Gas Station Inventory at Closing in Ontario: Store & Fuel Inventory Guide

When a buyer purchases a gas station or convenience store in Ontario, inventory on hand at closing can represent a significant additional cost. Therefore, buyers and sellers should establish the inventory-counting and valuation process well before closing.

In many gas station transactions, the parties adjust inventory separately from the purchase price. Generally, they value convenience store merchandise using an agreed cost basis. Meanwhile, they calculate fuel inventory from the actual litres remaining in the underground storage tanks and an agreed cost per litre.

However, every transaction can use different terms. The Agreement of Purchase and Sale and the parties’ closing instructions should always determine the final method. Buyers should also understand the broader gas station buying and due-diligence process in Ontario before they waive conditions.

What Does Gas Station Inventory Include at Closing?

A gas station normally has two main inventory categories: retail store merchandise and fuel inventory.

Retail store inventory can include beverages, snacks, grocery products, automotive products, tobacco products and other saleable merchandise that the business owns.

Fuel inventory includes the saleable gasoline and diesel that remain in the underground storage tanks at the agreed measurement time.

Because the parties measure these two categories differently, they should calculate store inventory and fuel inventory separately. Afterward, they can combine the amounts to determine the total closing inventory adjustment.

How to Count Convenience Store Inventory

One practical method involves hiring a professional inventory-counting company to complete the physical count immediately before or around closing.

For example, a gas station that uses a POS system such as Bulloch may already maintain product information through UPCs, SKUs and a price book. Bulloch provides POS functionality that includes UPC product scanning and price-book management. You can review the official Bulloch POS features for additional information.

During the physical count, the inventory company can scan the products with handheld barcode scanners and record the quantities. Then, using the agreed cost information, the company can prepare an inventory-at-cost report for review.

In practice, this approach can simplify the process for both the buyer and the seller, especially at stores that carry hundreds or thousands of individual products.

Inventory at Cost vs. Retail Selling Price

The retail selling price at the cash register does not necessarily determine the closing inventory value.

Instead, when the Agreement of Purchase and Sale requires inventory at cost, the parties should use the agreed product cost.

Therefore, accurate supplier invoices, POS cost information and properly maintained product records can make a significant difference when the parties prepare the final store inventory.

In addition, the buyer should understand exactly what the cost figure represents. For example, the parties may need to determine whether the figure includes freight, supplier discounts, rebates or other adjustments.

What Store Inventory Should Buyers and Sellers Review?

Buyers should not automatically accept every product inside the store at full value.

Instead, the buyer and seller should review the Agreement of Purchase and Sale and determine how they will handle:

• Expired merchandise
• Damaged products
• Obsolete or slow-moving merchandise
• Unsaleable products
• Supplier-owned products
• Consignment inventory
• Promotional merchandise
• Products that cannot legally or contractually transfer to the buyer
• Other inventory specifically excluded under the agreement

In addition, tobacco, alcohol where applicable, propane and other regulated or specialized products may require separate attention.

Consequently, both sides should establish the inventory rules before the counting company arrives. This preparation can reduce disagreements when the parties review the final inventory report.

How to Calculate Fuel Inventory at Closing

Fuel inventory requires a different calculation from convenience store merchandise.

First, the parties need to determine how many litres of each fuel product physically remain in the underground storage tanks at the agreed measurement time.

Depending on the property and the agreed procedure, the parties may use the automatic tank gauge (ATG), current tank-dip records or another agreed measurement method.

For example, assume the final tank reading shows 20,000 litres of regular gasoline and the parties agree to use an invoice-based cost of $1.15 per litre.

Next, the parties can complete the same calculation for each additional fuel product. Depending on the station, those products may include regular gasoline, mid-grade gasoline, premium gasoline and diesel.

Finally, they can combine the individual fuel values to determine the total fuel inventory adjustment.

Which Fuel Cost Should the Parties Use?

The buyer and seller should establish the fuel-pricing method before closing.

For example, the parties may agree to use a specified recent supplier invoice, the delivered fuel cost or another clearly defined pricing method.

However, they should not leave this decision until closing day. Instead, both sides should know which invoice will apply and when the final tank reading will occur.

As a result, each party can review the fuel inventory calculation independently before the lawyers finalize the closing adjustments.

