Most car wash operators rarely consider an exit strategy when entering the business. However, other stakeholders are likely concerned about it.

            For example, banks and lenders may require a feasibility study to determine a start-up’s commercial viability as part of the loan approval process. One element in a feasibility study is a practical exit strategy. A viable exit plan is when the entrepreneur can define a strategy, relate it to the industry model, identify potential buyers, schedule an exit, and create wealth from the exit.

            For example, consider a group of investors who intend to create a small network of four or five express exterior locations. The goal is to sell the properties to a consolidator for 10 times earnings within four to five years.

            Investors would validate this strategy by answering questions that consider the viability requirements. For example, what is the likelihood that a firm(s) will be willing to pay 10 times earnings in the future?

            As a consultant, I’ve worked with newcomers to the industry, watched them succeed, sell their stake to another investor after 20 years, and then retire. I’ve also worked with veteran operators owning the same property for 30 or 40 years to have it acquired by one of the big chains.

            Family succession is another type of exit strategy. As the name implies, succession is when the stakeholders pass down business ownership to a child or family member. However, the viability of this strategy has become more difficult to execute.

            According to the most recent North America Family Business Report, most families (91 percent) want to maintain business ownership but face certain challenges. One is the lack of a willing and sufficiently qualified next generation to take over the reins (22 percent). Another is the discomfort involved in even discussing the subject.

            One of my experiences with this issue was working with the Thomas family who owned and operated Thomas Car Wash in Louisville, KY. Tom, Nick, and Eli Thomas founded the five-site Louisville chain in 1946. In 2017, the family engaged me to work with them to evaluate their existing operations and expansion plans and discuss issues such as succession planning. The latter of which was a subject rarely discussed because this family has car washing in its blood.

            For example, when I met Eli for the first time, he was working the finishing line of his full-service wash. He had one towel in his back pocket and another in his hand wiping door jambs and then kissing off each customer. At that time, we discussed the possibility of converting his wash to express exterior or flex-serve and the idea of Eli eventually stepping aside for his son Alex to take over.

            The conversion never happened, nor a succession, but time marched on. Consequently, the family recently decided to sell its properties to another chain and retire. Arguably, this was a very difficult decision for the family.

            The Thomas’s are some of the finest people I have met in the industry. Eli passed up a ton of money not doing the express conversion because he was more concerned his full-service customers would have nowhere good to go. This underscores some of the nuances that can be encountered and must be addressed when planning and executing an exit strategy.

Work Your Plan

            Another succession mechanism is an employee stock ownership plan (ESOP). ESOP is an employee benefit plan that enables employees to own all or part of their company. ESOPs are issued as direct stock, profit-sharing plans, or bonuses, and the employer has the sole discretion in deciding who can take advantage of these options.

            The final aspect of an exit strategy is planning for it, scheduling an exit, and identifying potential buyers. According to the Family Business Report, 61 percent of family businesses do not have a formal or written succession plan. Quite frankly, I can count on one hand the number of owners I’ve worked with over the years who had a formal plan.

            Perhaps one reason for the lack of formal plans across the industry is the success rate. Car washing is a good business. If you have a long history of strong cash flow, there will most likely be a sufficiently large pool of potential buyers for an exit that creates wealth.

            On the other hand, not all car wash properties are highly desirable. It may be difficult to find many interested buyers, which may lead to a considerable long marketing period and pressure to reduce the asking price.

            Given the high cost of capital, it may be necessary to offer seller financing to attract a buyer and get a transaction. Also, if a business broker is engaged, don’t expect them to make lemonade from a lemon. Willing and knowledgeable buyers don’t pay for blue sky. If the property is of higher and better use, provide the rationale to support this.

            In the final analysis, a successful exit outcome is a function of the time and effort that goes into preparing for it. An exit strategy can be an end to a business and the beginning of a secure financial future for the owner. It can also be a plan that moves the business through a smooth transition and into its next phase.

            However, like Eli Thomas, the exit plan should consider the customers, employees, and investors.

Bob Roman is a car wash consultant and can be reached at bobr427@protonmail.com.