Gas station businesses attract customers by selling gasoline, which most people need for their vehicle. Gasoline is just one of the many products that gas stations sell to travelers. Many stations also offer food, drinks, and convenience store items. Howbeit, if you are longing to own your own gas station and convenience store, there are several factors that will affect the cost of acquiring one.
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What You Must Know Before Buying a Gas Station
First and foremost, when you want to buy a business, you need “adequate money” or “good will money” to do so. You might need, say, $300,000 CAD. But the seller may also require a security deposit. You might be buying the business, but someone else may still own the property, complicating matters.
Another factor is the cost of the inventory. If the convenience store has $20,000 in groceries, you need to be ready to pay for that. Also, don’t forget the inventory below the ground — the fuel. That must be included in the final purchase price.
Additionally, most times as a buyer, you are inheriting another deal or working with a jobber and leasing out one of its stores. Take your time to look at the terms of the fuel deal and the lease. If it is a triple net lease, which is often seen in the fuel business, the lessee taking over the business is responsible for the property as if they owned it.
Therefore, if there is an issue with hardware underground, like leaky pipes, the person leasing the business would have to fix it. In addition to maintenance, under a triple net lease, the tenant would also be expected to pay real estate taxes and building insurance.
You should also determine if the property is free of a fuel supply contract, or find out if you have to assume it. It may be that if you are just acquiring the business and not the property, you will have to assume the rights and obligations of the fuel supply agreement while the property owner remains the guarantor to the contract. In most scenarios, before a deal is made with the prospective business owner, the consent of the landlord may be sought.
Another important question, of course, is whether you, as a buyer, can get financing. You have to consider what the mortgage payment will be and whether you want to run the business yourself — a surer path to success — or turn around and lease it. Understand what other properties are selling for, and don’t overpay in your marketplace.
7 Factors to Consider When Buying a Gas Station in Canada
Gas stations are a wonderful business to franchise due to the fact that the demand for fuel is constant and not going anywhere soon. If you are considering acquiring a gas station or about to sign a gas station purchase or franchise agreement, there are a number of legal factors that you must consider and discuss with your business lawyer. As a prospective purchaser, you must consider and evaluate the following issues:
Franchise or Independent Operation
Gas stations more or less fall within the category of “franchised” or “independent” station! Franchised gas stations are owned and operated pursuant to a Franchise Agreement with a national supplier such as Exxon, BP, and Sunoco. Independent stations are not supported by any national supplier and, basically, sell “unbranded” fuel procured from an assortment of regional suppliers.
However, note that the major advantage to a “franchised” station is the name recognition, trademarks, trade design, and canopies associated with the national brand. Owners of “franchised” stations are franchisees and parties to a franchise agreement.
As a business purchaser, it is very imperative to evaluate the advantages and disadvantages of franchised and independent stations. If the gas station you are purchasing is a “franchised station,” some of the many issues you must consider and discuss with your lawyer include:
- The terms of the franchise agreement and whether or not the franchisor will approve your purchase of the station;
- Quotas/requirements for fuel sales;
- Rebates that may or may not be paid to you for fuel sales;
- Issues as to ownership and maintenance of fuel pumps and tanks.
Does the Seller Own the Pumps and Tanks?
Have it in mind that gas pumps and fuel tanks serve as the most crucial assets that will affect the day-to-day operations and profitability of your business. Indeed not every seller of a gas station owns the pumps and tanks, which may be owned by the national franchisor (for franchised stations) or the property owner (where the gas station is located on leased property). If you are considering the purchase of a particular gas station, you must determine:
- Who owns the “pumps and tanks”;
- Whether or not the sale includes the transfer of the “pumps and tanks”:
- If the property where the station is located is leased; the terms of the lease including the remaining terms, rent, and whether or not the landlord will consent to an assignment of the lease;
- What is the repair history of the pumps and tanks; the remaining useful life of these critical assets and whether or not the pumps and tanks comply with current regulatory requirements?
Environmental History of the Station
As the purchaser of a gas station, one of the major issues you must consider is the potential existence of contamination. Environmental concerns are very important, as any environmental contamination (especially if discovered after you buy the gas station) will require expensive remediation that may shut down or significantly limit the future operations and profitability of your station.
For the purchase of a station, you are expected to consider and evaluate the utilization of an “environmental contingency clause” in your purchase agreement and you must obtain an environmental site assessment. When buying a gas station, some of the important factors to evaluate include:
- The results of an environmental site assessment evaluating the environmental history of the gas station property and, if needed, a sampling and study of the underground property;
- The need to have mandatory double-lined tanks;
- Specific laws concerning gas stations;
- Lingering environmental litigation that the current owner may have been involved with.
Know the Risks of Gas Station Investment
Indeed investing in any business comes with multiple risks, but gas stations pose distinct risks. More than just about any industry, the success of your station depends on traffic. You have to understand the long-term plans of the area you want to open in: is it going through a lot of construction? Long building projects could hurt your business by blocking access to your station.
As much as the environmental history of the station is important, the future environment is more important. Take your time to research and make sure your location has double-walled tanks to keep leaks and environmental problems from shutting you down.
Will Your Gas Station Also Have a Convenience Store
Notably, selling fuel is the major business of your gas station. It is the one product that brings people to your business. However, what most people don’t know is that margins are low, and gas stations make most of their money from selling other items. Convenience-store products like candy, sodas, and cigarettes bring in big revenue. This is why it is getting rarer and rarer to see a standalone gas station that doesn’t have a store attached to it.
Gas Station Business Plan
Always remember that putting together a business plan will give you focus and direction. It will also make setting up your gas station business easier. Think of the steps below as things to check off when you are starting out.
- Know the Products and/or Services Your Gas Station Will Offer – This is the most important step of the process. You know you are going to sell gas. But what else? Are you going to have a convenience store? Are you going to offer mechanic services? Know what you can do and what you can’t before anything else.
- Set up Who Is in Charge – Every business needs an organizational chart. This helps people know who they have to report to (or even what their jobs are).
- Think About How Much Staff You Need – After deciding which titles go where you need the people to staff your business. In your plan, consider the number of staff you need to operate, which shifts they’ll break down into, and salary ranges.
- Plan You are Advertising Strategies – Most gas stations are franchises, so you already have a brand people know. But, you still have to get your business out there. Make a list of places you’d like to advertise and how much money you can spend.
- Remember Insurance, Taxes, and Other Expenses – Gas stations aren’t like most businesses. You will have to pay for specific insurance, permits, and taxes. Your insurance will have to cover fires, explosions, and other liability concerns most businesses don’t have.
When acquiring a business, you will be faced with a number of different issues that must be decided in a relatively short period of time. However, when investing your life savings in a business, time constraints are not an excuse for shortcuts.
But instead of buying an actual gas station, you can also invest in the gas station industry by purchasing a company that operates gas stations. Owning stock in one of them lets you participate in their profits or losses without having to actually own a gas station.