Selling a car wash in Canada

A car wash can be a steady business with few staff, which is why it draws buyers. Those buyers look hard at three things: whether the sales are real, how much life is left in the equipment, and whether the site and the wash water are in good order. Here is what to expect and how to prepare.

What buyers look at first

Most buyers of a car wash ask the same questions early. Have clear answers ready before you list:

• Sales and profit. Two or three years of numbers, split between self serve bays, automatic or tunnel washes, wash club memberships, vacuums and any detailing.
• Car counts. How many cars you wash each month, and how weather and seasons change that.
• How customers pay. Cash, tokens, cards, a phone app or monthly memberships, and how each one is recorded.
• The equipment. Wash systems, pumps, water heaters, reclaim systems, pay stations and vacuums, with their ages, condition and repairs.
• Running costs. Water, sewer, power, gas and chemicals, which are usually the biggest costs after rent or property tax.
• The site. Whether you lease or own the land, how long the lease has left, and the condition of the building, drains and paving.
• Your time. How many hours you spend on collections, cleaning, repairs and customers, and who covers for you.

Buyers will check these during due diligence, so it helps to gather them now. Our list of documents needed to sell a business is a good start.

Proving the sales

Cash and tokens are the hardest part, because a buyer cannot see them the way they see card payments. Keep the reports from your pay stations, card readers and wash club software, log every cash and token collection by date and bay, and deposit all of it to the business bank account. Make sure the totals match your bank deposits, your sales tax returns and your tax returns.

Many buyers compare your car counts and sales against your water use over the same months, since a busier wash uses more water. Steady, matching numbers give a buyer and their lender confidence. If you cannot show a sale on paper, most buyers will not pay for it. If you do fleet washes for local businesses, keep a list of those customers, what they pay and any written agreement, and see telling customers and suppliers.

If you do the collections and repairs yourself, list your wage and any personal costs run through the business as add-backs with proof, and be honest about what it would cost to pay someone for that work.

Wash club memberships and prepaid washes

Monthly memberships are often the part of a car wash that buyers value most, because the income is steadier than single washes. Show how many active members you have, the monthly price, how many join and cancel each month, and which software and payment company handles the billing. Check early whether the members, the software account and the billing can move to the buyer without each customer signing up again.

Count any prepaid washes, gift cards, wash books and tokens that customers still hold. These are washes the buyer will have to give without being paid again, so they are usually dealt with as an adjustment in the price. See working capital when selling.

Equipment and repairs

Make a list of every wash system, arch, brush, pump, water heater, reclaim system, water softener, pay station, vacuum and sign with its make, year, repair history and whether it is owned outright, leased or financed. A buyer will price in equipment that is close to replacement, so being open about age helps avoid a late price cut. If any equipment is leased or has a loan against it, note how it will be paid off or moved to the buyer; see selling a business with debt.

Keep service records, warranties, manuals and the names of the parts suppliers and technicians you use. A buyer will want to know who fixes the wash when it breaks, how fast they come and how often the wash was down last year. Write down your winter routine too, such as heated floors or lines and how you keep bays from freezing.

Water, sewer and the wash water interceptor

Wash water carries oil, grease and grit. In Metro Vancouver, wastewater from commercial vehicle washing must go to the sanitary sewer, never to storm drains, ditches or the street, and it must pass through a vehicle wash interceptor first, which is a building and plumbing code requirement. Metro Vancouver's guide says to inspect the interceptor weekly and have it cleaned by a qualified service provider before the oil reaches 2.5 cm or the solids reach 30 cm below the outlet.

Rules differ in other regions, so check with your city or regional district. Wherever you are, keep the interceptor cleaning invoices and inspection log, any letters from the city, and your water and sewer bills. Clean records show a buyer that there are no surprise costs or orders waiting for them.

The lease, the land and environmental checks

A car wash is costly to move, because the bays, drains, interceptor and water lines are built into the site. If you lease, the lease is a large part of the value. Check how long is left, the renewal options, any limits on use, who pays for water and repairs to the building, and whether the landlord must approve a new tenant. See your commercial lease when selling.

If you own the land, you may sell it with the business or lease it to the buyer; see selling a business and the building. A buyer or lender buying the land will often ask for an environmental site assessment. In British Columbia, if a site has had a use listed in Schedule 2 of the Contaminated Sites Regulation, such as fuel dispensing or vehicle repair, the Province says a site disclosure statement is required when the property is sold, unless an exemption applies. Ask your lawyer early whether this applies to your site.

The business licence

Most cities require a business licence, and the rules for a new owner vary. The City of Vancouver, for example, lets a licence be transferred to a new owner if the business stays the same type, with a transfer form signed by both the existing and new owners, and only once each calendar year. Other cities ask the new owner to apply for a fresh licence. Check with your city early and build the timing into your purchase agreement. Our guide to transferring contracts, licences and permits has a checklist.

Staff and customer information

Many car washes run with an owner and a few full or part time attendants, with more staff in a detailing area. A buyer will want to know who works there, their pay and hours, and who is likely to stay. In British Columbia, section 97 of the Employment Standards Act says that when a business is sold, the employment of an employee is considered continuous, so a buyer who keeps your staff takes on their years of service. See what to tell employees.

Staff files and wash club member lists, which often include names, licence plates and payment details, are personal information. In British Columbia, section 20 of the Personal Information Protection Act lets a business share personal information with a prospective buyer without consent, but only if it is needed to decide whether to go ahead and the buyer agrees to use it only for the deal. Share totals and summaries first, under a confidentiality agreement, and hand over full files at closing.

Tax on the sale

How the sale is taxed depends on whether you sell assets or shares and how the price is split between goodwill, equipment and any land. See asset sale vs share sale, goodwill when selling and taxes when selling a business.

When a registered buyer acquires all or substantially all of what is needed to carry on the business, the section 167 election on Form GST44 can often remove GST/HST on the sale. In British Columbia, PST generally applies to taxable goods in the sale such as wash systems, pay stations, vacuums and signs, but not to goodwill, and the Province says a buyer should get a PST clearance certificate before buying a business. See GST and PST when selling.

A simple worked example

These numbers are made up and rounded for illustration only. Your own deal, timing and tax will differ.

Questions to take to your lawyer and accountant

• Should this be an asset sale or a share sale?
• Can the wash club members and billing move to the buyer, and what must we tell them?
• How should prepaid washes, gift cards and tokens be handled in the price?
• Will the landlord consent to the assignment, or should the land be sold or leased to the buyer?
• Does a site disclosure statement or environmental site assessment apply to this site?
• How should we split the price between goodwill, equipment and any land?
• Can we use the section 167 election, and how does PST apply to the equipment?

For more, read what your lawyer and accountant do. Own a self serve laundry too? See selling a laundromat in Canada. Running a repair garage? See selling an auto repair shop in Canada. Wash attached to a gas station? See selling a gas station in Canada. This guide is general information, not legal or tax advice for your situation. Questions about listing with us go to hello@sellmybusinessdirect.com.