PC&D MAGAZINE
Avoid carwash project sticker-shock
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From Volume 26, Issue 6 - June 2002
Feature
A comprehensive guide to the costs and fees associated with a new carwash investment.
by: Robert Roman
 
 Related Information
  Table 1: Example project development costs
  Table 2: Project summary

First-time carwash investors are often unaware of the many expenses involved in the development and construction of a new carwash operation. However, it’s fairly common for equipment distributors to provide prospective investors with a preliminary feasibility study and pro forma to go along with the initial equipment quotation.

Unfortunately, most new investors will take these preliminary estimates at face value and then experience sticker-shock when the actual total cost of the project is determined during the loan application phase.

If the distributor is obligated to provide a preliminary estimate of expected construction costs plus operating expense and profit, it’s certainly hard to find fault with the distributor because many of the costs cannot be known until the project actually begins to take shape.

However, if development costs are understated, new investors may find that the final picture won’t be as rosy as it was initially portrayed.

The following information should provide an overview of the cost factors involved in the development of a new carwash project.

Before the application

Regardless of how you choose to proceed, there will be certain accounting and economic costs that you will incur prior to the loan application phase.

Economic or opportunity costs will include:

· Time spent researching and learning about the particular sector of the industry you are interested in;

· Identifying the folks who will be involved in helping you develop your project such as a consultant, a equipment and chemical distributor, accountant, attorney, civil engineer, architect, lease finance specialist, general contractor, government officials, real estate agent, etc.;

· Finding an appropriate site and location;

· Specifying your business model; and

· Developing a mini business plan.

Most people don't consider opportunity cost as a “real” or accounting cost because most of the preliminary activities don't actually involve taking hard cash from your billfold or purse.

However, if your opportunity cost (the benefit or income from the time you must forgo to do this) is high, you may find that your time becomes quite expensive.

Your accounting or out-of-pocket costs for pre-development activities can include:

· Long distance telephone calls;

· Consulting fees for developing the feasibility study and business plan to support the loan application;

· Accounting and legal fees to form the business;

· Expenses associated with securing an option for the property such as legal fees for contract review, earnest money, environmental study and land survey; and

· Architectural fees associated with preliminary drawings or conceptual renderings.


$1,034,270

Hard costs

Hard costs are expenses that can be directly attributed to the actual design and construction of the facility. This includes general categories such as land, engineering, construction, miscellaneous items, carwash equipment and fees.

Land

In addition to the price tag, commercial property usually comes with a list of conditions that you will have to adhere to. This can include specific requirements for:

· Permitted uses;

· Uses permitted on review;

· Prohibited uses and structures; and

· Area regulations such as parking space requirements, property setbacks, maximum lot coverage and building height and sign regulations.

If you fail to meet any of the applicable criteria, you may find it necessary to apply for a variance. If so, be prepared to pay more fees and spend additional time to navigate the planning and zoning review process.

Engineering

The cost for engineering and architectural work will include professional fees to develop a master site plan and carry it through the planning and zoning review process and, ultimately, into the construction phase.

The master plan will include a series of civil and architectural plans that address building and code requirements, location plan, site, grading and utilities, soil erosion control, storm sewers, landscaping, water main, floor plan and elevations, foundation, wall sections and mechanical and electrical plans.

Construction

Construction costs would include site work such as demolition of existing structures; excavation, backfill and grading; concrete footings, slabs, interior and exterior walls, pit clean outs, curbing and sidewalks; metal fabrication; and trusses and general carpentry such as insulation, roofing and hardware.

In addition, construction includes masonry, tile and flooring system; painting; blacktopping; landscaping; sanitary sewer and domestic water system; water and sewer laterals; gas line plumbing and hot water system; electrical service panels and sub-panels; light fixtures, switches, wiring and coordination with carwash equipment communication/data and vending systems; pole sign; and construction contingencies.

Miscellaneous

Miscellaneous costs can include items such as underground reclaim tanks, canopies, vacuum islands and hot water in-floor radiant heating and weep system.

Equipment

Equipment costs can include the purchase price for items such as wash bay packages; high pressure and/or friction wash systems; motor control center; computer control system; chemical distribution and delivery systems; water pre-treatment; spot-free rinse system; and wastewater recovery and recycling systems.

In addition, equipment expenses will include hydraulic systems; drying systems; air compressor; vacuums; merchandise vendors; bill changers; entry and point-of-sale systems; start-up inventory; freight; sales tax; highlift rental; and fees for both erecting the equipment and system installation.

Fees

Fees associated with construction costs can include surety bond, building permits, state and local review fees, water and sanitary sewer tap fees, natural gas tap fees, electrical deposit, radon inspection, interim interest (construction loan), construction monitoring fee and, if your municipality utilizes a concurrency management system, land use and transportation impact fees.

Soft-costs

Soft-costs are expenses that are usually associated with project financing and the business launch.

These costs may include equipment deposit, loan deposit, property appraisal, title policy, life insurance, loan processing fees, miscellaneous expenses, legal fees, occupational license, merchant service (for credit card acceptance), mercantile license, vending license and working capital.

The numbers found in Table 1 and 2 are for a new self-service carwash with four wand-bays and one in-bay automatic on 30,000 square feet of undeveloped commercial property.

Due to the differences that may exist in labor rates, materials, equipment prices, sales tax, interest rates and fees, the total cost for a similar project in your market may vary significantly.

Robert Roman is a former carwash and detail-shop operator and is president of RJR Enterprises, a Clearwater, FL.-based firm that provides professional advisory services to the carwash industry.
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