Conversation with a Bank VP
By Anthony Analetto
President – SONNY’S Car Wash Equipment Division
I’m no economist. I’m no banker. But I doubt I’m the only
car wash operator walking around with this tingling sense that I’m either about
to be sideswiped by economic forces outside my control or miss out on one of
those opportunities of a lifetime.
With two washes in a hurricane prone region, I’m no stranger
to hurricane preparedness plans – but what do you do to prepare for a prolonged
recession? None of us needed the official announcement that we were in a
recession to tell us that business was down. Unfortunately, none of the experts
seem able to predict if the storm is about to respond to the bail out programs
and dissipate, or is about to hit the proverbial fan.
Most every business right now faces the simple truth that
revenues have dropped. I for one would prefer not to just hope for the best or
begin blindly slashing the people and assets I need to survive. So, modeling
the clear, calm, hurricane preparedness plans we have in place, I have begun to
outline what I’m calling a Recession Preparedness Plan. I’ve structured the
plan into three categories: First, take ownership of your customers. Second, take
control over expenses. Third, take control of your finances. For the third part
I called Kevin Rafferty, Vice President and SBA Regional Manager for TD Bank.
His interview and insights on financing for car washes during these turbulent times
is at the end of the article.
Americans will continue to wash their cars regardless of the
economy. Preferences may change, frequency may change, and expectations may
change – but they will still wash. That’s what the first section is actually all
about – so let’s get started.
Take Ownership of Your Customers
In these times, you can not afford to let a customer leave
your site without trying to capture their contact information. There is a lot
being written in the popular business magazines about what companies can do to come
out of this economic downturn with increased market share. The general
consensus seems to be that those that increase spending on advertising and new
technology to improve customer service or decrease expenses will be the
winners. Good logic if you’re not already struggling to make payroll or to pay
your chemical supplier. Fortunately, the best marketing often requires more
creativity and hard work than money. Increasing your marketing effort can pay
off more handsomely than increasing your budget.
Everything starts with knowing your customer and getting
their contact information. Welcome them to your wash. Thank them for coming.
Ask them how they’re doing, and most importantly, ask them for their address,
and ideally, their email address. At one time or another you may have had a
fishbowl on your counter with a sign saying throw in your business card to win
a free detail service. Maybe you’ve had a tip box set up next to a sign
offering to email your customer a free wash on their birthday (which can also
be done at an express-exterior with a sign at the kiosk and tip-box at the exit
of the tunnel or in the vacuum area). Look at your counter. Is the fishbowl
sitting there with a picture of last month’s winner smiling next to their shiny
car with a testimonial? Were all those names and addresses entered into a
computer database? If you’re not actively collecting your customers’ addresses
you have no way to affordably promote to them. Like I said before, people will
continue to wash their cars but their preferences, frequency, and behavior may
change in response to a changing economy. Wouldn’t it be nice to send an e-mail
blast for a few dollars telling your existing customers there’s a new reason to
visit your wash and that you now offer exactly what they’re looking for?
Also, when you do advertise, advertise events whenever
possible instead of discounts. Every day is an anniversary of something, be
creative. It costs the same money to send a post card or put an advertisement
in the newspaper with some coupons as it does to promote your Anniversary
Celebration Event. Maybe the first 50 customers will wash free, the first 100
will be entered to win one of three unlimited wash passes for the year, and
everyone who washes that day will be entered to win a free I-Pod, TV, or other
gift. Make sure your entry form lets customers know that winners will be
notified by e-mail and you may end the day with a strong list to promote to.
Also, don’t forget to put out a sign and some balloons announcing the event. If
you’re able to pull customers to your site with direct and print advertising,
passing cars looking at a line of customers and balloons may stop in to see
what they’re missing out on. Now you’ve given them a reason to come, collected
their e-mail address, and made them feel good about visiting your wash.
I just threw out two marketing gimmicks that can absolutely
drive traffic. Unfortunately, nothing is as easy as it looks. These types of
promotions should be part of an overall marketing plan that combines events,
fundraising sponsorships, and advertising. The point I want to make is that all
the experts saying businesses must spend more on advertising should really be
saying that businesses must invest more in marketing. That means working harder
to make sure the advertising dollars you spend have a better return on
investment.
Take Control of Your Expenses
I know I’m not alone in keeping a running list of things I intend
to do to reduce the variable expenses at my car wash. Every day there are new
products, services, and practices that can shave electric, water, labor, and
soap consumption. There’s already a lot written in the magazines on the subject
so rather than throwing another list out there, I want to shift gears, and talk
about actually getting these things done.
