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Boost Cash Flow Now and Increase Your Business Valuation Later When Looking to Sell, Partner, or Grow Your Car Wash
While they are not new, just check your credit card statement, you are surely enrolled in several (Microsoft Office, Netflix, Amazon, I’m looking at you), only in the last seven or so years have monthly plan memberships really taken off in the car wash industry. And as many major retailers can attest, there is a reason subscription services are attractive for both the consumer and the business – they can bring value and convenience to both parties. As a car wash owner, if you don’t have a monthly plan membership, or aren’t seeing solid, consistent growth in your plans, it’s time to seriously consider why incorporating a strong monthly plan membership can boost cash flow now and how it can significantly increase the multiple your business commands down the road.
First, let’s dive into what a strong monthly plan membership does for your business today.
Addresses the Variability of Demand
As a car wash owner, you become an amateur meteorologist and check the weather obsessively. Extended rain in the forecast? Great. There goes this month’s P&L. But about a decade ago something amazing started to mitigate this ebb and flow of volume, and thereby revenue, that car wash owners cannot control. The monthly plan model emerges on the car wash scene.
Monthly plans produce a consistent revenue stream on any given day or month and provide an insular layer to cash flow, finally addressing the variability of demand caused by seasonality and weather incidents. As Brad Mann, Amplify Car Wash Advisors vice president of mergers and acquisitions and founder The Wash Factory car wash chain put it, > “A few years into opening my first store, we had 31 days of rain in May, and zero days of revenue. At the time, I didn’t have a monthly plan program and took an enormous hit because payroll and bills were still going out the door with absolutely nothing coming in. Following that experience, I re-examined the monthly plan model and realized the risk of potential abuse or the concern of lowering the price customers were already willing to pay, wasn’t a deal- breaker anymore.” Mann continues, “There is real value to knowing, regardless of weather, you have a predictable revenue stream.”
This affects more than your immediate ability to pay the bills during a down month. When you are looking to scale your business, being able to prove to a bank you are stabilized and have consistent revenue is crucial. “Most financial institutions will look at your performance over the last 12 months and you don’t want it to look like a rollercoaster ride. A bank may look at the dip and point to operational inefficiencies rather than what it really is – the unpredictable and uncontrollable nature of the weather,” expands Mann.
With about 1,000 new tunnel car washes being built last year, no geographic region is off-limits for a competitor or regional brand to consider. It is now more important than ever to establish yourself as not only the current market leader but maintain continued loyalty in the face of stiff new competition coming in. Bill Martin, Amplify Car Wash Advisors partner and founder of Metro Express Car Wash, shares, > “With a strong monthly membership base, a customer is less likely to make a switch to a competitor because you are providing them what they need already: a clean car that’s affordable, convenient, and fast. We’re a three-mile business. Most customers live or work within that three-mile radius of our location, and once you get them hooked on the speed and convenience of a monthly plan that becomes part of their regular routine.”
Mann expands, “The consumer is telling us they want membership programs. If someone comes in on top of you and starts a membership program out of the gate, and you don’t have one, you are too late.”
Customers are always looking for a good deal (hey, aren’t we all), they want to make sure the subscription plan makes financial sense for them. And ideally, they want to beat the house by paying less than the retail rate of their wash. While some members will outpace the break-even usage, if the average number of visits from members meets your threshold for profitability, it’s a win/ win. Just like a customer is dividing the monthly plan price by the number of times they think they will come in; you need to monitor and measure your total monthly plan customers’ average number of visits to determine your average revenue per car.
Business also begets business. There is a snowball effect when your monthly plan membership gains ground. Suddenly, even on cloudy days your lot sees activity. And on busy days, your line is even longer producing interest to the motoring public passing by. Not to mention, the more satisfied members you have the more likely they will tell others about it, especially if they feel they are getting a great deal.
Now, let’s look at what monthly plans mean for your business valuation.
Maximizes Your Business Valuation
“The subscription model has certainly caught the attention of ‘smart money’ folks and has been the single greatest contributor to our current boom in private equity investment. Consistency and growth are very attractive to deep- pocketed investors,” says Martin. “Demonstrating a pattern of growth gives investors and buyers confidence they are making a wise decision that will continue to pay off. While they will look at financial performance, if you are consistently selling and retaining members and growing your membership number higher and higher year in and year out – you’ve shown not only historical performance but a pathway to continued growth.” > Martin continues, “Unlike many other industries, the car wash business isn’t threatened by foreign economies or Amazon, and in many cases, even the Covid-19 pandemic. As equipment, technology, training, chemistry, and automation continue to advance – and with pay gates and app-based payment platforms that provide contactless options – the car wash industry will continue to attract outside investment.”
For the foreseeable future, monthly plans are here to stay in the car wash industry. As you position yourself for a possible transaction whether it is to bring in a minority partner, raise money to grow, or you are ready to sell, the sustained and forward-looking revenue from monthly plans greatly enhances how your business is evaluated.
Lanese Barnett is senior vice president of business development at Amplify Car Wash Advisors, a national car wash advisory firm. With a mission of creating wealth for clients, Amplify helps car wash owners sell, partner, or grow using practical industry experience as operators coupled with expertise in mergers and acquisitions and capital advisory. Learn more atAmplifyWash.com, or reach Lanese at [email protected].