Odds and Ends, and Do's and Don'ts

1/17/2007 -  When buying a car wash, even if you are paying cash or having the seller finance the entire purchase, make sure that you collect the previous three full years of federal income tax returns that cover the car wash business.   This is still true even if the tax returns commingle the results of other businesses with the subject car wash.  AND you want to have an agreement, usually outside of the Sale/Purchase Agreement, that obligates the seller to provide you with the federal income tax return for the period that ends the day of your car wash purchase.  In this way, you can provide the full year of financial results for the year in which you buy the car wash (one from the seller and one from you).  Having at least three years of financial history supported by the federal income tax returns is very important if you should decide to seek financing to refinance and/or refurb and/or expand the car wash, or if you should decide to sell the car wash within the first three years of your ownership.

If the tax returns commingle the results of several businesses, you will need to get at least Income (Profit and Loss) Statements solely for the subject car wash for the four periods, in addition to the four federal income tax returns.  These need to be signed and dated by the seller.

You can also have the seller execute an IRS Form 4506-T:  Request For Transcript of Tax Return.  This form is available from the IRS Web Site.   You also want your side agreement to say that until you have three full federal income tax years of ownership of the car wash that the seller will sign a current copy of the the IRS Form 4506-T upon request by any lender that you should designate.  This is in addition to your possession of the copies of the sellers last four complete tax returns (and Income Statements) - three full years, plus the partial year to be delivered to you.

12/14/2006 -
When buying a car wash, or any other business really, the buyer and his CPA and/or car wash consultant needs to do a proforma cash flow analysis to determine whether the cash flow under the buyer's ownership will be satisfactory to that buyer.  The proforma shows adjustments to revenues and expenses for historical periods to arrive at an adjusted Net Operating Income (also known as EBITDA, or Earnings Before Interest, [Income] Taxes, Depreciation, and Amortization).

The normal procedure begins with preparing a common-size spreadsheet of the historical data, usually showing the financial information from the last three years of federal income tax returns and the most recent year-to-date period.  Then the prospective buyer makes adjustments under each of the 'actual' columns.  So, if you have four periods of financial data you'd have four periods of revenue and expense adjustments in columns directly under that financial data.  The result is a new (pro-forma) Net Operating Income amount for each of the four columns (four accounting periods)..

For those people investigating the purchase of a specific car wash and who have the historical financial data we will gladly provide you with an easy-to-use pre-formatted proforma cash flow analysis template.  It is in Excel.  Everything is already set up.  All that you have to do is enter the car wash name, the ending dates of each accounting period, fill in the historical revenue and expense dollar amounts, then make your adjustments.  The addition and subtraction is done for you.   The template is really easy to use.  Call us if you are evaluating a specific car wash that you may buy, have the historical financial information, and want the proforma cash flow analysis template.  817-267-4726.  Ask for Alan Bussey.  All that I ask is that you allow us the opportunity to finance your car wash purchase.

12/12/2006 - Consider that some car wash sellers will underreport EXPENSES, causing a buyer to believe that the car wash makes more money than it really does.  This can occur when an expense such as property taxes or insurance are not entirely paid in the most recent period.  Expense underreporting can also occur when the business is just one of the seller's businesses and the seller's accountant allocates expenses to the car wash, sometimes under-allocating.  I suggest that car wash buyers always check expenses directly with the utility companies and to get new quotes for such things as insurance.  Check a list of common expenses to make sure that all actual and potential expenses have been identified.  This is a link to common car wash operating expenses:


12/7/2006 - When sending to us copies of your car wash business plan, projections, etc.. please LABEL EVERY PAGE with the business entity name, car wash name, and/or YOUR personal name.  Many people don't realize that your paperwork, faxes, etc.. can be separated, so a properly labeled sheet can be reunited with other related sheets ONLY if you have labeled them.  Label every sheet of paper.

Arrange to have your pole sign or monument sign installed at least two weeks prior to opening.  If you wish you can have the sign covered by canvas or plastic until the day of opening.  The sign makers are sometimes delayed in delivery and installation, so you'll want it installed early so that it is ready.

Get a contract on the site land if you feel that the site is a good one for a car wash, whether you have financing arranged or not, or whether you are confident that you can get financing or not.  Chances are good that if you believe that a site is a good one for a car wash at least five other people believe the same thing.  Put a contract on the site land or risk forever losing the opportunity to buy that land.  Don't let your land contract expire.

Do not buy a car wash with a SBA-guaranteed loan or any other kind of loan, expecting to get a second loan to do extensive refurbishment and/or equipment purchases.  The original lender will not likely loan you more money after you have made your purchase.  So, you need to get a single loan AT THE VERY BEGINNING  to do the refurbishment work as well as finance the purchase.  As a part of the application process, assuming your refurbishment work, you can do projections showing the resulting revenue and cash flow projections increases.

When constructing ALWAYS have a Soil Test (Topographic Survey) done AND a Drainage (Rainwater Runoff) Study done BEFORE your architect does the construction drawings.  The suitability of the soil for construction  is often the single largest area of unexpected expense, because the outcome of these studies must be studied and approved by independent third parties not entirely under your control.  A proper soil test, including borings, often allows your architect to design wall and foundation footings at a less stringent, less costly standard.  Not knowing the soil conditions can force your architect to design to a higher, more costly, standard.  Have the soil test done BEFORE you take ownership.

Don't do your business plan in Power Point or similar group presentation or slide show software.  Slide show software tends to create colorful charts and graphs, and tidy brief outlines without much substance.  Power Point-type presentations used for the business plan are an immediate red flag to the lenders that the business plan may lack substantive thought.  An all text black and white business plan is preferred and is viewed as more business-like than is some colorful presentation.  Provide substance over form rather than "form over substance".  Remember that your business plan is likely to be copied several times on a black and white photocopier for distribution to the loan decision makers.  Avoid the use of anything more than accent color.  Your business plan should be prepared in a word processor such as Microsoft Word or Lotus Word Pro.  This is what lenders are accustomed to seeing.

Alan Bussey      Car Wash Loans     817-267-4726     fax:  484-737-1092

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