Living in South Florida , an
amazing thing happens when a hurricane threatens our shores. One part of the
population has invested the time and money for hurricane preparedness. They
calmly close up their properties with pre-installed shutters, get fuel for
their generators, and check the inventory level of supplies on-hand. The goal
is to be able to recover quickly in the event they are affected. Another part
of the population panics, runs to get disposable plywood, and ends up waiting
in huge lines hoping to get a bottle of potable water before they can even
think of beginning to repair their property. Planning wins every time.
Whether it’s a new training program, preventative
maintenance schedule, or equipment upgrade, most money-saving projects require
time, effort, and investment. Even a simple task such as replacing bathroom
light switches to motion sensors takes time, and money. Call it Recession
Preparedness Planning or just common sense, but with so much uncertainty out
there today, now seems to be a great time to prioritize your list of cost
saving activities and get moving. Even if the economy starts to take off again
tomorrow, you’ll have a more efficient and profitable business to enjoy the
good times with.
Talk to your banker
Can I still get money to expand or improve my business? What
happens if I can’t pay my loan? Am I getting the best possible rates for all of
my existing loans? Not knowing the answer to any of these questions I picked up
the phone and called Kevin Rafferty, Vice President SBA Regional Manager with
TD Bank, who I heard had organized the financing for some recent car wash
projects. Although this topic is highly specific to your circumstances and
location, many of Kevin’s insights apply to everyone. Below are some excerpts
from our conversation.
ANALETTO: I may as
well just jump in with the biggest question; is there still money available for
me to improve my business or to open new locations?
RAFFERTY: Yes, money is available and deals are getting done
via both SBA backed and conventional loans. The real difference is that
everything is more closely scrutinized. Banks are focusing on better properties
and better locations. Marginal deals that may have been done in the past may
not happen, but the better deals are getting done.
A borrower looking to improve their odds of success must be
presenting a good property with a good down payment. Loan to value ratio should
not exceed 80% and if cash flow is tight don’t be surprised if the bank wants a
75% or lower loan to value ratio. This is especially true if management is less
experienced in the industry. Across the board, expect that every detail of your
application will be closely analyzed. The ability to supply clear and easily
verifiable documentation will give an applicant an advantage.
In general the process is slightly easier through the SBA. Although
the fees associated with this type of loan may be slightly higher, the US
Government guarantees 75% of the loan making it much more attractive to the bank.
ANALETTO: I know
veteran car wash operators who have been refused a loan, can you explain?
RAFFERTY: Right now, some banks are looking mostly at
warehouse or office projects that they can resell as anything. Limited service
properties which include hotels, churches, bowling alleys, gas stations, and
car washes, just to name a few, can be more challenging. Basically, these types
of properties can only be resold for the use it was built, or leveled for
another use. This means that a bank forced to resell the property will either
have a limited audience, or will need to level the building and loose the value
of the site improvements. Veteran car wash operators struggling to find a loan may
want to consider applying through the SBA for the reasons I mentioned earlier.
ANALETTO: What effect
has dropping property values had on getting loans approved?
RAFFERTY: You see these problems with residential loans, but
on the commercial side it hasn’t been a problem. Appraisals in my experience
have not been coming in lower on car wash properties and not causing problems
with loan approval.
ANALETTO: What relief
can an operator get if they are struggling?
RAFFERTY: Again, with an SBA loan there is more flexibility. The SBA has sent out memorandums to lenders
encouraging us to work with borrowers to get through this fiscal cycle. At
minimum, a borrower may be entitled to a 3 month interest only option. As a
government organization I suspect they have more tools available to meet their
goal of keeping businesses open. If you’re an SBA borrower and struggling, be
proactive and call your SBA lender. For conventional loans there really is no
standard and it depends on the institution. These are unusual times.
Traditionally a bank wants to get a bad asset off the books as quick as
possible, but some institutions may be more flexible in response to the current
financial conditions.
ANALETTO: Should a
car wash try to refinance to take advantage of lower interest rates?
RAFFERTY: This is a
tough question because many car washes are financed with an SBA loan which can
not be refinanced into another SBA loan. That means that any refinancing
involves a conventional loan. A successful business that also has a low loan to
value ratio of 70% or less may be able to reduce their rate. Conventional loans
however often have a 5-year balloon where the loan can be recalled.
ANALETTO: If an
operator has a conventional loan for one car wash secured by another car wash,
should they be concerned that the bank may recall their loan?
RAFFERTY: It’s an
interesting point; usually unlikely, but absolutely possible. An operator
concerned about this may want to look at the security of long term permanent
financing with the SBA. These loans have no call features or balloons and the
only way a bank can call your loan is if you stop paying. Even then there are
often government assistance programs in synch with economic or disaster related
difficulties.
Comments or questions can be sent directly to Kevin at:
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