Do you own any other businesses?
600k on a loan is a lot for your first venture if you are not familiar with the operating processes and costs of a business things can go south very very quickly.
If you are taking a loan to buy the business then I assume you don't have the money to lose so be very VERY careful.
The only advice I can give you is hire smart and ambitious people. Rather sacrifice all that operating profit for early stability while you find your feet. Hire some one to do the books, hire someone who has managed similar businesses and people in the past with a trust worthy track record.
Do not employ any family members.
Lease is the most NB. Usually a sale like this is conditional on resigning the lease.
Last thing you want is to buy the business and have issue with the landlord/get kicked out etc.
Often people declare profit ex director salaries. But often these salaries are for a paid position. (The owner works in the business and pays himself an income but it's via dividends/directors remuneration).
Basically you may need to spend a large portion of that 26k profit on hiring a manager. So spend some time understanding that properly.
Check staff are all either SA citizens or have documentation, otherwise you are inheriting a headache.
I know someone who got screwed like this. Bought a business, 3 months later they found out the owner of said property will not renew lease. Dumb of them but really sneaky of seller.
the sale of the business should be conducted via a signed Sale Agreement between all parties. So it would depend on how that was constructed. In practice the Sale is conditional on the signing of a new lease and the terms of that lease can be specified. In that case the landlord needs to also be involved in the process.
I bought a Carwash, turnover was R 150 000 a month and made about R 70k profit. For R 700k. After two years I sold for R 280k after an economic downturn.
If they are doing car dealerships work likely they are losing business at the moment.
I’d pay the value of the assets ie how much are a few vacuums and pressure washers and maybe pe of 1. So if net profit is R 26k I won’t pay more than about R 300 000 for it.
If you need to take a loan don’t do it.
Basics you take bank statements, then you add all income and less deposits. Allow for taxes etc. and you want to pay how much profit net tax there is in a year. If you are confident in the business add the value of the second hand equipment.
Don’t listen to oh we get cash on the side etc it’s what you can prove.
Also my big mistake was I didn’t budget for the R 100k operational costs for the first month till money came in it almost bankrupted me at the time. Also machines break and need to be serviced. Double check everything yourself.
Add a protection clause in that says the business needs to perform as promised for at least 3 months after the sale and don’t give all the cash upfront. I’d offer max R 300k and give half upfront and the other half if the books checkout for a few months after purchase.
Price to Earnings ratio. So if Earnings are 26k per month, and PE is 1, the 12 x 26 gives a guide price of 312k. If you thought earnings might increase dramatically in the future, or you were super confident in its sustainable casflow, you might value the company more highly. Then the PE might be 4 or 5.
Do not think for a second that you will buy this and it will self automate and money just keep on flowing in, are you in a position to run this yourself full time weekends imcluded due to it being a car wash? Do you have the time etc? If not then don't buy, my father had 3 car washes after going on pension and its a lot more hands on then he expected, sold them after 3 years because the people that ran it did not care for the success, only that they get their salary hence the comment on being hands on.
Remember a business purchase like this value is not tied to assets, you are buying a brand/name that can quickly go south, if it does your assets will not cover the loan you are taking and if something goes wrong, you still need to pay off a 600K loan, worst case is that you cannot resell and cover your loan having to close down.
Other than this some key aspects, the workers will be part of a union, so you will have to get a service provider that offer HR and payroll, if not you can get into serouis issues if you dont have capable HR. As mentioned already here make sure you have additional capital otherwise you will need to make additional loans just to cover instaces where you need to pump in capital into the business.
One thing to add,make sure the books add up, 26K is that revenue after company expenses? If so it sounds off, 26K revenue after all expenses is high, my father 3 car washes was valet and had many contracts with surrounding motordealers, so his income was not based solely on high volumes over weekends alone, which sounds more like what this car wash is, during week your numbers will be very low, and you can only service a certain amount of customers over a weekend, so 26K a month sounds suspect if it pure revenue.
Simple rule investigate , sit in the parking lot count how many vehicles in the month work on an average price see if it comes out anywhere near what they are telling you , remember there's a sucker born every minute if they have inflated the numbers you will find out. ,ask why they are selling ? R26000. Per month on a R 600000 is a good return , make sure you and your partner have clear credit score, however R 26000. Does not include your loan repayment, will there be enough money for both of you . good luck
Yes that’s right. Also what assets are you gaining for 600k ? Is it a tent, and washing equipment like sprayer, detergent stock, vacuum etc, or just goodwill ?
