Before You Buy A Gas Station Ask These 5 Questions

Gas stations make for excellent investments for those looking to start or expand their own small business. You can buy gas stations in any town in any state on any street corner, which is both a good and bad thing.

The last census put the total number of gas stations at around 120,000. With so many choices out there, separating the wheat from the chaff is a challenge.

Ask yourself these five questions before you buy a gas station.

What Environmental Issues Might Lurk Underground?

After you buy gas stations, you also inherit any existing environmental conditions. Once the sale is complete, any problems found from that point on will be attributed to the current owner; it is extremely difficult to prove that a mess was there when you bought the property. Before taking the plunge to buy gas stations, it pays to have an environmental survey conducted. Pay attention to extra services that are offered on the same site as the gas station, such as a car wash or auto repair shop that can also be a source of environmental issues.

What Are You Getting When You Buy Gas Stations?

Are those extra services and equipment part of the sale? Does the actual building and the land have different owners? What does the current lease terms look like and will you have to renegotiate or be locked in to legacy terms? Not all of these questions are readily apparent and could be a potential red flag lurking beneath the surface.

What Do The Records & Financials Look Like?

Poor recordkeeping can disguise the true value of a gas station, especially for locations with gas pumps, a convenience store, car wash, and other amenities. An owner might insist that they have "cash sales" that they include in the store's total revenues or sales. Bottom line -- if they can't prove it, don't add it into the valuation. Insist on seeing at least the previous two years worth of financial statements and have them checked by an accountant or CPA.

What Other Hidden Problems Might There Be?

Maybe there is major road work scheduled right in front of the gas station, scheduled to take at least 6 months for completion. How would you stay in business if you had limited business right at the start? Check with local authorities and records to make sure you buy gas stations at a good time.

What Are Your Financing Options?

Make sure you are fully capitalized. Can you qualify for a Small Business Administration backed loan? Is the seller offering financing terms? Do you have to dip into your home equity or 401k to muster up funds? The terms on your startup capital will dictate how much risk you can tolerate; it is a risky proposition to literally bet your house to buy gas stations.

Also, it is important to conduct the usual due diligence checklists before you buy gas stations in addition to these five industry specific questions. Doing the necessary 'homework' and research really pays off when buying any business, and gas stations are no exception. By knowing all the facts ahead of time, you'll be able to make a smart business investment.

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