Because America’s fuel demand is always increasing, that is why it is a good investment to buy a gas station makes a good small business investment. Our economy literally runs entirely on gasoline. Trucks are needed to transport goods and people need to drive to work.
Our country has more than 120,000 gasoline stations. A convenience store is available at more than 80 percent of these stations. Given gas stations are an essential business, it’s obvious that they make a good investment for the small business owner.
There are many legal considerations that must be considered when you buy a gas station. Before you sign a purchase contract for a gas station, consider the following 5 factors.
1. Is The Gas Station Franchised or Independent?
Most gas stations fall under the “franchised”, or “independent”, station category. Franchised stations operate under a Franchise Agreement with national suppliers like Exxon or BP. Independent stations do not receive support from any national suppliers. Their fuel source is from a variety of regional suppliers.
It is important to compare the benefits and drawbacks of independent and franchised stations when you buy a gas station. The primary benefit of a franchised station is name recognition, trademarks, trade designs, and canopy associated with the national branding, The primary benefit of owning an independent station is saving on franchise fees and having independence on managing your gas station.
Be sure to consider and discuss the following items with your gas station business broker and lawyer if the gas station that you’re buying is franchised:
- You must agree to the terms of your franchise agreement.
- Quotas / requirements for fuel sales;
- You may be eligible for rebates on fuel sales
- Questions regarding ownership and maintenance.
- Is there a convenience store at your gas station?
Selling fuel is your main business. This is what brings customers to your store. Yet, most gas station buyers are unaware that gas stations earn most of their revenue from other products. Margins can be very low on gasoline sales. The more lucrative revenue is generated by convenience-store items like alcohol, sodas, etc. Indeed, it has become rare to find a gas station without a convenience store or Quick-Service Restaurant (QSR).
2. Is The Tank or Pump Owned By The Seller?
The most important assets for your business are the station pumps and the fuel tanks. The pumps and tanks are not owned by every gas station seller. They may belong to the national franchisor for franchised stations or the property owner (for gas stations located on leased land).
When buying a gas station, carefully evaluate the following for every prospective gas station that you are considering to acquire:
- Who is the owner of “pumps” and “tanks?”
- What happens if the purchase includes transfer of “pumps and tank”?
- The terms of lease for the property that is the site of the station, including rent and other terms; whether the landlord consents to the assignment;
- How long have the tanks and pumps been repaired? What’s the useful life remaining for these vital assets? Are they compliant with regulatory regulations?
3. Before You Buy A Gas Station, Investigate What Is The Environmental History of The Station?
One of the most important issues that you need to consider when purchasing a station is the possibility of contamination. Any contamination, especially if it occurs after purchase of the station, will need expensive remediation. This could result in the station being shut down and severely limiting its future profitability.
Evaluate whether an “environmental contingency” clause is included in the gas station purchase contract. Additionally, obtain a Phase 1 environmental site assessment to ascertain the risk of contamination, the environmental history and the potential hazards of the subject property.
A Phase I environmental site evaluation, is an initial investigation into and evaluation on a property’s “environmental record.” ESAs are often viewed as the initial step of the “environmental due diligence.” They focus on the property’s documented history and any prior contamination. ESAs do not usually include soil testing or sampling, but can reveal serious instances of contamination. Additional studies might be required if the Phase I investigation indicates that there is potential for prior contamination.
In addition to the ESA, check that your purchase agreement includes an “Environmental Contingency Clause”. This clause includes an environmental condition will enable you to execute a purchase agreement while still allowing you enough time to conduct a thorough environmental assessment of the property. An example of an environment contingency clause is one that gives you additional time to complete due diligence and obtain an assessment of the property’s environmental history. Your contingency clause can be designed to allow you to cancel your contract, get your deposit back, or to require that the seller remediate any contamination.
4. Do Your Due Diligence To Assure The Gas Station is Compliant with Relevant Federal & State Laws
Don’t buy a headache. In addition to federal laws, gas stations are subject to state-specific laws. It is imperative that you understand the relevant laws that apply to owning a gas station before you invest. When you buy a gas station, it is to your benefit both as a business buyer and gas station owner to learn the risks of gas station investment. Failure to do so can risk your investment.
You should know whether there is any environmental litigation that may still be pending and in which the current owner was involved. In California, a gas station seller is obligated to disclose any pending litigation. Be sure to ask the seller directly. Also, you can have your attorney check to see whether the gas station seller is involved in or has been involved in any litigation pertaining to the gas station.
While the environmental history of the station’s location is critical, checking on zoning and future zoning impacts is also vital as part of your due diligence. To prevent negative consequences, do your due diligence. Working with specialized and experienced gas station brokers is a highly effective way to perform your due diligence.
5. Create A Gas Station Business Plan Before You Buy A Gas Station
A business plan can help you stay focused and on track. It will make it easier to operate your gas station. The following items are important for you to be aware of when buying a gas station and operating your gas station business.
Know what products and/or services your gas station will offer.
This step is crucial. It is clear that you will sell gas. What else is there? Is it possible to open a convenience shop? Do you plan to provide mechanic services? Before you do anything, know what you are capable of and what your limitations.
Establish Who is in Charge?
Each business should have an organizational chart. It helps employees know to whom they need to report or what their job duties are.
Consider Staffing Needs
After choosing which titles will go where, it is time to hire the staff that your company needs. Consider the staff that you will need, their shifts, as well as salary ranges.
What will your advertising strategy plan be?
Gas stations tend to be franchises so they already know your brand. You still need to promote YOUR business. You should make a list with the places that you would like to advertise, and what budget you have. Commercials for Shell, Arco or 76 are meant to reach a national audience. Keep it local.
Factor in insurance, taxes, and other expenses
A gas station is not like most businesses. Specific insurance, permits and taxes will be required. Insurance will cover you for fires and explosions as well as other liabilities that most businesses don’t.
When you buy a gas station, there are many factors to consider. These 5 factors are essential for effective due diligence. You want to make sure that you are buying a gas station that is profitable and lucrative and avoid buying an environmental challenge that can eat away at your profit margins.