Why Rules of Thumb Don’t Work

  • Imagine two Car Washes, same area, same annual sales.
  • Rule-of-thumb: Car Wash worth 2X annual sales.
  • Yet Car Wash #1 may be worth twice Car Wash #2.
  • Car Wash #1:
    • Located in upscale neighborhood.
    • New store, did $300K last year, $600k this year, projects $900k next.
    • New property, fixtures, equipment.
    • Sharp aggressive management.
    • Everything about business on a positive upward trend.
  • Car Wash #2:
    • Located in a bad part of town.
    • $600k this year, sales trending down. Did $900k a few years ago.
    • Lots of deferred maintenance, old equipment etc.
    • Everything about business on a negative downward trend.
  • Two businesses, same sales, completely different values.
  • Never rely on rules-of-thumb to value a business.