Fuel supply arrangements can also affect a gas station transaction. Therefore, buyers should understand pricing provisions, volume commitments, assignment requirements and other obligations contained in the fuel supply agreement.

Tank Records and TSSA Inventory Control

The closing fuel inventory calculation serves a commercial purpose. However, tank and inventory-control records also play an important operational and regulatory role.

The Technical Standards and Safety Authority provides compliance requirements for liquid fuels and inventory-control records. Therefore, owners and buyers should treat tank readings, delivery records, sales records and inventory-control documentation as important operating records rather than simple closing paperwork.

For official regulatory information, review the TSSA Liquid Fuels Compliance Standard.

In addition, buyers and gas station operators can review the GasStationForSale.ca guide to TSSA gas station requirements in Ontario.

Example of a Gas Station Closing Inventory

The following example shows how a buyer and seller might combine store merchandise and fuel inventory.

Therefore, this example produces a preliminary inventory adjustment of $126,600.

However, the actual amount will depend on the store count, tank readings, applicable product costs, exclusions and the specific terms of the Agreement of Purchase and Sale.

Why Buyers and Sellers Should Organize Inventory Before Closing

In my experience with gas station transactions, parties sometimes leave inventory planning too close to the closing date.

That can create unnecessary pressure. For example, the inventory company may need the current product-cost file in advance. At the same time, the buyer and seller need to coordinate the physical store count and final fuel measurements.

Therefore, the parties should confirm the inventory procedure well before closing.

Before the scheduled count, they should establish:

• Who will perform the physical store inventory
• The date and time of the inventory count
• What product and cost information the seller will provide
• Which merchandise the parties will exclude
• When the parties will obtain the final fuel tank readings
• Which fuel invoice or pricing method they will use
• Who will review the final inventory report
• How the lawyers will reflect the inventory adjustment on closing

As a result, the buyer, seller, inventory company and legal professionals can work from the same information.

Buyers who are considering an acquisition can also review current gas stations for sale in Ontario and other buyer resources available through GasStationForSale.ca.

Gas Station Closing Inventory Checklist

Before closing, buyers and sellers should consider the following checklist:

• Confirm the inventory-counting company.
• Confirm the inventory count date and time.
• Prepare the current POS or price-book information.
• Verify the applicable product costs.
• Provide recent supplier invoices where required.
• Identify expired, damaged and excluded merchandise.
• Confirm the final fuel tank-reading time.
• Record the litres in each underground storage tank.
• Confirm the applicable fuel cost per litre.
• Identify the agreed fuel invoice or pricing methodology.
• Review the final inventory report.
• Confirm how the lawyers will apply the inventory adjustment on closing.

How Nav Sidhu Can Assist With the Gas Station Closing Process

Frequently Asked Questions About Gas Station Inventory at Closing

Does the purchase price include gas station inventory?

The Agreement of Purchase and Sale determines the answer. In many gas station transactions, the parties calculate inventory separately and add the agreed inventory adjustment at closing.

Do buyers pay retail price for convenience store inventory?

Not necessarily. When the parties agree to value merchandise at cost, they use the applicable product cost instead of the retail shelf price.

Can an inventory company scan store merchandise?

Yes. Professional inventory companies can use barcode scanners to count physical merchandise. In addition, UPC, SKU and product-cost information from the store’s POS or price-book system can help the inventory company prepare an inventory-at-cost report.

How do the parties calculate gasoline inventory?

First, they determine how many litres remain in each underground storage tank. Then they multiply those litres by the agreed cost per litre.

Which fuel invoice should the buyer and seller use?

The parties should agree on the applicable invoice or pricing method before closing. They should also make sure that the method matches the Agreement of Purchase and Sale and the closing instructions.

Who normally pays for the inventory?

When the Agreement of Purchase and Sale requires the buyer to pay inventory in addition to the purchase price, the buyer commonly pays the agreed inventory adjustment through the closing process.

Gas Station & Convenience Store Inventory Calculator

Planning to Buy or Sell a Gas Station in Ontario?

Inventory represents only one part of a gas station transaction. Buyers and sellers should also consider environmental due diligence, TSSA records, fuel supply agreements, equipment, financial information, financing, franchise requirements and other property-specific matters.

For additional guidance, review the Ontario gas station buyer guide or contact Nav Sidhu to discuss an Ontario gas station acquisition or sale.