A car wash network of 500 or more units does not exist in the United States. Closest is Mister Car Wash which has 160 car washes and 33 lube centers in 18 states. Reportedly, the largest “franchise” is Goo Goo’s Express Wash, Columbus, GA, with 36 stores in seven states.

Why no McWash? The principal reason is growth. Stakeholders want companies with high growth prospects. Unless there is significant turnover within three to five years, there will be little interest.

Arguably, 10 units a year would be a considerable challenge for a car wash franchise if the strategy were to build new stores. Car wash development takes 12 to 18 months, even longer if a conditional use permit is required. Another issue is capitalization. It takes time for a franchisor to cross that threshold where royalties and recurring revenue are covering the franchisor’s operating costs.

Goo Goo’s recommends prospective franchisees have a minimum net worth of $2 million and $500,000 liquidity. Since these amounts exclude most mom and pop investors, a pool of capital would be needed to sustain the franchise as it grows.

Unless a franchise is truly unique, stakeholders expect some barriers. However, car washing, like retail, is highly competitive with few barriers. Most operators own less than five locations and compete with many other local businesses for customers. Some barriers are scale (super site), brand loyalty (differentiation), and financial (no debt).

Stakeholders want companies managed by an experienced team. The team is responsible for operations, marketing, franchise development, training, and finance. This requires infrastructure, office staff, and initial capital investment. The team also needs to develop financial disclosures, training programs, operation manuals, sales processes, tools, and systems.

Deployment of a full-service location needs a team of six people, a clerical staff, and 27 car wash employees. An exterior express needs a team plus seven to eight car wash employees.

Stakeholders want to know how/when funds are spent and how/when they will receive a return. For example, the rule-of-thumb to start a franchise is $2 million cash including start-up expenses, marketing, staff salaries, and war chest. So, the initial financial performance of stores is crucial to generating sufficient returns.

Researchers find there is an exponential increase in equity value when a franchisor reaches a certain threshold. Firms with less than $500,000 EBITDA, tend to sell at multiples of three to four whereas firms with $1 million or more EBITDA sell at a multiple of six to eight.

Similarly, franchises with 100 units or less are more likely to generate EBITDA of $500,000 or less, and firms with 100 or more units are more likely to generate EBITDA of $1 million or more.

Analysts also find as franchisors approach 500 units (the minimum number it takes to build national name recognition in the United States), valuations can get into 10 times EBITDA or higher, a level not seen, however, in the car wash industry since 2007.

Is there a future prospect for a McWash? Mister needs 340 more units to reach 500. Depending on trajectory, it could take a decade or more to get there (plus 9,000 more employees).

Franchises are usually a 10-year play. So, building stores require 50 units a year. The best any car wash franchise has done is several in one year.

One benefit of a franchise is to buy something that’s been proven. With the ability to produce a consistently high quality exterior wash regardless of property size proven, there is no need to invent a new kind of car wash.

A great brand image is needed along with a design that can be built at the required pace. Co-location, co-branding, logo, mascot, loyalty program, responsive website, and mobile marketing would be invaluable in creating brand name recognition. Bright, modern, and well-lit buildings appeal to consumers, as does like-new maintenance condition of structures, landscaping, and paved areas.

Most retailers capture value with skilled staff, day-to-day operations, and cash registers. McWash would be a fully automated, one-person operation, open 24/7.

Design must be affordable to create a pool of investors deep enough to support network growth. So, equity must be low enough to get mom and pop back in the game as well as existing operators.

In the final analysis, a licensed business opportunity may be a better fit than a franchise model. Since the license is the only purchase made rather than an entire business model, and franchise fees and marketing fees are not charged.

Bob Roman is president of RJR Enterprises – Consulting Services (www.carwashplan.com). You can reach Bob via e-mail at bob@carwashplan.com.