Buying and managing a gas station can be a very profitable investment for many smart entrepreneurs. Note that any savvy entrepreneur with a passion for hard work can do well with a gas station business.
While the Gas Station industry in Canada has gained from the recovery of the trucking sector and growing per capita disposable income over much of the five years to 2021, steep volatility in the price of crude oil within the beginning and end of the period brought about higher revenue swings for industry operators.
Part of these swings was massively influenced by the COVID-19 pandemic, which sharply cut into demand in 2020. Today, gas stations don’t just sell gas – they also carry a wide range of products that see to the needs of travelers, tourists, and business clientele.
Also note that increased environmental oversight, volatile energy markets, and a plethora of competition have made the process of gas station ownership more challenging than ever before. When looking to acquire a gas station in Canada, it is recommended you work with a CPA or tax professional who is quite conversant with gas stations. They will help you evaluate the station’s financial reports.
Also, consider seeking the expertise of a reputable environmental company to carry out the assessment. Buying a gas station can be a great business opportunity, but knowing what to look out for and the right steps to take can be the difference between a long, successful business and a failed business.
Steps to Buy a Gas Station in Canada
If you are ready to invest in a gas station, here are simple steps to guide you through;
Table of Contents
- Carry Out Your Research
- Decide On The Sort Of Gas Station You Want
- Set a Budget
- Consider Your Location
- Have Your Site Evaluated and Legally Accounted For
- Understand the Scope of Sale
- Consider the Local Demographics
- Trust Your Instincts but Decide Based on Numbers
- Never Rush into a Deal
- Be Wary of Previous Criminal activity
- Plan for the Long Term but Ensure Your Short Term is Covered
Carry Out Your Research
When it comes to a million-dollar deal, there is no such thing as too much research. You must leverage every resource at your disposal to solve problems, find answers, and learn from the mistakes of others. Because the market is so competitive, you must know all the ins and outs.
In this buying process, complications are highly possible, so you need a qualified professional that specializes in commercial real estate.
Decide On The Sort Of Gas Station You Want
Have in mind that there are numerous options to consider here. Do you want to invest in a franchise or an independent gas station? If you decide to work with a franchise, then you will be signing a franchise agreement with a partnering corporation and you will get all of the perks and benefits that the business comes with.
However, note that you will be legally expected to comply with the specifications laid out by the corporation with which you’re partnered. But if you choose to acquire an independent gas station, then you will more or less be purchasing and selling unbranded fuel that is acquired via a wide array of suppliers.
While you won’t be getting the logo and branding that comes with a franchised gas station, as an independent business, you have the opportunity to decide how you want to run your business.
Set a Budget
Right before you start making decisions on your purchase, you must know how much you’re willing to spend on your investment. Use this opportunity to put together a detailed business plan that takes into account the total cost of the building, mortgages, maintenance costs, and the gas itself. Know that you will surely benefit from working with a financial advisor who can help you sort out the many business details.
Consider Your Location
Where you choose to purchase your gas station will play a massive role in the success of your business. Consider the following criteria for choosing the best location for your gas station:
- Safety and Cleanliness: Indeed, you will want your gas station to be in a well-lit, clean area to ensure that your employees and the people using your services are safe from crime or injuries.
- Picking a Popular Area: A gas station located next to shopping centers or apartment complexes is more likely to bring in more business. However, some remote areas can work in your favor, especially if it is a high-traffic intersection for commuters and trucks, but this tends to be the exception.
- Neighboring Businesses: Take into account the kinds of businesses that are adjacent to your gas station, as they can compete with your business. If you choose wisely, you might even find that your neighbors help your business.
Have Your Site Evaluated and Legally Accounted For
After you must have found the perfect gas station to buy, you should carry out some legal actions before investing any substantial cash. These actions include both a site evaluation and a combing through the fine print of your purchase agreement.
In Canada, the environmental site assessment (ESA) is a necessary investigation of your prospective gas station’s environmental history. According to reports, this inspection includes an extensive history of contamination problems.
If the ESA shows that there are past contamination incidents, you may have to carry out further, more detailed studies. Also, ensure that your purchase agreement features an environmental contingency clause that allows you to have flexibility in the off chance that the evaluation you will be conducting doesn’t pass its inspection.
Tips to Help You Buy a Gas Station in Canada
Buying a gas station is a very viable first step on your path to small business success. However, you will need to know what to look for. Owing to that, here are the top factors to consider when considering buying a gas station in Canada.
Understand the Scope of Sale
From the very beginning, it is imperative you carefully identify what is included in the sale. Is the real estate owned or leased? Is it a franchise or an independent station? Are store inventory and fuel reserves part of the sales price?
These questions and many more will help in determining the value of the acquisition. Fuel sales have low margins and can be volatile. This makes them difficult to manage. Note that stations that perform well have extra sources of revenue. These include revenues from convenience stores, car washes, quick lube centers, or auto maintenance shops.
Consider the Local Demographics
In Canada, it is pertinent you understand that sales are sensitive to competition and demographics. Owing to that, ask the current owner about the local competition and market, but also carry out your own due diligence. Take your time to drive through the area and look at it through the eyes of a customer.
What fuel options are there? Is the gas station nice, convenient, and well designed? From this perspective, is the station you are buying a good option? Look at the demographics as well. Who are the station’s customers and what are they buying? Are they local customers, commuters, or a mix of both? Note that this will help obtain an idea of what will shape demand for your station.
Trust Your Instincts but Decide Based on Numbers
If your instincts are telling you that something is not right, then probably something is not right. However, this doesn’t entail that you make any rash or drastic decisions before proper scrutiny. Ensure you take your time to go through the contract and the deal layout. Are your worries necessary? In the end, just return to the numbers because as long as the numbers add up there’s no reason to bother so much about your decision.
Never Rush into a Deal
Truth be told, finalizing a deal is exciting. However, no matter how excited you feel about starting your business and implementing your strategy, it is crucial that you stay calm, cool, and collected. Ensure you carry out well-detailed due diligence and review every aspect of the gas station, contract, and potential contingencies before you make a buy.
Be Wary of Previous Criminal activity
Know that some gas stations are targets of criminal activity. According to reports, these types of crimes vary from simple credit card fraud to armed robbery. As a buyer, it is imperative to be aware of these issues. What you don’t want is to buy another person’s problem.
Ensure to ask the seller directly about local crime and financial fraud. In addition, visit the local police station and ask them for a criminal activity report about the station. This should give you a prime idea of the amount of crime in the area near the station.
Plan for the Long Term but Ensure Your Short Term is Covered
You have to understand that a gas station is a kind of investment that could pay dividends in the long run. However, to achieve that, you have to make sure there aren’t any short-term obstacles that can affect your business plans. This will involve looking at immediate liabilities that might come with any aspect of the gas station and ensuring that those liabilities won’t put you out of business.
Indeed, buying a gas station is not an easy task. Owing to that, it is recommended you invest in consulting with experts who are familiar with gas station acquisitions. Just as was noted above, consider working with a CPA or tax professional that is familiar with gas stations.
Buying a gas station can be a great business opportunity, but knowing what to look out for and the right steps to take can be the difference between a long, successful business and a failed business.