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How to settle PrePaids for ICS

2 replies created 2 months ago
posted by tomchung 2 months ago

So, I'm in the process of purchasing a car wash that has large amount of buy 4 get 1 free deals. They do almost $10K a month!!! I am not familiar with ICS but I asked for their annual sales report. I see they sold close to $120K of prepaids for the year.

That is too big of a money for me to just ignore and proceed to closing. How would one go about settling how much of the outstanding prepaids the seller should reimburse the buyer during closing? I suggested either create an escrow account for about 6 month so that we can tally up all the prepaids redeemed from the previous owner and take the money out of the escrow deposit... or just pay me prior 6 month worth of prepaids sold less 20%(since buy 4 get 1 free) on the day of closing. Either way seems reasonable to me, but the seller doesn't like either and we're stuck.

Anyone have good solution?

Replies

reply by Robert Roman 2 months ago

Fair market value is the price at which a business would change hands between a willing and knowledgeable buyer and seller.

Impasse to transaction is question about capability of wash to generate necessary cash flow to support purchase and worth of goodwill. Outstanding pre-paid affects both.

For example, I once owned a wash where people redeemed significant numbers of coupons from wash books that were 6 and 7 years old.

So, this suggests a more rigorous valuation estimate of fair market is required.

reply by tomchung 2 months ago

So it is standard industry practice for the buyer to assume all the prepaids sold by seller regardless of the outstanding balance?

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