Can anyone give me information on how to start researching what I should know before buying a gas station?
I would start by talking with present owners.
Wow, this is a tall order.
You need to review the real books of the station showing the cash flow, not the books they show the IRS. Review any contracts that you will buy as part of the deal, figure out what contracts will not carry over and examine the risk of those. Some suppliers will want to continue to deal with you under the old terms, which may or not be favorable to you. Others may want to get out of a bad deal for them and stick you with a bad deal going forward. What contracts do the employees have?
Check out the tanks for leakage. You want to make sure you have a clause that previous leaks are to be the liability of the former owner and not you. You will need to have a consultant come in and examine the tanks and maybe conduct a ground water survey on the surrounding property to establish a base line prior to the sale.
Get a good attorney, someone who has experience with this type of transaction.
I know almost nothing (about anything really). But I know two things about gas stations. One has been mentioned & its about the underground tanks. Very important.
The second is that gas stations make almost no $$ on gas. (Though when things go squirrely as they are now I have no doubt that some gouging goes on). They make all of their money inside of whatever store they have. So make sure that you have a really nice, clean, well-stocked mini-mart and very nice, clean bathrooms.
That’s what I know. Other than that, I’d just second what the others said.
Margins on gasoline are thin for the station owner, especially if you own only one station. Be careful where you buy. Some smaller chains want to expand and will move into an area with one station. Then they sell gas at low prices and shutter other nearby stations. Then they open more stations and continue to infiltrate the area. Once they have a large presence in that area, they raise the prices and start making money. This may not happen in your area at all. But be aware of the market dynamics. The more you know, the less likely it is that you will make a wise and successful choice. You can find a list of stations on a site like Gas Buddy and see about what the prices in your area are.
My next door neighbor owns a variety store with a station island. The key according to him ? Eliminate as much overhead as possible. He got rid of the attendant, automating everything he could and reduced choices to diesel and 87 octane gas. The loss of higher octane customers is more than off set by the reduced overhead in just one gas offering, allowing him to undersell competing stations, increasing his overall volume.
Why do you want to buy one? Independent stations are rapidly disappearing as chains (QT, Fastrack, etc) spread far and wide.
I think a single gas station is a risky business. When I was growing up we traded with a man who had a gas station and small grocery store. His living quarters were right there as well. He had to change gas suppliers three times. The discount stores were coming in and the prices at the discount stores for many items were less than what he had to pay a wholesaler. Fortunately, he had a good location and sold it for a good price, partly due to my mother becoming involved. The station had been outside the city limit but the city then annexed the area and tried to zone it so he couldn’t expand the business. My mother went after a couple of councilmen that she knew and let them know that this was no way to treat a WW II veteran. Ultimately, the property was rezoned so it could be sold. This was back in 1965. I think things are even more difficult now. The 7-11 and Village Pantry operations have replaced this kind of business.
WalMart now has gas islands in many locations. I’ve seen Kroger stores with gas pumps. A single operator can’t compete in price with these places.
I don’t know the area where you are thinking about purchasing the gas station, but the old adage “Buyer Beware” certainly applies.
Work at a gas station for at least a year, learn the business on someone else’s money, then decide if you want to buy one.
It’s a volatile business.
All the cautions echoed in the replies are 100% true.
Follow twotone’s advice so you can make an informed and educated decision.
I hope your credit is good. A tanker truck holds 11,000 gallons of gas. At $4/gallon, that’s a lot of money to put up for a small business, and a lot to have tied up in inventory.
The business is also competetive to the point of stupidity. You’ve got a product that everyone needs and is going to buy, and everyone selling it could be making a decent living, but one guy says “I’ll lower the price by a nickel and make it up in volume” and so begins the downhill slide. It’s bad enough that some states have regulations that fuel retailers must make a minimum of X cents per gallon profit.
Fuel retailing itself is probably just a “break even” business. With a good convenience store or repair shop attached, you could make a good living.
Aside from the immense financial investment required, here’s something to think about.
When gas was selling for under $2/gallon, margin (or profit, as that’s what’s important, right?) was about .14/gallon. Now that it’s passing $4/gallon, margin is about .18/gallon. Now a station operator has to invest twice as much money and gain only a 20% increase in profit. What kind of business is this?
Who will be your gas supplier?? How will they price you?? Gasoline is still sold with a price sign. NOT the best business model. Jaded consumers will drive miles to save 2 cents a gallon. Survival depends on high volume sales. Will you OWN the real estate or lease it from an oil company?? Will it be a self-service gas pumper only, a C-store operation or a traditional auto repair shop type station?? There’s more…How old are the storage tanks? What are they made of?
Watch those storage tanks, they’ll kill you.
EPA codes are not the same as local building codes.
The old owner could be living on grandfathered tank codes.
The second there’s a new owner BAM all the new regulations must be met.
Do those tanks meet these codes ?
Many years back the EPA came through Gallup NM and made every single fuel station replace every storage tank that didn’t meet the NEW codes.
At I40 exit 26 there used to be 8 gas stations a half mile from the exit…now there’s only 3.
- The Petro truck stop exit 79 in Grants opted for an above ground diesel holding tank.
Grandfathered or not , if they couln’t replace tanks AND meet soil regs…
One of the most important things you need to know when running any business…
How much are your operating costs each day. Don’t figure it out for a month…Figure it out for each day.
Heat, Payrole, Electricity
Don’t include things like Mortgage and insurance in the “Daily” operating costs.
Once you have that figured out…then you’ll get a good idea on how much you need to take in each and every day to stay in business. I’ve known people who haven’t a clue what their operating costs are. They ran their own business for years…But they stayed in business the economy was good and just dumb luck. Then when the economy went bad they didn’t have a clue on what to do. He started to open on Saturdays…(Well he was bringing in only about $300 on a Saturday)…turned out his daily operating costs were $500. He was actually LOOSING $200 just to open the door on Saturday.
Before you even THINK about buying a station, have the ground tested, pay for it yourself.
If the tanks leaked ANYTIME in the past as the owner YOU have to clean it up, even if you can prove the tanks that are there aren’t leaking. If it’s traced back to your station YOU pay. And if any gas got into the ground water you could be on the hook for big bucks.
Now even if the test come back as clean, I’d think long and hard about buying a station, you’re not going to make much on fuel. If we make a nickle a gallon we are extremely happy. After the drive offs, credit card fees, taxes, license, etc, there’s not much left. and if you have a $50 drive off you’re looking at selling 1000 gallons just to make that up, so pay first is the only way to go if you can get by with it. And expect that at some point someone will say your tanks are leaking and you’ll have to PROVE they aren’t.
We make our profit off, soda, food, trinkets. And make sure your supplier is lock in, both food and fuel.
But really have the ground tested, before you even consider buying a station. My brother in law got stuck with a huge bill to clean up a station that hadn’t been open for years, he just bought the building. So TEST.
My opinions are subject to change with new facts.