Buying a Gas Station

[Luke12321]

Has anyone ever owned or even better, purchased a convenience store? Or even thought about it? haha

The reason I am asking, a local gas station has came for sale recently in my area. I live in very rural North Carolina. The gas station has been there for probably a good 25 years.

The current owners have let the business run down. They had employees (family members) stealing cash, they stopped purchasing inventory (such as ciggs, candy, ect!) so in result customers stopped coming out of frustration. End result, people stopped coming as often...which has ruined the business.

From talking to my dad, who is interested in purchasing the business (along with me but he is a "regular" there)...a long time employee (non thief), they would bring in 2,500 per day when the business was ran correctly.

I don't know much about the convenience store business, but I would assume a safe estimate would be a 10% profit on overall revenue. Pretty much not making anything on gas, but making probably 20%+ or more on items in the store. I think that is a safe estimate, which would put profits around 90k.

Then I know I would have employee expenses, insurance, and power bill.

Some other details, the store is on 2 acres of land.

They were asking 250k, and willing to owner finance 125k.

They are no down to 200k and I would assume they would be willing to finance half of that. They are wanting out and pretty desperate at this point.

Lastly, they don't want to show tax returns. I would assume this is because one, the business has went down and they probably don't file close to what they should so it is probably way off.

Ten years ago, the business was purchased for $130k.

Any questions, advice would be greatly appreciated.

[MonTexan]

I would ask for tax returns for the past several years to get a better handle on income and expenses. Would also press them to carry back 100% rather than just 50%....if they're desperate enough they may just go for it. Chances of someone (especially a newbie to this particular biz) getting financed through a bank are fairly slim at this point. You may even be able to give them a higher purchase price if they carry the whole note at a decent interest rate....

Another BIG consideration is the environmental aspects of purchasing a gas station. What is the condition of the tanks in the ground? How long have they been there? I wouldn't consider an older gas station without a thorough enviro assessment. And yes, they can be very expensive.

[bflbob]

Hey Luke!

I've got to agree with Montexan on this -- especially the environmental issues. Leaky tanks can come with bills in the $100,000 - $250,000 range. And those are generally Federal issues -- not state.

Even if they aren't leaky, they usually need to be tested regularly. And occasionally, you'll need to replace them. That means digging up a huge area around the tank, creating a new lined storage area for the tanks, purchasing new tanks, installing monitoring equipment, and more. Not cheap.

Likewise, you'll be VERY lucky to get a bank to look at this deal. They'll want Phase I and Phase II environmental tests at a minimum. With the marketplace for banking being what it is right now, this could be a very tough sell.

And the bank WILL require the tax returns in order to do any financing. For some reason, business sellers always think they can sell a business that loses money on a tax basis for a big valuation based on the "real profits".

So they want to hide the tax returns, because they are going to have to explain why the $90k you are assuming shows as a $100,000 loss on the tax return. They'll come up with all sorts of reasons -- theft, the economy, personal stuff run through the business, and more.

You want to buy the business based on the real profits, so if they can show you invoices for repairs to their home that they billed to the company, that's one thing. But if they are vague, forget about it. They are lying.

Ditto for theft. If they had theft, what makes you think you won't? And even if you can prevent it, why would you want to pay the SELLER for your hard work?

Try this. If they claim the place should easily make you $80,000 per year, ask them to finance the business 100%. Tell them you are willing to pay them $280,000 over 7 years, at 0% interest. The first $40,000 of profits goes to you. They next $40,000 goes to them. Any thing above that gets split 50/50.

If you make seven $40,000 payments, they walk away with $280,000. If you make $100,000 in a year, they get $50,000 and the loan gets paid back quicker. But if it only makes $30,000 in a year, they get nothing that year, and the note becomes an 8-year note.

My guess is that they won't want to take a risk on a "sure thing" like that, even though they'll get an extra $80,000 because they know the business won't work. They want you to trust them, but they don't want to trust you.

[EastWind]

I have always wanted one, but I believe that the best way to make money is through the sale of other items.