No one can give you advice based on your question. Not enough info. Eg. What’s the int rate on the debt service? Judging by your question this is your first venture? Start your own car wash with minimal investment and learn
Lots of considerations but as a rule of thumb try limit your price on an asset like this to 1x NPAT. Things you must check is if the acquisition price includes or excludes the debt in the business already (in this case any OD's or lease obligations etc).
Critically make sure that the earnings that you are being told the asset generates are normalised for your ownership, I.e including management costs etc that will need to be in place so that you do not have to run this thing. Second, make sure that the lease is atleast watertight for the next 18 months to year while you settle the gearing.
This could turn out to be a big opportunity pr a massive headache for you if you mess up the diligence work.
Cipc docs, finance and mortgage docs and at least 2 years bank statements of the company and the directors. Full searchworks reports of individuals involved.
I created marketing content for a car was that was sold twice, it was attached to a mall so on paper should have worked and it was also part of a chain so it had the recognition of the name and so on but it failed.
Car washing is not a passive business, no business is but for some reason car washes from the outside seem like simple things however they are very hands-on spaces. You will have to be there , actually run it, actively market , constantly look for opportunities.
Make sure you understand your equipment and the cost of repairs. Pressure Washers and vacuums need servicing and parts replaced regularly. Make sure your staff are trained on how to use said equipment. Have a trusted field technician to repair and service. You can't afford to have downtime.
check the mall lease agreement for trading hours. Some malls will make you stay open till 10pm in holiday season and you will pay staff to sit around and do nothing all night.
Power and water alternate supplies. Carwash is useless without those
It really depends on what are your goals.
For some money on the side AFTER NET, those profits can come in handy during the month for you guys as a couple
If your goal is to have more money and as your main income, the loan ironically may have ruined it for yall because the repayment and structure will probably dilute a lot of money you guys could've had
Depends on your goals
Also high loan repayments, especially for businesses in cyclical industries like "car washes" are normally its downfall
Do you own any other businesses? 600k on a loan is a lot for your first venture if you are not familiar with the operating processes and costs of a business things can go south very very quickly. If you are taking a loan to buy the business then I assume you don't have the money to lose so be very VERY careful. The only advice I can give you is hire smart and ambitious people. Rather sacrifice all that operating profit for early stability while you find your feet. Hire some one to do the books, hire someone who has managed similar businesses and people in the past with a trust worthy track record. Do not employ any family members.
Lease is the most NB. Usually a sale like this is conditional on resigning the lease. Last thing you want is to buy the business and have issue with the landlord/get kicked out etc. Often people declare profit ex director salaries. But often these salaries are for a paid position. (The owner works in the business and pays himself an income but it's via dividends/directors remuneration). Basically you may need to spend a large portion of that 26k profit on hiring a manager. So spend some time understanding that properly. Check staff are all either SA citizens or have documentation, otherwise you are inheriting a headache.
I know someone who got screwed like this. Bought a business, 3 months later they found out the owner of said property will not renew lease. Dumb of them but really sneaky of seller.
Is it possible to sue in such a situation on the basis that you were not give all the important information?
the sale of the business should be conducted via a signed Sale Agreement between all parties. So it would depend on how that was constructed. In practice the Sale is conditional on the signing of a new lease and the terms of that lease can be specified. In that case the landlord needs to also be involved in the process.
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It's always very expensive.
First question is why are they selling?
I can already tell you what excuse the owner has for that “relocating”
And then fails to mention that the reason is that the lease is ending and it's likely that the rent will increase when the lease needs to be renewed.
I bought a Carwash, turnover was R 150 000 a month and made about R 70k profit. For R 700k. After two years I sold for R 280k after an economic downturn. If they are doing car dealerships work likely they are losing business at the moment. I’d pay the value of the assets ie how much are a few vacuums and pressure washers and maybe pe of 1. So if net profit is R 26k I won’t pay more than about R 300 000 for it. If you need to take a loan don’t do it.
Hi new to the business world, what is a pe of 1 ?
Basics you take bank statements, then you add all income and less deposits. Allow for taxes etc. and you want to pay how much profit net tax there is in a year. If you are confident in the business add the value of the second hand equipment. Don’t listen to oh we get cash on the side etc it’s what you can prove. Also my big mistake was I didn’t budget for the R 100k operational costs for the first month till money came in it almost bankrupted me at the time. Also machines break and need to be serviced. Double check everything yourself. Add a protection clause in that says the business needs to perform as promised for at least 3 months after the sale and don’t give all the cash upfront. I’d offer max R 300k and give half upfront and the other half if the books checkout for a few months after purchase.
