Valuing Gas Stations
There is a variety of recognized methods for valuing gas station businesses. Each approach is valid and based on the circumstances of the business, the outcome and the purpose of the valuation. The most common method is known as the Sellers Discretionary Earnings (SDE).
Valuing Gas Stations: Profit Centers
Gas stations today come with a variety of revenue enhancements (“profit” centers) that provide a variety of financial returns and employ attendant risks, e.g., sales kiosks, convenience stores (c-stores), mechanical service bays, carwashes, fast food operations, and quick lubes to name a few.|
Gas stations offer a range of revenue enhancements (“profit centers”) that provide financial returns and involve attendant risks. These include sales kiosks and convenience stores (C–stores), mechanical service bays and carwashes. A C-store also offers product differentiation, including beer and wine/ liquor sales, lottery, check cashing as well as fast food and coffee bars.
Each profit center or product has its own gross margin and operating expenses. The combination of these operating synergies creates an “cross marketing” that works in harmony to produce the best profit arena. Combining business units (profit centers) creates value. They are the key ingredients to making the business more appealing to buyers and customers.
The “market value” of a gas station depends on Sellers Discretionary Earnings (SDE), its age, systems, terms and conditions of lease, size, quality, fuel branding, demographics and traffic counts. So how much is it worth?
Valuing Gas Stations: A Typical Example
Let’s take a look at a generic gas station you might find for sale in the Los Angeles market.
The 3,000-square-foot C-store includes 300 square feet in fast food, 2,200 square feet in merchandising, 500 square feet in bathrooms, storage, and offices. It covers approximately 40,000 square feet. This facility was constructed in 1998 and is located in a suburb that surrounds newer tile-roofed housing developments.
The UST system holds 2 / 12,000 gal. Double-walled fiberglass (DWFG), tanks are protected by an environmental monitoring system. Six blender MPDs are equipped with card readers and fuel is delivered.
The company has a beer and wine license. The property is also owned by the business owner.
Business Performance
Gas Station
The historical business performance is: Fuel Vol. : 150,000 gal./mo. C-store Sales: $70,000/mo. Fuel Pooled Margin $.14/gal. C-store Gross Margin: 32% Monthly Gross Profit: $43,400
Annual Gross Profit: $520,800 Monthly Operating Expenses: $30,000 (Including Owner’s Salary, existing debt service and depreciation)
Annual Operating Expenses: $360,000 Monthly Net Income Before Tax: $13,400. Annual Net Income Before Tax: $160,000
Since the last 12 months of financials is essentially the same as the last 3 years averaged, we would consider the business stabilized, representing a turnkey operation.
C-Store
C-store Gross Margin 32%. Monthly Gross Profit $43,400. Annual gross Profit $520,800. Annual Operating Expenses $30,000 (includes Owner’s Salary and existing debt service). Annual Operating Expenses $360,000. Annual net income before tax: $160,000.
Sellers Discretionary Earnings
To calculate Sellers’ Discretionary Earnings (SDE), any discretionary expenses are added to net income before taxes. Assuming discretionary spending of $140,000, our SDE would be $300,000.
We then calculate by a multiple for the gas station within the Los Angles area. Assuming a multiple of 4x cash flow, the SDE is $1,200,000 (4x $300,000).
Commercial Real Estate
After SDE has been calculated, the valuation of the property is calculated based on comparable sales of similar gas station properties within the Los Angeles region. The fair market value of the property is $2,000,000.
Gas Station Valuation
In our example, the business and property would be listed for $3,200,000.
Getting a gas station loan for both the business and property allows the buyer to extend the loan period to over 20 years. Since the property serves as collateral, in many respects, buying a gas station with real estate is easier to secure Small Business Administration SBA financing. The business and property are separately appraised by the lender.
Valuing Gas Stations: Let Mission Peak Brokers Value Your Gas Station
If you are interested in selling your gas station, contact Mission Peak Brokers. We have been selling gas stations since 2004. We know every aspect of selling gas stations, including valuing gas stations for sale in California. We are the #1 Gas Station Brokers in California. Contact us today!
