In the December 2014 edition of my Forever Cash newsletter, I shared some tips for valuing a business as an asset. I’m not talking about an online store, but about a good old-fashioned brick and mortar business that serves the people of a single community.
While my main investment vehicles are flipping real estate parcels and rental properties, I know that some folks have a real passion for running a more traditional business. If that is your case, then you will love this week’s blog posts: evaluating businesses before investing in them.
I want you to have a diversified portfolio of assets. Rental real estate has always been one of the best investments, but it doesn’t have to be the only thing you invest in. For example, consider a more traditional business: a self-service car wash.
Car washes can be real cash cows and can be perfect Forever cash assets because they meet all the criteria: 1) the asset goes up in value, 2) the asset is cash-flow positive, 3) the cash flow will not end, and 4) it requires little time to maintain.
How can you evaluate a car wash to see if it is a good investment? As is the case with most investments, you need to get the facts. Look at the books to understand how much money the business is currently making, what its expenses are, and what major repairs might be around the corner (new paint, new licensing, new machines…). If you don’t feel comfortable poring over spreadsheets yourself, bring along an accountant who can make sense of the numbers.
Also, look at the business from the point of view of the consumer. Is it easy to pull into and pull out of when driving? Is there a signal nearby to facilitate U-turns? Is there sufficient signage letting people know about the carwash?
Take your car and use the equipment. Do you get the result you were looking for? Is it worth the money you paid? How did the on-duty attendant treat you?
Customers don’t only pay for a service – they also pay for an experience. They will prefer to pay a little more for a clean wash bay with polite attendants than one littered with garbage and equipment that doesn’t work that well.
If you are happy with the numbers and the experience, then a self-service car wash might be a good investment for you!