How to value a gas station for sale

In most cases, the process of performing a gas station valuation can be a complicated task. Away from the usual question of how you go through the steps of the valuation itself, there are still a myriad of variables to track, including primarily whether the property in question is leased or owned and owned as part of a a franchise agreement with a large oil company. First of all, always remember to apply a detailed due diligence process and pay considerable attention to financials when working towards a top-tier value proposition.

As a buyer, you must be prepared to make certain assumptions and decisions yourself and not rely on the often biased information provided by the seller. It is up to you to determine the value of the business to you personally, as the amount the business owner believes the gas station is worth has little or nothing to do with its actual value.

Traditionally, there are two different ways of looking at gas station convenience store valuation, and these are either asset-based, where revenue-generating assets are valued individually and added together to make the purchase price, or based on in cash flow, which is the most popular. . In this scenario, the total profit is adjusted according to certain expenses, multiplied and used to establish a price. The multiple is essentially the premium given to the business and can be anywhere from one to five times this figure.

Before you can arrive at a value you’re happy with, you need some fundamental questions answered. If the business occupies a rental property, you must make a commitment to the owner. Many landlords are not interested in issuing a new lease unless they can be sure the incoming person has experience running this particular type of business. However, they are almost always willing to negotiate as they do not want to see the property empty.

As a gas station and convenience store owner, you will have many different suppliers and vendors, some of which are absolutely critical to the continued success of the business. Never assume anything and make sure you can enjoy a good ongoing relationship and great business terms with these entities.

When considering cash sales, if the seller can’t prove part of the sales they’re talking about, then they can’t include it as part of their assessment of value. Oftentimes gas station owners will proudly talk about the incredible volume of cash sales and tell you about it almost as if it were something magical. Do not forget that they have benefited from avoiding paying taxes on this part of their income, they can hardly ever prove that it exists and therefore cannot expect to make a profit through the sale of their business.

Most of the time you will want to consider using the owner’s total profit as the basis for creating a valuation for the business. This is defined as the net income of the business plus the owner’s salary, any fringe benefits, depreciation, and interest less any amounts you may need to set aside for assessed capital projects. Relative to the average business valuation, gas stations or full-service convenience stores will often demand 2-3 times whatever the owner’s profit figure. If it is a smaller establishment and self-service, 1 to 2 times. Consider the volume of trading versus the number of hours you’ll have to put in. A facility that operates 24 hours a day, seven days a week requires a lot of management and supervision.

While business finances and owner earnings multiples are paramount to your decision-making process, remember to consider a number of other variables:

– During the observation process, use a period where you actually count the number of users entering and leaving the station so that you can get a good traffic average.

– Remember that you should aim for a return of between 25 and 33% of your cash investment when acquiring a business like this, although if you are going to be an absentee owner you must be prepared to accept a lower return.

– Beware if the owner appears to be working excessive hours or relies on multiple family members to help staff the operation. Pay attention to employee records and costs and ask yourself if you’re prepared to be as hands-on as you appear to be.

– Check with local authorities to see if there are any major road construction projects planned. Sometimes these are unavoidable, but they can have significant disruptive forces.

To really focus the seller’s attention as you establish a value for the purchase of your business, why not ask them to participate in a “profit” scenario, where a portion of the sale price is returned to you over a period of time? time subject to certain conditions. This will ensure that you have your full attention during the outreach phase!