DIY Wash N' Fix

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Auto Repair and Car Wash Business Plan

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Financial Plan

The financials of DIY Wash N' Fix are built upon a number of conservative assumptions. The business is segmented into the original six car wash bays and three of each of the following bays: car painting, oil change/basic repair and other major repairs.

The balance sheet shows that most of our assets are long-term PP&E. Cash, the only short-term asset, is forecasted to grow at about 7% per year from $177,362 to $377,317. Initially, total assets are $755,562. Liabilities consist of the long-term loans taken on to pay for the PP&E, which amount to $520,380. This leaves us with $235,182 in initial owners equity.

The income statement reveals that revenues for each segment and the entire business are expected to grow at 5% per year, and net income is forecasted to grow at about 6% per year.

Expenses

Expenses are approximately 57% of revenues. Expenses include wages, utilities, maintenance, marketing and capital expenditures. Wages are set at $7.00 per hour for clerks and $25.00 per hour for mechanics. There will be three clerks and three mechanics on staff full-time to ensure that a clerk and a mechanic are always available during business hours of 7:00 AM to 11:00 PM. Utilities are estimated to be 15% of revenues. Direct cost of sales (i.e., maintenance expenses) for all equipment, including the hydraulic lifts and painting equipment, are estimated to be 2.5% of revenues. Maintenance for the tools is 1% of revenues, and clean up for the car painting operation are 5% of revenues. Other building maintenance is estimated at 0.5% of revenues. The marketing budget is 10% of revenues. There is a capital expenditure of $1,500 per year to replace lost or broken tools. Depreciation is done on a straight-line basis. The time periods used are 15 years for all equipment and 30 years for the buildings.

Financing

DIY Wash N' Fix has taken on long-term debt to finance its asset purchases of $578,200. The debt ranges in maturity from 15 to 30 years, and it is financed at 8%. There was an initial outlay of 10% of all the assets purchased for a down payment on the loans, totaling $57,820. Therefore, the amount financed is 90% of the asset value, or $520,380. This amounts to a monthly debt service of $4,128 or $49,245 annually.

  • The old car wash with six bays that we purchase to start our business is valued on an asset basis at approx. $225,000. This purchase price includes sufficient land to build our new facility. After we put the 10% down, our loan value is $202,500. The car wash will be depreciated over 30 years for the building and over 15 years for the equipment.
  • We will construct a new building on the land we purchased with nine new bays for our car painting and repair operations. Construction costs are estimated at $30,000 per bay, for a total of $270,000. For each of the three car painting bays, there will be an additional cost of $10,000 per bay for proper ventilation and environmental compliance. Therefore, our total construction costs are $300,000. We will put 10% down and finance $270,000 for 30 years at 8%.

Pricing and Revenues

DIY Wash N' Fix will charge $5 per car wash in our coin-operated facility. We have assumed an average usage of seven hours per day, so this amounts to $35 per bay per day or $1,050 per month. We have six bays, so our annual direct car wash revenues are $75,600. In addition to the basic car wash, we have assumed that the facility we purchased will include six vacuums, two vending machines and one fragrance machine for customers to use for a nominal fee. These amount to additional annual revenues of $18,720. Car wash revenues are estimated to increase 5% per year, due to the value-added services we provide on location at DIY Wash N' Fix.

We have three bays with a small 6,000-pound capacity lift to perform oil changes and basic repair work. We will charge $15 per hour for use of these bays, in order to be competitive with our competition in quick oil changes. Estimated usage is seven hours per day. These lifts cost $2,100 each, for a total of $6,300. We're financing $5,670 for 15 years at 8%.

We have three additional bays equipped with 12,000-pound capacity heavy-duty lifts for complicated repair work. The cost to use these bays is $30 per hour, with an additional tools cost of $10 per hour to access up to ten tools at a time. Estimated usage is seven hours per day. The tools purchases, amounting to $25,000 initially, are included in this segment, because this is where we expect the major tool usage. The large lifts cost $5,800 each, for a total of $17,400 in lift costs. Total financing for the lifts and the tools is $38,160.

Finally, there are three bays equipped to paint cars and the fee is $50 per hour. It is probable that one paint job will take most of the seven hours estimated usage, including drying time unexposed to the elements. The fee for painting is higher, because the bays are more expensive to build and maintain. Equipment, including compressors and paint guns, will cost $4,500, and we will finance $4,050.

9.1 Important Assumptions

The key assumption within this business model is: there is a portion of the population that would like to do basic repairs and/or maintenance on their vehicles, but they don't because they lack necessary tools or a proper work space. Therefore, they will be willing to pay rental fees to have access to tools and a work space.

Given that the assumption is true, then the key element of success for the venture will be pricing. The customers must feel there is value for the rent they are paying. If the price is too high, the substitution for our service will be taking a vehicle to a full service mechanic. However, if the price is too low, the firm will not be able to recover the cost of the initial capital expenditures.

If the assumption is not true and the firm cannot attract enough customers, then several exit strategies are available:

  1. Maintain ownership of both the car wash and repair bays, but lease the repair bays to a full service auto mechanic firm.
  2. Maintain ownership of both the car wash and repair bays, but own and operate a franchised auto repair shop (Midas, Meineke, etc.) in the repair bays and provide full service and eliminate do-it-yourself.
  3. Sell all property and exit industry.

9.2 Break-even Analysis

The chart and table below show the Break-even Analysis for the company.

