DIY Wash N' Fix
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 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.
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:
- Maintain ownership of both the car wash and repair bays, but lease the repair bays to a full service auto mechanic firm.
- 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.
- Sell all property and exit industry.
9.2 Break-even Analysis
The chart and table below show the Break-even Analysis for the company.
|Monthly Units Break-even||2,769|
|Monthly Revenue Break-even||$45,236|
|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|
|Direct Cost of Sales||$57,852||$60,745||$63,782|
|Total Cost of Sales||$57,852||$60,745||$63,782|
|Gross Margin %||93.49%||93.49%||93.49%|
|Sales and Marketing and Other Expenses||$228,030||$240,132||$252,788|
|Total Operating Expenses||$507,472||$532,468||$558,248|
|Profit Before Interest and Taxes||$322,796||$339,314||$357,123|
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 from Operations|
|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|
|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|
|Subtotal Cash Spent||$690,831||$759,775||$794,333|
|Net Cash Flow||$197,289||$172,751||$184,819|
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|
|Other Current Assets||$0||$0||$0|
|Total Current Assets||$379,954||$552,970||$738,068|
|Total Long-term Assets||$578,500||$578,800||$579,100|
|Liabilities and Capital||Year 1||Year 2||Year 3|
|Other Current Liabilities||$0||$0||$0|
|Subtotal Current Liabilities||$39,602||$42,317||$44,043|
|Total Liabilities and Capital||$958,454||$1,131,770||$1,317,168|
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.
|Year 1||Year 2||Year 3||Industry Profile|
|Percent of Total Assets|
|Other Current Assets||0.00%||0.00%||0.00%||26.40%|
|Total Current Assets||39.64%||48.86%||56.03%||44.60%|
|Percent of Sales|
|Selling, General & Administrative Expenses||74.47%||74.27%||74.05%||68.20%|
|Profit Before Interest and Taxes||36.35%||36.39%||36.47%||2.70%|
|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|
|Accounts Payable Turnover||12.49||12.17||12.17||n.a|
|Total Asset Turnover||0.93||0.82||0.74||n.a|
|Debt to Net Worth||1.36||0.93||0.69||n.a|
|Current Liab. to Liab.||0.07||0.08||0.08||n.a|
|Net Working Capital||$340,352||$510,653||$694,024||n.a|
|Assets to Sales||1.08||1.21||1.35||n.a|
|Current Debt/Total Assets||4%||4%||3%||n.a|