5 Factors before Purchasing a Service Station Business for Sale
5 Factors to Consider before Purchasing a Service Station Business for Sale
Driving is the preferred mode of commuting for most Australians, and the wide network of service stations across the country has been instrumental in sustaining and building more momentum for road travel. Apart from fuel, gas stations have also been tapping into the immense opportunity provided by other income streams, such as convenience stores, magazine shops and quick service restaurants. This makes owning a service station a very lucrative business opportunity, as there is no sign of demand waning anytime in the foreseeable future. Having said this, it also requires a significant commercial investment at the onset, and a willingness to do more than the basic due diligence as compared to purchasing any other type of general business, else you would run a huge financial risk.
This is because buying a service station business for sale necessitates the consideration of some very specific factors, unique only to this industry. Here are some of the top factors that you should check if you are planning to invest in a service station business for sale:
1. The Location & Terms of Lease
Needless to say, the location of the service station business for sale would be one of its most attractive points, as it is paramount to its turnover and profitability. A fuel station located at a busy junction or a highway is likely to attract more customers as compared to one located on a quiet street. Having said this, there is also the challenge of higher competition in such areas. All these factors can influence how easy it is to avail funding from banks.
If you are purchasing a leased property, go through the agreement carefully to determine the date of expiry and the inclusions in the lease – such as the ownership of above and below ground fuel equipment and the maintenance responsibility for the same. You could always enlist the support of a professional broker or a third-party negotiator to help you negotiate a better deal.
2. Mode of Operation
You need to check whether the service station that you are considering is operating as a franchise with a national supplier, or whether it is an independently owned business. Franchised stations are owned and operated with a national fuel provider such as Shell, Caltex, United Petroleum or the like, whereas independently managed stations can sell fuel that is procured from any regional supplier as well.
As a franchise, maintaining the fuel tanks, pumps and line, as well as the marketing support will be the responsibility of the fuel provider company. While this certainly sounds good, it is important to have a lawyer go through the terms of the franchise agreement before you sign on the dotted line. Be sure to weigh the pros and cons well before you choose either mode. In both cases, you might also need to go through an approval and training process.
3. Environmental History
Unlike other general businesses, there is always an environmental contamination risk when it comes to a fuel station, as fuel is stored in underground tanks. This is a really important factor that has implications on human health and safety as well, and must be thoroughly assessed by the Environment Protection Agency before you buy. Failure to do this, or discovering contamination after purchase would require you to perform remediation of the land back to its earlier recorded condition, which can be a very expensive and troublesome affair. Along with the environmental assessment, you might also want to check on:
- Any state specific laws about gas stations,
- Any other environmental mandates to be followed
- Any previous or current environmental litigation connected with the service station
4. Ownership of Pumps and Tanks
Fuel tanks and pumps are key to the daily operations of any service station. However, they may not always be owned by the seller, but be under the control of the national franchisor or the owner of the property (in case of lease). You would need to ascertain whether the sale of the service station also includes the transfer of the pumps, tanks and lines.
Over and above this, it would help to find out the current condition and check for leaks and repair history, if any, and whether the equipment complies with the prevailing regulatory requirements. If there is any leakage or faulty functioning, it could not only result in fuel loss, but could also cause environmental contamination, which can be largely avoided with just some diligence.
5. Costing and Financial Position
Purchasing an existing service station business for sale entails a significant financial investment. But it doesn’t end there, as there are many other costs associated with running the business on a day-to-day basis. There are numerous factors that influence the cost of purchase, and this makes it imperative to have an expert to help you in valuating a fair price for the business.
One key aspect that would influence the costing would be the existing financial position of the business. You want to take the time to go through its financial statements, sales numbers and forecasted sales, registration, permits, physical assets under ownership, staff and employee compensation bands, business plan for future growth, reputation and goodwill and so on.
Absolute Business Brokers is experienced in the sale and purchase of service station businesses across Victoria. We have a deep understanding of the sector, and are confident of guiding our clients make the right choice when it comes to buying an existing service station business for sale. If you would like to discuss more, we would be happy to have a more detailed conversation.