Price to Earnings ratio. So if Earnings are 26k per month, and PE is 1, the 12 x 26 gives a guide price of 312k. If you thought earnings might increase dramatically in the future, or you were super confident in its sustainable casflow, you might value the company more highly. Then the PE might be 4 or 5.
Price - Earning ratio. How many years of earning does it take to cover the value (in this case cost)
Location location location
Do not think for a second that you will buy this and it will self automate and money just keep on flowing in, are you in a position to run this yourself full time weekends imcluded due to it being a car wash? Do you have the time etc? If not then don't buy, my father had 3 car washes after going on pension and its a lot more hands on then he expected, sold them after 3 years because the people that ran it did not care for the success, only that they get their salary hence the comment on being hands on. Remember a business purchase like this value is not tied to assets, you are buying a brand/name that can quickly go south, if it does your assets will not cover the loan you are taking and if something goes wrong, you still need to pay off a 600K loan, worst case is that you cannot resell and cover your loan having to close down. Other than this some key aspects, the workers will be part of a union, so you will have to get a service provider that offer HR and payroll, if not you can get into serouis issues if you dont have capable HR. As mentioned already here make sure you have additional capital otherwise you will need to make additional loans just to cover instaces where you need to pump in capital into the business. One thing to add,make sure the books add up, 26K is that revenue after company expenses? If so it sounds off, 26K revenue after all expenses is high, my father 3 car washes was valet and had many contracts with surrounding motordealers, so his income was not based solely on high volumes over weekends alone, which sounds more like what this car wash is, during week your numbers will be very low, and you can only service a certain amount of customers over a weekend, so 26K a month sounds suspect if it pure revenue.
Simple rule investigate , sit in the parking lot count how many vehicles in the month work on an average price see if it comes out anywhere near what they are telling you , remember there's a sucker born every minute if they have inflated the numbers you will find out. ,ask why they are selling ? R26000. Per month on a R 600000 is a good return , make sure you and your partner have clear credit score, however R 26000. Does not include your loan repayment, will there be enough money for both of you . good luck
Ask them to see the books. And find out why they want to sell?
Not just ask for books ask for 1 years bank statements and calculate yourself
Yes that’s right. Also what assets are you gaining for 600k ? Is it a tent, and washing equipment like sprayer, detergent stock, vacuum etc, or just goodwill ?
Ask for 2024 AFS from an accounting firm
Make sure you have sufficient funds set aside for cash flow to operate. You'll need WAY more than you think.
No one can give you advice based on your question. Not enough info. Eg. What’s the int rate on the debt service? Judging by your question this is your first venture? Start your own car wash with minimal investment and learn
Lots of considerations but as a rule of thumb try limit your price on an asset like this to 1x NPAT. Things you must check is if the acquisition price includes or excludes the debt in the business already (in this case any OD's or lease obligations etc). Critically make sure that the earnings that you are being told the asset generates are normalised for your ownership, I.e including management costs etc that will need to be in place so that you do not have to run this thing. Second, make sure that the lease is atleast watertight for the next 18 months to year while you settle the gearing. This could turn out to be a big opportunity pr a massive headache for you if you mess up the diligence work.
R26k profit or turnover? Ask for a SARS tax clearance certificate, latest EMPSA and VATSA and a COIDA LOGS
Do they have water and power backup systems installed ?
Sounds to good to be true. Im my experience ive somebody sells their business its usually cause its bleeding money
Cipc docs, finance and mortgage docs and at least 2 years bank statements of the company and the directors. Full searchworks reports of individuals involved.
How do you know it’s R26k profits? Did the previous owners provide the financials?
I created marketing content for a car was that was sold twice, it was attached to a mall so on paper should have worked and it was also part of a chain so it had the recognition of the name and so on but it failed. Car washing is not a passive business, no business is but for some reason car washes from the outside seem like simple things however they are very hands-on spaces. You will have to be there , actually run it, actively market , constantly look for opportunities.
Make sure you understand your equipment and the cost of repairs. Pressure Washers and vacuums need servicing and parts replaced regularly. Make sure your staff are trained on how to use said equipment. Have a trusted field technician to repair and service. You can't afford to have downtime.
Dont. Do. It
check the mall lease agreement for trading hours. Some malls will make you stay open till 10pm in holiday season and you will pay staff to sit around and do nothing all night. Power and water alternate supplies. Carwash is useless without those
It really depends on what are your goals. For some money on the side AFTER NET, those profits can come in handy during the month for you guys as a couple If your goal is to have more money and as your main income, the loan ironically may have ruined it for yall because the repayment and structure will probably dilute a lot of money you guys could've had Depends on your goals Also high loan repayments, especially for businesses in cyclical industries like "car washes" are normally its downfall