should be exercised especially when operating businesses that see thousands of customers every month.

There isn’t one financial or legal structure that works for all multiple-site operators. Talk to your accountant and your attorney about the bookkeeping, banking and legal structures and controls that best suit your operation. You will likely find that with a few minor changes, you can improve your operation in a way that leaves you better prepared for a loan, a sale or even a lawsuit, while most importantly improving day-to-day profitability. Reuven Birnkrant is president of PetroCal Associates, a commercial mortgage brokerage firm that has specialized in financing for car wash, gas station and convenience store owners and operators for over 15 years. Mr. Birnkrant is also a California licensed real estate broker and can be reached at reuven@petrocalassociates.com.

© 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® March 2014

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Third Quarter 2016


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