There are two parts to the problem.
An older gentlemen let’s call him Horatio decided he was getting too old to work in the local car wash. He had been working at this one for twenty years. He knew a lot about car wash operations.
He heard of one for sale a few towns away... The owner was asking for $1,350,000 but had told friends and other people that he was anxious to sell, maybe desperate. Horatio heard this too.
He had saved $100,000 over the years and his banker, who knew him well, told Horatio that the bank would loan him as much as he needed. Horatio had saved his money in the bank’s money market funds which paid 9% but Horatio wanted to earn 12%.
Horatio learned that a car wash sold for $8.00, that the car wash was open for only three seasons during the year 270 days and that it averaged 250 cars a day. It use to wash close to 300 per day. Repairs and maintenance cost about $75,000 per year. The owner had fired all the employees. He thought they were all lazy. The owner didn’t realize that he could not open the car was at 8:00 AM and close it twelve hours later seven days a week. He started losing customers because the customers couldn’t depend on the car wash being open for them.
Horatio wanted a salary of $150,000 per year. He planned on restoring the profitability of the car wash so that he could pay off any bank loan in five years, sell the car wash and retire.
He planned to rehire the former employees as well as advertising the new owner change. He planned to increase the $8.00 price for a car wash.
Disregard depreciation and taxes. Use $70,000.00 for interest expense.
Part One considering that the owner wanted $1,350,000, should Horatio agree with this price? If not, what should Horatio do?
Part Two Consider the balanced score card approach to making money. What steps, if any, should Horatio take to improve the profitability of the car wash? Please be specific.