In times gone by a gas station has often been seen as a very lively investment, certainly when gasoline was a relatively stable commodity and the price was low, especially in the USA. In the past, there wasn’t so much pressure to cut down on oil sales or to be selective in our energy use, due to carbon emissions and consequent global warming effects. As time has gone by we can see that conspicuous energy consumption is no longer permissible and the run-up in gas prices in recent years has turned our focus toward hybrid or electric vehicles. Having said that, our society will continue to rely on gas powered vehicles for our transportation in the future and the typical gas station will develop into a destination for a variety of other products and services.
Perhaps more so than any other business, location is very important when it comes to the selection of a gas station for sale. While the value of the location may appear to be obvious, you must consult the local authorities before you go too far into your process to determine whether any significant road construction projects may be in the pipeline, or if there are critical environmental issues to address such as upgrading storage tanks, or past litigation for infractions. In certain circumstances, these could decimate your income!
It’s certainly true to say that gasoline sales by themselves may not represent a significant margin potential, so to value a gas station when you’re looking to buy a business, you may often rely on ancillary sales and other products or services. If the location you are looking at is not so advanced in these respects, consider the potential. For example, what about installing a convenience store or finding another organization to handle it for you on a licensing basis. Could you place a first-class car wash operation on property and benefit from revenues here?
If you want to buy gas station business assets correctly, you should note from the beginning that an operation which could be classified as full-service, in other words gas, car wash and c-store, could command up to three times the owner benefits. Owner benefits can be made up of salary, profits, any perks, while adjusted for interest, depreciation and any other capital expenditure that you might have to make. If a simpler establishment is of interest to you, for example maybe due to its potential, you might expect to pay just one or even two times the owner benefits.
Pore over your business financials, your supplier contracts and make sure that you have adequate discussions with any landlord involved. Be careful when talking to the landlord, as they may often try to ensure that the incoming new owner is fully able to make the business a success, before doing anything!
Keenly observe what is going on at the gas station during the process of observation. Be careful if you see the owner working “hands-on” for considerable periods of time. If many of his family members are seen putting in a lot of effort, they may be working below market rates, being paid under the table or maybe not at all; what if you had to recruit paid staff to do their jobs? Make sure that you observe the busier time periods, counting traffic and people, so you can gauge the potential accurately and know how to create a good offer.
Richard Parker is the author of the How to Buy a Good Business at a Great Price series. As President and founder of Diomo Corporation – The Business Buyer Resource Center, his materials, seminars and consulting have helped thousands of business buyers realize their dream to buy a business.
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