Several decades ago, a gas station was a gas station, and a convenience store was a convenience store. If somebody had told me back then that these two completely different businesses would merge and become commonplace on America’s highways and byways, I would have thought it couldn’t be true.
But when you stop to think about it, it’s a marriage that makes a lot of sense. When people stop for gas, why not offer them a chance to spend even more money on the things that they might also want – coffee, soft drinks, snacks, and other inexpensive items? Maybe even a pair of sunglasses to cut the glare of 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 make a snap decision, you have these two fundamental questions to answer:
• Question #1. If a convenience store is already part of the gas station business, is it profitable? If it isn’t, can you turn it into a money-maker?
• 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 accept the Seller’s figures regarding 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 might also have to pay 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 already present, you will have to buy them and add them 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 factors make it more expensive to run a gas station/convenience store than it otherwise would be to operate a gas station alone.
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 author of the How to Buy a Good Business at a Great Price series. As President and founder of Diomo Corporation – The Business Buyer Resource Center, his materials, seminars and consulting have helped thousands of business buyers realize their dream of buying a business.
- Successful Strategies for Purchasing a Gas Station or a Convenience Store In real estate we are told that location is everything....
- Key Customer Loyalty Strategies in the Gas Station and C-Store Business When you buy a gas station and c-store, don’t just...
- Gas Stations and Convenience Stores – Strategies to Limit Crime. If you passed by a prominent advertisement for a gas...
- How to Make A Gas Station Really Profitable You have a thirst for information when you are in...
- Advice For Performing Due Diligence When Purchasing A Gas Station A gas station for sale can represent a very dynamic...