What to Think About When Purchasing a Gas Station

Before Taking the Plunge:

What to Think About When Purchasing a Gas Station

Are you in the market for a gas station? That’s no small undertaking. There are a number of steps you should methodically take as part of the purchasing process.

Gas stations are not only retail enterprises with their own unique quirks, but they also come with a number of regulatory and environmental realities that need to be respected. The environmental cleanup of toxic chemicals — such as gasoline — is no joke and can consume vast quantities of cash and time.

More than in the case for most businesses, the purchase of a gas station should be done methodically, with an eye on any potential liability down the road.

Owning and operating a gas station — or eventually gas stations — can be a great investment and a successful small business enterprise. Consumers drive cars and cars need gasoline. But taking a disciplined approach to purchasing a gas station is a no-brainer. At each step in the process, you will want to do due diligence and include the expertise of professionals who have specialized knowledge that you can use to your advantage.

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Where to Start

But before bringing in the experts, a good starting point is simply scoping out the joint. Before making contact with the seller, go in as a customer. Buy some gas and beef jerky, a cup of coffee, use the bathroom. Get a feel for the place and how it’s being maintained (dirty bathrooms are a bad sign). If the place is a mess then don’t be surprised if the books for the business are a little less than immaculate too.

Also, scope out the neighborhood and the “flow” in and out of the business at a variety of times during the day and night. What are the peak times for the business? The valleys? And what’s the range between the peaks and valleys? Are the peaks dependent on a nearby business that, if it were to close, would pull the rug out from under the business you’re looking at? Be analytical.

And don’t be afraid to talk to other business owners in the area. They’ll know things that will never show up in the gas station’s financial report or more formal forms of communication. The local Chamber of Commerce is always a good resource too.

Basically, you’ll want to get a feel for the overall business climate in the area served by the gas station. Are businesses growing or contracting, opening or closing? Is there a major factory in the area that’s rumored to be closing in the near future? Get a feel for the local economy and how “brittle” it might be.

A gas station is a business that is dependent on the business activity around it and this should definitely be an aspect of your purchasing decision.

What’s Next

Once you’ve done your preliminary research on whether the business itself is a good investment, it’s time to move on to the physical “facts on the ground” of your potential purchase.

Perhaps the most important issue to explore when buying a gas station is the vital part that you can’t actually see — the underground fuel storage tanks. This is most definitely a buyer beware situation.

Any environmental issues from a leaking underground storage tank will land squarely on you once the purchase has gone through. Trying to retroactively claim that there were pre-existing issues prior to purchase is a difficult argument to make in court. Before purchasing a gas station, it is vital that a licensed professional conduct a full environmental survey. Clean up costs for gasoline that is leeching into the ground under your new gas station will probably be staggering.

In addition, standard supplemental services that are often part of a gas station — such as a car wash or auto repair garage — bring with them their own potential environmental issues. These too should be examined by a professional to ensure you’re not purchasing a lot more than just a gas station — namely, an expensive environment cleanup headache that will make you rue the day you bought a gas station.

Gas Station Structures

The structures that are part of the business should also have a standard building inspection so that any potential repairs or safety issues are known about up front. This includes the gas station canopy and lighting, the gas pumps and associated systems, the emergency and safety systems, and the more standard checklist for buildings, such as the condition of the foundations and roofs. Anything that’s close to needing replacement or significant repair should whittle down the purchase price of the business.

Another source of potential headaches is the ownership of the land and other services that are part of the gas station business. Is the land part of the purchase or is it leased from a third party? If it’s a lease, what are the terms and what is the duration of the current agreement? When is the lease up for renegotiation? If there’s a car wash or garage onsite, are those parts of the purchase or are they owned and operated separately?

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Who Do You Need On Your Team?

These are the kinds of questions you’ll need to be asking and getting answered. You’ll most likely want your lawyer involved in this process. Lease agreements can be especially difficult to decipher.

You’ll also want the help of a good certified public accountant (CPA) before finalizing the purchase. The previous two years of financial statements — from the gas station and any other enterprises operated onsite — should be combed through by your CPA to ensure an accurate valuation for the sale. Don’t accept “cash sales” that don’t have a solid paper trail. There should be a clear record of the financial history of what you’re buying. If that record seems sketchy or has “gray areas,” then beware.

And not all potential issues have to do with the business being purchased. For example, is there major construction or roadwork planned in the area of the gas station in the near future? If so, would it lead to a precipitous drop in retail sales? Could you stay afloat during this time? If getting to your new gas station becomes tortuous for drivers because of major roadwork no one is going the bale you out. And this might even be why the business is on the market.

Due Diligence Is Key

Due diligence prior to purchase includes checking in with local authorities to see what might be planned in the area. Likewise, if a new subdivision is planned for the area, would that actually increase the long-term value of the business? This is data you should gather when making your purchasing decision.

Finally, researching and putting together the best financing plan is the last step in the process. Are there Small Business Administration loans you qualify for? Can the seller offer financing? Once again, the help of a CPA, your banker, or other financial professionals will give you the best shot at making a wise purchase that works for you over the long-term.

Buying and owning a gas station can be a solid investment financially and be a way to provide a crucial service to the community. Clearly, it should not be entered into frivolously. But with some solid research and care, it’s an endeavor that can be highly rewarding and successful.

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