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 real estate, while in most cases, the major oil company owns the property and serves as the landlord. You must pay attention to the lease terms, transferability, and expiration. Still, other gas stations include convenience stores, car washes, and repair centers as part of their operations.
Franchise Gas Station or Independent Retailer?
As a 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 NJ Franchise Law page.
One compelling reason 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 to a major integrated oil company and therefore is not obligated to any specific supply product, although most independents have longer-term supply contracts with local/regional gas distributors to gain pricing advantages that are passed on to their retail stations.
Looming Threats
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, the County Planning Board, and the NJ DOT for future roadwork. 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 leading to the gas station, you could be out of business for up to a year.
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 in which the current owner may be involved, because, regardless of the sale structure, the new owner may be legally responsible for any harm.
Quantities of Product Sold – Gas station margins are tight, and therefore volume and sales totals are critical. Collateral revenues from ancillary businesses, such as convenience stores and car washes, 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:
- Location
- Attractiveness
- Large Convenience Store – Studies indicate that the larger the convenience store, the greater the volume generated; thus, the greater the 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
Fredrick P. Niemann Esq.
While owning a gas station can provide a solid, stable business, there are many aspects to consider. 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 the issues outlined here so that, if you buy a gas station, it proves to be a rewarding long-term investment.
Have questions about buying a gas station in NJ? Contact Fredrick P. Niemann, Esq. at (732) 863-9900 or email him at fniemann@hnlawfirm.com.
Written by Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold Township, Monmouth County, New Jersey Buying a Business Attorney