15 Feb Buying a Gas Station – Small Business Investing – Turning Dreams Into Legacies
Buying a Gas Station with Convenience Store
As part of our series on Small Business Investing – Turning Dreams Into Legacies, we are sharing this overview of gas station since it is one of the top three industries that people first seek when buying a business.
Having worked with Texaco, Shell and 7-Eleven, I have seen some people do very well. Most have started with reasonable sites and improved the overall business experience, optimized revenues and expenses, and have tried at least a few innovative ideas that the competition is generally overlooking.
Most people buy businesses, including gas stations, based on how they are currently performing. However, gas stations, and almost any other business, changes when a new owner takes over. Hopefully the change is for the better, but not every buyer has prepared the right strategic plan and has the right match of skills, interest and passion. We always recommend that first time business buyers take advantage of our Legacy Advocacy for Buyers (LAB) program (Info@BuyBizUSA.com).
If you are looking to own your own gas station, there is a great deal to learn. Consider the brief overview as an introduction to the industry. Please feel free to send us your question.
Gas stations with convenience stores are one of the most popular requests when people seek to buy a business. There are gas stations with various gas brands and some that have franchised convenience stores, such as 7-Eleven.
Many of the major oil companies have focused on Marketing and Refining Gas, and have sold a large portion of their real estate with gas stations to jobbers or wholesalers. Often jobbers now own the land and lease the business with an agreement to supply a certain brand of gas – Shell, Amoco, BP, Exxon, Marathon and others. There are other methods of gas station ownership. Many Circle-K stations are corporately owned and operated, although they do offer branding to individual owners. Companies like Thornton and WaWa typically own and operate their own brands. Occasionally, individuals will build their own station and get a supply agreement, now mostly through the jobbers, but the brand can be almost anything represented in the marketplace – Shell, Amoco, etc…
Many people selling their gas station businesses offer limited or no financial records. One must be very careful in evaluating the business. Gallons of gas sold are on record and one can check with the jobber who delivers the gasoline as to how many gallons are delivered to the station each month.
You must not only determine the amount of gallons sold, but the amount of money the operator receives for each gallon. One also needs to account for credit cards fees charged to the operator. Often an average amount of cents per gallon is calculated by looking the average cents per gallon for each product of gas (i.e. 87, 89, 93 octane products), and then determining the pool margin by applying the weighted percent of sales.
Many jobbers offer a flat fee per gallon, sometimes varying depending on if the customer purchases with a credit card or with cash.
Unless it’s a franchise that takes a portion of profit or a fee from the store, like Circle K, or 7-Eleven (Franchise or BCP), the operator keeps the profit from the store. It is important to be aware of the gross sales, mix of category sales (beer, cigarettes, candy, fountain sales…), and margins (not markup) on the store sales. Make sure the gross sales exclude the very low margin items like Lotto and Lottery.
When buying a store, make sure all inventory is well in date and not expired or damaged.
Some business sellers don’t provide sales figures but invite potential buyers to watch the store sales for a week or two before buying. While it’s a great idea to check out the business, it is much better to compare sales figures that have all gone through the register, review certified financial records and compare with filed taxes.
As with any business, be very careful and carefully perform your due diligence. Don’t take people’s word and apply common sense. Be knowledgeable so that you can make a good assessment. Get training and experience when you can.
The price of a business often excludes inventory, fuel deposit (or inventory fee in some cases) and deposits for things like Rent and Utilities.
- Price of Business: $150,000
- Gas Deposit: $ 30,000
- Inventory: $ 60,000
- Deposits: $ 5,000
- Working Capital $ 25,000
- Cash needed $270,000
You can always negotiate price and ask for Seller Financing but be aware that gas stations often have higher costs that exceed the Price of Business.
Do Your Research
There is a lot to successfully buying, operating and later selling a gas station or any business. Get the facts and do your research. Many gas stations have significant room to improve and may be a good investment for the right person with the right skills and plan at the right price. Invest wisely and remember our Legacy mantra for buyers – “Buy based on potential – pay based on performance.”
Be sure that when you buy a business to be part of the elite who succeed with using the right advisory team. Get the right support and insight. Buying a business, buying a franchise or even starting one up from scratch is too important not to get the facts and support.
Brian Stephens, MBA, CBI
“Helping people turn Dreams into Legacies.”