Card Store Question

[LaundrySOAS]

I am considering purchasing a laundromat which uses an ESD Smart Card system. I would like to include a section in the purchase agreement which provides for an adjustment to the purchase price to reflect that the current owner has collected money from customers via the card machine, but not all of that money has been used, hence leaving me with a liability to perform (and consume utilities at my expense).

Has anyone previously negotiated a contract with this provision? How did you structure it? Is there any way of actually determining the amount of unused credits outstanding? Is there any way of using the results of a two-three week due diligence period, tracking the difference between card machine deposits (actual funds in) versus machine usage (what was actually used), to establish a figure?

The store averages about 13,000 a week in self serve revenue. The card machine provides for $22 of credit for a deposit of $20.

On a related matter, I have read that only about 92% of deposits on cards are ever used. This seems a bit low to me, meaning I would suspect that a higher percentage is actually redeemed.

I recognize I am mixing what has been deposited and will be used (i.e., what I will be on the hook for), and what has been deposited and will not be used (i.e., what the current owner gets for "free").

Does anyone have data/history to determine a redemption rate? I do not have enough (any) knowledge of the ESD systems and readers to determine if this figure can be determined.

Any thoughts would be appreciated.

Thanks

Brian

[CanCanCase]

Brian-

I'm not familiar with the admin side of the ESD system, but the dollar figure you're looking for is commonly called "float"... what's been put on account but not yet redeemed. The amount of float a store will carry is wildly variable depending on things like time of month, condition of the store, customer perception of the economy and the particular market you're in.

Because of this variability, I would question the 92% figure coming from any source unless it were MY store and MY data. I'm sure the ESD system for sale with the laundromat will have a way to report current float.

I would be hesitant to put that number into a sales contract unless it was determined right at the time of posession. What happens if Mr. Seller decides to eat up all of that float in the 30 days it takes you to close the sale? He could have a promotion, end the bonus dollars, give away a BOGO, etc. to encourage high volumes of business that may (or may not) diminish the float value.

I think I would look at it similar to a coin store's coin changer... either an emptying or full accounting needs to be done as soon as you walk in as new owner. When I bought my second store, it was operating on quarters. Mr. Seller emptied the changers into his deposit bags. Then it was up to me to run to the bank and re-fill the changers with MY money to begin operations. A float transaction might work in reverse... whatever the float amount is at the time of posession, Mr. Seller could write you a check (or you withhold that amount from whatever payment is due at that time) for the float value... that way you got the money AND you're providing the service to be redeemed (liability.)

-Case

[chad]

I have that system and it's very easy to pull up the float.

Do you mind me asking what the asking price for this store is. doing 13k a week is huge volume.

[Howard]

The numbers should be available from the system. I have more concern about your ongoing cost for the smart cards - there are super expensive. Factor that in to your purchase price. I have a friend that replaced a smartcard system with an Easycard system and it paid for itself in less than two years just on the savings in the cost of cards. Smartcards do not belong in laundromats.

[chad]

Smart card systems just straight out suck. I spent 50k and upgraded and the cards I sell will pay its self off.

[CanCanCase]

Then again, for something around six and a half cents per card, you can have a bunch of butt-ugly mag-cards with horse heads on them, right Howard? ;-)

-Case

[Howard]

...and until recently I never really liked horses

[LaundrySOAS]

Chad:

The asking price is 1.375 million (which I think is high). The store is four years old and has additional vending, WDF and dry cleaning income of about 2,000 a week. Cash flow would be about 300k a year, based on the way I would run it (i.e., put everyone on the books).

What system did you convert to? Was it because of the high cost, or were there other factors.

If the float can be determined from the system, I would assume it would be made up of two parts: recently added money not yet used and "aged" money which has been abandoned. Based on what little I know, I don't think there is anyway to determine the age of the float (i.e., it was x six months ago and it was y a year ago, and it is z today), unless the owner tracked that information himself. Am I correct in that assumption?

All:


Thanks for the information and input. I will look to get more familiar with the system prior to the contract, if any.

Brian

[laundryboy2]

This is pretty easy to incorporate into a purchase agreement. Any unused balance on a card is considered a liability to the operation. This liability is converted to revenue ONLY when a customer swips their card. ALL remaining value on a card should be transfered to the new owner as a credit at transaction closing.

It is similar to purchasing apartment realestate (rentals). All security deposits paid by tenants (the float) is a liability until it (the security deposit) is either used to make repairs OR returned to the tenant when they vacate the premisis. In a rental purchase, a value is determined for the property and at closing the sellor owes the buyer an amount equal to the security deposits collected.

[mellofelow]

Originally Posted by LaundrySOAS

The store averages about 13,000 a week in self serve revenue.

Wow!!! Brian, you may get some good answers here but you need a good lawyer for this transaction.