A few decades ago, a gas station was simply a gas station, and a convenience store was simply a convenience store. If someone had predicted back then that these two very different businesses would join in holy matrimony and become a fixture on America’s highways and byways, I wouldn’t have believed them.
But when you pause to consider it, the merger makes a quite a bit of sense. When people pull in for fuel, why not provide them with the opportunity to spend even more cash on the items that they may also want – coffee, soft drinks, snacks, and other low cost items? Perhaps even a pair of sunglasses to reduce the glare from the road?
So, why not go ahead and buy a convenience store at the same time you buy a gas station?
Well, perhaps… But before you choose what you’re going to do, you should answer these two fundamental questions:
• Question #1. If a convenience store is already part of the gas station business, is it profitable? If it’s not currently profitable, can you make it financially worth your while?
• Question #2. If a convenience store isn’t already part of the business you’re considering, does it make sense for you to add one? Remember that you don’t need to hurry to add one, if one isn’t already there. You can add one at your convenience, when it’s financially worth your while.
Estimating Potential Costs and Profits.
Whether or not a convenience store is already part of the business you’re considering, here is a checklist of expenses that can help you evaluate the associated costs. Compare these costs to profits (or potential profits) and you will be able to make an educated estimate of a convenience store’s profit potential. Never take at face value the Seller’s figures dealing with these expenses. You’ll have to look everywhere you can to produce cost estimates that you can personally verify.
Insurance – If there is currently a convenience store present, how much is the insurance payment? Remember, the coverage that’s already in place might not be enough. Talk to an insurance broker to find out what kind of coverage you really should have along with the total cost involved. You’ll quickly learn that if a convenience store is part of the package, you’re going to require a lot of additional coverage for liability, workers compensation for staff, and more…
Payroll – You’ll have to hire and pay employees to staff your convenience store. You may also have to pay out for benefits. Ask the Seller of the business about who staffs the store. If he or she is having underpaid family staff it, it can be problematic reaching an accurate estimate of what your employee expenses will be when you’re the owner.
Utilities – Convenience stores need to be well lit. They also need to be heated in winter and cooled in summer. Those costs can really add up.
Retail Payment Systems – These include accounts to process credit cards, cash registers and more. If up-to-date systems aren’t in place, you will need to upgrade all of them.
Lottery Terminals – Many shoppers buy lottery tickets when they buy gasoline. Adding a lottery terminal might seem like a great way to generate income, but before you start counting on this extra income, check with your local state lottery authority to learn about the costs involved with owning a terminal.
Signage – To boost profits, you’ll need good signage to let customers know that a convenience store is part of your operation. If signs aren’t there, you’ll need to purchase them and put them up yourself.
Paving, Snow Removal, Landscaping and Other Associated Costs – Customers need to be able to park in convenient locations and walk safely to your store. Those points make it quite a bit more expensive to run a gas station and convenience store combination than it otherwise would be to run a gas station by itself.
Questions to Ask the Seller If a Convenience Store Is Already Part of the Business You’re Buying:
• What is your current inventory and what is it worth? (Remember not to count perishable items such as dairy products or returnable products such as magazines.)
• How much profit have you been generating from convenience store sales?
• Please provide an approximate breakdown of your revenues between gas sales and retail, and a further breakdown of the retail sales.
• Is your convenience store a franchise that is separate from your fuel operations?
• Do you operate the convenience store as well as the gasoline station part of your operation – or is the business split? If the operations are divided, how is that structured?
• Do you have automated inventory tracking and control systems in place?
• What products are you selling in your convenience store, and how much volume/profit is tied to each of them?
• Who are your suppliers for tobacco, beverages, coffee and all of the other retail offerings?
• Do you sell lottery tickets? What are the costs and profits?
• What hours are you open? Which hours of operation are the most – and least, profitable?
So, should a convenience store be part of the deal when you decide to purchase a gas station? Should you consider adding one, if one isn’t currently present? To find out what’s best for you, you should get a good pen and go through the checklist above. You should ensure you’re buying a station that’s profitable not only at the moment, but for many years to come.
Richard Parker is the President and founder of the prestigious Diomo Corporation – The Business Buyer Resource Center. His celebrated materials, seminars and consulting have encouraged thousands of aspiring business buyers from around the World to pursue their dream of buying a business.
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