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How to settle PrePaids for ICS

2 replies created 12 months ago
posted by tomchung 12 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?


reply by Robert Roman 12 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 12 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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