In most cases, the process of valuing a gas station can be complicated. Far from the usual question of how to progress through the steps of the appraisal itself, there are still a wide variety of variables to keep track of, including primarily whether the property in question is owned or leased and whether it is owned. as part of a franchise agreement with a large oil company. First of all, always remember to apply a detailed due diligence process and pay considerable attention to finances when working to come up with a top-notch value proposition.
As a buyer, you should be prepared to make certain assumptions and decisions yourself and not rely on information, often biased, provided by the seller. It is up to you to determine the value of the business to you personally, as the amount the business owner believes the gas station is worth has little or nothing to do with its actual value.
Traditionally, there are two different ways of looking at the valuation of gas station convenience stores, and these are asset-based, where income-generating assets are individually valued and totaled to make the purchase price, or based on in cash flow, which is the most popular. . In this scenario, the total profit is adjusted according to certain expenses, multiplied and used to establish a price. The multiple is essentially the premium given to the business and can be anywhere from one to five times this number.
Before you can arrive at a value that you are satisfied with, you need to have certain fundamental questions answered. If the business occupies a rented property, you should contact the owner. Many landlords are not interested in issuing a new lease unless they can be sure that the incoming person has experience running this particular type of business. However, they are almost always willing to negotiate, as they do not want to see the property empty.
As a gas station and convenience store owner, you will have many different vendors and vendors, some of which are absolutely critical to the continued success of the business. Never assume anything and make sure you are able to enjoy an ongoing good relationship and excellent business conditions with these entities.
When considering cash sales, if the seller can’t prove part of the sales you’re talking about, then they can’t include it as part of their value assessment. Often times, gas station owners will proudly talk about the incredible volume of cash sales and tell you about it almost as if it were something magical. Do not forget that they have benefited from avoiding paying taxes on this part of their income, they can hardly ever prove it exists and therefore cannot expect to make a profit by selling their business.
Most of the time, you will want to consider using the owner’s total profit as the basis for creating a valuation for the business. This is defined as the net business income added to the owner’s salary, any benefits, depreciation, and interest less any amounts you may have to set aside for assessed capital projects. Relative to the average business valuation, full service gas stations or convenience stores often cost 2 to 3 times whatever the profit figure to the owner. If it is a smaller and self-service establishment, 1 or 2 times. Consider the volume of trade versus the number of hours you will have to put in. A 24/7 store requires a lot of management and oversight.
While business finance and owner profit multiples are paramount to your decision-making process, remember to consider a number of other variables:
– During the observation process, use a period in which you actually count the number of customers entering and leaving the station so that you can get a good traffic average.
– Remember that you should aim for a return of between 25 and 33% of your investment in cash when buying a business like this, although if you are going to be an absentee owner you should be prepared to accept a lower return.
– Be careful if the owner seems to be working an excessive number of hours or if he depends on several members of his family to help him with the personnel of the operation. Pay attention to employee records and costs and ask yourself if you are prepared to be as practical as he seems.
– Check with local authorities to see if there are major road construction plans. Sometimes these are unavoidable, but they can have significant disruptive forces.
To really focus the attention of the seller as he establishes a value for the purchase of your company, why not ask him to participate in a “profit” scenario, in which a portion of the sale price is returned to him over a period of time. time subject to certain conditions. This will ensure that you have your undivided attention during the disclosure phase!