How to Buy a Gas Station
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, A New Jersey Buying a Business Attorney
What Exactly Are You Buying?
It is difficult to value a gas station. Because many variables are involved with the purchase of a gas station, there are vast differences in key financial ratios, and prices and profits often vary greatly between station to station. Some deals include the real estate, while, in most cases, the major oil company owns the property and is the landlord. You have to pay attention to the lease terms, transferability and expiration. Still, other gas stations include convenience stores, car washes, and repair centers as part of the gas station operation.
Franchise Gas Station or Independent Retailer?
As a general rule, you will buy a gas station that operates under the brand of one of the major oil companies or you can purchase a station as an independent.
With a franchised brand name station, you must purchase their gasoline, participate in their promotions, and adhere to their franchise policies. If you are interested in learning more about a franchise business, please visit our franchise law website at www.njfranchiselawattorney.com.
One of the compelling reasons to operate a franchised location is that the franchisor is legally responsible for any environmental issues. That can be a big benefit in a highly regulated state like NJ.
An independent station is not contractually obligated with a major integrated oil company, and as a consequence is not obligated to any supply product, although most independently have longer-term supply contracts with local/regional gas distributors to gain pricing advantages that are passed on to their retail stations.
There are several things you will want to be aware of and investigate before you proceed with the purchase of a gas station. Two of the most common and compelling ones are:
Road Work – In general, major roadways undergo construction every ten years or so. Check the records at the municipal planning board, County Planning Board and NJ DOT for future road work. Additionally, you should speak with the local building department to see if any significant work is scheduled. Keep in mind that if they redo the roads that provide access to the gas station, you could be out of business for up to a year or more.
Environmental Issues – The laws vary from state to state but nearly all states, including NJ, have adopted a mandatory double-lined tank policy. Compliance years vary, but costs can run into hundreds of thousands of dollars, not to mention the loss of business during construction.
Additionally, you must investigate any lingering environmental litigation that the current owner may be involved with because, regardless of the structure of the sale, the new owner may be legally responsible for any harm as well.
Quantities of Product Sold – Gas station margins are tight, and therefore volume and sale totals are critical. Collateral revenues from ancillary business like convenience stores, car washes, etc. are also extremely important to investigate.
The Ideal Gas Station for Sale – What to Look for Specifically
Some of the key factors to evaluate include:
- Large Convenience Store – Studies indicate that the larger the convenience store, the more volume generated; thus, the greater amount of profit.
- Crime – Gas stations are easy targets for crime. Unless you want to stay up at night worrying about the safety of your employees, or own a business where you must be “shotgun ready”, choose a better neighborhood.
- Repair Business
- Car Wash – Preferably self-serve with coin vacuums.
Something to Think About
While owning a gas station can provide you with a solid, stable business, there are many aspects of it that need to be investigated. If you are not going to be an owner operator, a word of caution! Do not buy a gas station. Otherwise, it is important that you take the time to investigate all of the issues outlined here so that if you buy a gas station it will prove to be a rewarding long-term investment.
Have questions about buying a gas station in NJ? Contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at firstname.lastname@example.org.