Break-even Analysis
Monthly Units Break-even 2,769
Monthly Revenue Break-even $45,236
Assumptions:
Average Per-Unit Revenue $16.34
Average Per-Unit Variable Cost $1.06
Estimated Monthly Fixed Cost $42,289

9.3 Projected Profit and Loss

The table below shows the profit and loss statement for the company.

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales $888,120 $932,526 $979,152
Direct Cost of Sales $57,852 $60,745 $63,782
Other $0 $0 $0
Total Cost of Sales $57,852 $60,745 $63,782
Gross Margin $830,268 $871,781 $915,370
Gross Margin % 93.49% 93.49% 93.49%
Expenses
Payroll $226,225 $237,536 $249,413
Sales and Marketing and Other Expenses $228,030 $240,132 $252,788
Depreciation $1,200 $1,200 $1,200
Insurance $18,084 $17,970 $17,435
Payroll Taxes $33,934 $35,630 $37,412
Other $0 $0 $0
Total Operating Expenses $507,472 $532,468 $558,248
Profit Before Interest and Taxes $322,796 $339,314 $357,123
EBITDA $323,996 $340,514 $358,323
Interest Expense $41,285 $40,650 $39,934
Taxes Incurred $110,261 $119,466 $124,232
Net Profit $171,250 $179,198 $192,956
Net Profit/Sales 19.28% 19.22% 19.71%

9.4 Projected Cash Flow

As can be seen in the following chart and table, the company expects a steady increase in cash flow within the first twelve months of operation, continuing through the first three years of plan implementation.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales $888,120 $932,526 $979,152
Subtotal Cash from Operations $888,120 $932,526 $979,152
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0
New Long-term Liabilities $0 $0 $0
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $0 $0 $0
Subtotal Cash Received $888,120 $932,526 $979,152
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $226,225 $237,536 $249,413
Bill Payments $455,147 $512,142 $534,135
Subtotal Spent on Operations $681,371 $749,678 $783,548
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $7,960 $8,597 $9,285
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $1,500 $1,500 $1,500
Dividends $0 $0 $0
Subtotal Cash Spent $690,831 $759,775 $794,333
Net Cash Flow $197,289 $172,751 $184,819
Cash Balance $374,651 $547,402 $732,221

9.5 Projected Balance Sheet

The table below shows the projected Balance Sheet for the company.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash $374,651 $547,402 $732,221
Inventory $5,303 $5,568 $5,847
Other Current Assets $0 $0 $0
Total Current Assets $379,954 $552,970 $738,068
Long-term Assets
Long-term Assets $579,700 $581,200 $582,700
Accumulated Depreciation $1,200 $2,400 $3,600
Total Long-term Assets $578,500 $578,800 $579,100
Total Assets $958,454 $1,131,770 $1,317,168
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $39,602 $42,317 $44,043
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $39,602 $42,317 $44,043
Long-term Liabilities $512,420 $503,823 $494,538
Total Liabilities $552,022 $546,140 $538,581
Paid-in Capital $236,182 $236,182 $236,182
Retained Earnings ($1,000) $170,250 $349,448
Earnings $171,250 $179,198 $192,956
Total Capital $406,432 $585,630 $778,586
Total Liabilities and Capital $958,454 $1,131,770 $1,317,168
Net Worth $406,432 $585,630 $778,586

9.6 Business Ratios

The following table contains important ratios from the automotive services industry, as determined by the Standard Industry Classification (SIC) Index code 7542.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 5.00% 5.00% 3.00%
Percent of Total Assets
Inventory 0.55% 0.49% 0.44% 9.50%
Other Current Assets 0.00% 0.00% 0.00% 26.40%
Total Current Assets 39.64% 48.86% 56.03% 44.60%
Long-term Assets 60.36% 51.14% 43.97% 55.40%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 4.13% 3.74% 3.34% 29.30%
Long-term Liabilities 53.46% 44.52% 37.55% 27.80%
Total Liabilities 57.60% 48.26% 40.89% 57.10%
Net Worth 42.40% 51.74% 59.11% 42.90%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 93.49% 93.49% 93.49% 0.00%
Selling, General & Administrative Expenses 74.47% 74.27% 74.05% 68.20%
Advertising Expenses 10.00% 10.00% 10.00% 1.50%
Profit Before Interest and Taxes 36.35% 36.39% 36.47% 2.70%
Main Ratios
Current 9.59 13.07 16.76 1.53
Quick 9.46 12.94 16.62 0.88
Total Debt to Total Assets 57.60% 48.26% 40.89% 57.10%
Pre-tax Return on Net Worth 69.26% 51.00% 40.74% 3.40%
Pre-tax Return on Assets 29.37% 26.39% 24.08% 8.00%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 19.28% 19.22% 19.71% n.a
Return on Equity 42.13% 30.60% 24.78% n.a
Activity Ratios
Inventory Turnover 10.91 11.18 11.18 n.a
Accounts Payable Turnover 12.49 12.17 12.17 n.a
Payment Days 27 29 29 n.a
Total Asset Turnover 0.93 0.82 0.74 n.a
Debt Ratios
Debt to Net Worth 1.36 0.93 0.69 n.a
Current Liab. to Liab. 0.07 0.08 0.08 n.a
Liquidity Ratios
Net Working Capital $340,352 $510,653 $694,024 n.a
Interest Coverage 7.82 8.35 8.94 n.a
Additional Ratios
Assets to Sales 1.08 1.21 1.35 n.a
Current Debt/Total Assets 4% 4% 3% n.a
Acid Test 9.46 12.94 16.62 n.a
Sales/Net Worth 2.19 1.59 1.26 n.a
Dividend Payout 0.00 0.00 0.00 n.a