Entrepreneurs in the planning phases of a business may have a carwash on their shortlist of potentially profitable endeavors. The industry's steady growth and consumer preferences mean that your decision to open a carwash could be a lucrative life choice.
Consumer demand for professional car washing services is on the rise, as well. In 1996, about 50% of car owners preferred to wash their cars at home instead of using a professional carwash service. By 2019, 77% of consumers chose professional services over washing their vehicles at home.
Opening a carwash could make sense, depending on your local market conditions. This guide will review the costs of opening a carwash and how you may get financing to fund the operation.
HOW MUCH DOES A CARWASH COST TO OPEN?
The amount of money you need to invest to open a carwash (excluding land) depends on the construction size and type, equipment, and location. Initial investments vary but on average operators can expect to pay between $3-5 million to build a carwash (excluding land). Of course, costs may be higher for larger operations.
In the carwash industry, the fastest-growing segment is the express wash model. These tunnel washes move vehicles through a series of automatic sprayers and a dryer with a conveyor belt. Tunnel models are 100% automated. The express wash model may feature automatic pay machines, which means you'll need relatively few employees facilitating the day-to-day operations of your carwash business.
The express wash model provides reliable, fast, and thorough cleaning of your customers' vehicles at a low price point. Your express wash may feature free vacuums so that customers can clean the interior of their car, as well.
Costs to Build a Carwash
Location is key for a successful carwash business. Finding a location on a busy street near a shipping center and residential neighborhoods is advantageous. Ideally, your land will be clear of preexisting structures. If you purchase land that has buildings on it, be sure to consider the costs of removing those structures so you can start fresh.
Equipment represents a large portion of your carwash budget if you build the facility independently. Just like purchasing a car, you can pay more for quality equipment and advanced features. Carwash owners can buy the Kia equivalent of carwash equipment, the Rolls Royce equivalent, or choose equipment that falls somewhere in between those two options.
Plan to purchase the following equipment for your carwash:
- Washing system (conveyor tunnels)
- Conveyor (belt or chain)
- Vehicle wraps
- Brushes (Side, rocker, top)
- Water reclamation system
- Tunnel Controller
- Point of sale systems
Carwash equipment, like any other type of equipment, requires ongoing maintenance, and may even break down from time to time. Maintaining your equipment helps decrease the chances that you'll experience downtime and have to pay for expensive repairs. Preventative maintenance helps identify underlying problems before they turn into big problems.
There are certain expenses beyond the price of purchasing or leasing land and building the operation that you'll face before you open your doors to the public. Hiring and training employees and marketing to raise community awareness of your carwash are two major expenses to factor into your budget.
Well-designed and visible signs on your property let customers know you are open and help them understand the purpose of your business. Optimal signage is clearly visible to commuters passing by your carwash improving the frequency of impulse purchases from customers. Work with a professional sign company to get the right signage design and placement so your customers can find you quickly and know exactly where to go once they arrive.
BUYING VS. BUILDING A CARWASHAs you consider opening a carwash, you may wonder if building a new facility or buying an existing carwash business is the better choice. Buying an existing business may seem easier for first-time carwash owners than creating one from scratch.
However, an existing carwash must demonstrate that it can generate a reliable revenue stream from an established customer base before you consider it as a viable option. Unfortunately for those who want to break into the carwash industry, profitable existing carwashes for sale are few and far between. There are some entrepreneurs who specifically seek out an under-performing business with the intent of turning it into a highly profitable business
Even if you can locate a successful carwash in your area for sale, be prepared to pay a purchase price that far exceeds the cost to rebuild a comparable site yourself.
Building your carwash business means you can save money relative to the cost of acquiring an operating carwash, choose the site (and neighborhood), and design the operation according to your preferences. Whether you decide to buy an existing carwash business or build one, financing your operation is the next big step.
SITE SELECTION IS PARAMOUNT
Much of your business will come from drive-by traffic, and a location with good visibility will help your services remain top-of-mind for your potential customers. Choose a lot visible from a frequently traveled road with a maximum speed limit of 40 miles per hour.
Carwash businesses need more space than required by the building. Factor in the room you'll need to accommodate queueing lines of cars and the vacuum area.
Before you move forward with leasing or purchasing land for your carwash business, be sure to review local regulations and zoning to make sure you can execute your plan without experiencing significant delays. When you work with an industry partner like PetroCal, they can vet the deal and help you make sure you’re asking the right questions early in the process.
FINANCING AND INVESTMENT CONSIDERATIONS
Some entrepreneurs have enough capital to buy or lease land, build a carwash, and fund at least the first year of operations, but most carwash developers use some type of financing to acquire or construct their carwash.
If you don't intend to fund your project in cash, you'll need financing to make your dream of owning and running a carwash come true.
To obtain financing, start with a complete business plan that includes all of your projected costs and expenses, from land purchase to signage to equipment and employees. Include the first 90-180 days’ worth of operating expenses, as well.
Your business plan provides potential lenders and investors with a roadmap of your aspirations. It provides them with a snapshot of your likely success.
WHAT KIND OF LOAN CAN I GET?
There are various financing options that you may consider when seeking funding for your carwash. The Small Business Administration (SBA) Loan Program provides two loan options that allow small business owners to purchase land and fund their operation; SBA 7(a) loans and SBA 504 loans. You can also consider a conventional commercial loan.
All lenders will want to see that:
- The location is appropriate for a carwash business as determined by a 3rd party appraiser hired by the lender
- The potential borrower must demonstrate the capacity to successfully execute their business plan
SBA loans have some clear advantages for entrepreneurs. They allow for the highest loan-to-value or the most leverage. Also, SBA Loans are fully amortized meaning they never balloon or need to be refinanced.
SBA 7 (a) Loan for a Carwash:
- New construction requires a down payment of 15% to 20%
- 85% - 90% loan-to-value financing is possible for the purchase of existing businesses
- Up to a 25-year term and amortization
- Funds can be used for the acquisition of goodwill and to fund working capital
SBA 504 Loan for a Carwash:
- A minimum of 15% downpayment is required or 85% financing for the project
- Interest rates below current market rates a portion of which are fixed for the full term
- 25-year term available
- SBA fees can be rolled into the loan
Conventional Loan for a Carwash:
- 20% to 40% borrower downpayment, depending on lender requirements
- Fees are typically lower than those on SBA loans
While SBA loans have more requirements, they may be more accessible for the average entrepreneur or new to industry operator.
Lower down payment requirements are a big plus for those who need funding but don't have cash on hand to provide 25%-40% needed for a conventional loan or who wish to use their capital to fund more than one project.
CHOOSING A LENDING PARTNER
While an exciting prospect, building or buying a carwash can be daunting. Working with the right lending partner is critical when you need funding for your new carwash business.
PetroCal can help you understand which lending opportunities work best for your situation. When you find the right type of loan, PetroCal will then walk you through the lending process so you can get the money you need to start your new venture.
PetroCal is uniquely positioned to help entrepreneurs like you take advantage of great business opportunities. Rely on our team to help you vet prospective locations, calculate the costs of purchasing an existing carwash business or building a new one, and customize financing to meet your needs. Our team works to ensure that transactions are transparent and convenient.
We are the trusted partner every operator needs by their side when buying a carwash.