Have a donut/coffee shop, and if you can stick in a subway, do that there. Sell the gas as low as possible and make a profit of 5cents for every gallon, pretty much be the cheapest station around, then rake in your profit from the other things you sell.

There is a gas station out here that consistently sells their gas 10cents cheaper and while they have around 20 cars pumping gas, the other stations around will have 1 or 2 at best. They might not make profit from their gas, but from selling cigarettes, candy, cookies, and the fried chicken, they more than make up for it.

[EasyMoney_in_NC]

Not sure where you are, but if commercial (especially rural) is anything like residential around here, they'll be lucky to get 10 year ago pricing. Offer them what they paid and go from there. Make sure to get a stage one enviro test on the ground around the tanks (runs 2k +/-) for contamination and make your decisions from there. Shop your fuel delivery supplier if your going to be an independent. The rural spots are great if you are in a farming area. The hired field help flock to those quickie marts and spend a lot of money on munchies etc (not so much on gas though). And if you could have a service bay too, you'd be golden!

[Luke12321]

I am in the foothills of NC. West of Winston Salem. Heavy farming area....and really the main customers are
1. Farmers and the workers they have
2. 8-5 workers who spot in the am before going to work and maybe after some as well.

I really think it is a manner of just managing the business at this point. The location is well established, it just needs to be ran tightly and after a year or so, I THINK the business will be back to a solid level of cash flow.

A good chunk of the land it is on is just open field, which could be used to develop some rentals in the long term.

They have done some upgrades to the business since purchase. Put in a well (spelling?), new roof, security system (can't do anything when your own kids steal from ya though!).

Will keep you updated when I have more to report....

[EasyMoney_in_NC]

Ah was just up in W.S. the other day. Sounds like a winner if the customer base will support it.

GL with it!

[GlobalWealth]

I am from the Greensboro area, although not living there now. where is this store?

The environmental issue is something that cannot be taken lightly. You don't want to end up 3 years later finding out there was a lot of underground spillage and you now have 100's of 1000's of $'s in liability on your hands. This is a very real consequence with a gas station, especially the older ones.

Unless you are paying cash, you cannot buy this busines without getting the owner's tax returns. You can forget about it. If he won't show them to you, he is hiding something. No question. I know you are excited about this deal, but from what you have stated, something just smells fishy. If there is anything I have learned in business, there is always another deal. If your mind and eyes are open to opportunity, they options are plentiful. Personally, I have to try to focus as I constantly see opportunities. Right now I am looking for 3 entrepreneurs to run start ups as I just don't have the time.

Assuming the property passes the environmental inspections and you can prove income, I still wouldn't offer more than what they paid 10 years ago. Real estate has obviously tanked in value and he would be lucky (very lucky) to sell for his buying price. He seems desperate to unload, which can be a good, or a bad thing for you. Good - low price. Bad - major underlying problem. His asking price is a "shot in the dark" price with no valuation basis, especially since he seems to be losing money.

Depending on location, one thing that seems to be missing in local country gas stations that was a thing of the past, is the local "gas station hangout" for the locals. I remember as a kid (in the 80's) country stores that always had a congregation of locals; usually farmers, contractors, and neighbors sitting around drinking an RC cola and eating a moonpie. This seems to have vanished, but all things retro seem to be fashionable again. You could potentially remake the place into this sort of locale. Just a thought.

I advise clients all the time to separate their assets in order to minimize their personal and business risk. In this case, if you buy the store, you need to separate the assets. Feel free to call me for details, but essentially you need to have the real estate owned separately in an LLC, and the operating business owned in another LLC or S-corp.

[Bilgefisher]

My grandfather ran a gas station his whole life. He made 6 cents per gallon profit on gas in the 60's. We are good friends with local owners, today they make 6 cents per gallon profit.

They sold Conoco gas had all the signs etc. Conoco decided that all the station needed to upgrade their signs. 35k to do so.

I don't want to discourage you by any means, but like others said, make sure you know all the facts going into it. Gas stations are highly competitive and it doesn't take much for one to be built across the street to kill your revenue.