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Factors to Consider When Buying a Gas Station

Gas stations are a great business to franchise because the demand for fuel in America is constant and not going anywhere. Our country literally runs on gas. People need to drive to work and trucks need to carry goods across country. Gas stations are a $250 billion a year industry. There are over 120,000 gas stations in the country. More than 80% also have a convenience store attached to them. This is a big business. Now is a great time to claim a piece for yourself.

If you are considering the purchase of a gas station or about to sign a gas station purchase or franchise agreement, there are a number of legal factors that you must consider and discuss with your business lawyer. In New York and New Jersey, although the purchase of a gas station represents a unique business and investment opportunity that requires a number of contract, legal and business due diligence factors that must be considered prior to signing a purchase agreement.

As a prospective purchaser, you must consider and evaluate the following issues:

Is The Gas Station A "Franchised" Or "Independent" Operation?

Gas stations typically fall within the category of a "franchised" or "independent" station. Franchised gas stations are owned and operated pursuant to a "franchise agreement" with a national supplier such as Exxon, BP and Sunoco. Independent stations are not supported by any national supplier and, basically, sell "unbranded" fuel procured from an assortment of regional suppliers.

With the primary advantage to a "Franchised" station being the name recognition, trademarks, trade design and canopies associated with the national brand, owners of "franchised" stations are franchisees and parties to a franchise agreement. As a business purchaser it is critical to evaluate the advantages and disadvantages of franchised and independent stations.

Factors To Consider If The Gas Station is a "Franchised Station"

If the gas station that you are purchasing is a "franchised station" some of the many issues that you must consider and discuss with your lawyer, include:

  • The terms of the franchise agreement and whether or not the franchisor will approve your purchase of the station;
  • Quotas / requirements for fuel sales;
  • Rebates that may or may not be paid to you for fuel sales;
  • Issues as to ownership and maintenance of fuel pumps and tanks.

Will Your Gas Station Also Have a Convenience Store?

Of course, selling fuel is the main business of your gas station. It is the one product that brings people to your business. What most people don't know is that margins are low, and gas stations make most of their money from selling other items. Convenience store products like candy, sodas, and cigarettes bring in big revenue. This is why it's getting rarer and rarer to see a stand-alone gas station that doesn't have a store you can walk into attached to it.

Does The Seller Own The Pumps And Tanks?

Station pumps and fuel tanks will serve as the most critical assets that will affect the day-to-day operations and profitability of your business. Not every seller of a gas station owns the pumps and tanks which may be owned by the national franchisor (for franchised stations) or the property owner (where the gas station is located on leased property).

Factors That You Must Determine

If you are evaluating the purchase of a particular gas station, you must determine:

  • Who owns the "pumps and tanks";
  • Whether or not the sale includes the transfer of the "pumps and tanks":
  • If the property where the station is located is "leased, the terms of the lease, including, the remaining terms, rent and whether or not the landlord will consent to an assignment of the lease;
  • What is the repair history of the pumps and tanks, the remaining useful life of these critical assets and whether or not the pumps and tanks comply with current regulatory requirements.

What Is The Environmental History Of The Station?

As the purchaser of a gas station, one of the most critical issues that you must consider and protect yourself from relate to the potential existence of contamination. For the purchase of a station you must consider and evaluate the utilization of an "environmental contingency clause" in your purchase agreement and you must obtain a Phase I environmental site assessment. In my article, "The Importance of an Environmental Site Assessment" I discuss and address these environmental issues in detail. If you are buying a gas station, I strongly recommend that you review this article.

Know the Risks of Gas Station Investment

Investing in any business carries multiple risks. But, gas stations pose different risks than other businesses. More than just about any industry, the success of your station depends on traffic. Know the long-term plans for the area you want to open in: is it going through a lot of construction? Long building projects could hurt your business by blocking access to your station.

The environmental history of the station is important (see above), but the future environment is more important. Do some research and make sure your location has double-walled tanks to keep leaks and environmental problems from shutting you down.

Do You Have a Gas Station Business Plan?

Putting together a business plan will give you focus and direction. It will also make setting up your gas station business easier. Think of the steps below as things to check off when you're starting out.

  • Know the Products and/or Services Your Gas Station Will Offer – This is the most important step of the process. You know that you're going to sell gas. But, what else? Are you going to have a convenience store? Are you going to offer mechanic services? Know what you can do and what you can't before anything else.
  • Set Up Who is in Charge – Every business needs an organizational chart. This helps people know who they have to report to (or even what their jobs are).
  • Think About How Much Staff You Need – After deciding which titles go where, you need the people to staff them. In your plan, consider the number of staff you need to operate, which shifts they'll break down into, and salary ranges.
  • Plan Your Advertising Strategies – Most gas stations are franchises, so you already have a brand people know. But, you still have to get YOUR business out there. Make a list of places you'd like to advertise and how much money you can spend. If you run an Arco, 76, or Shell, commercials are for the national audience. Think local.
  • Remember Insurance, Taxes, and Other Expenses – Gas stations aren't like most businesses. This includes the insurance, permits, and taxes you'll have to pay. Your insurance will have to cover fires, explosions, and other liability concerns most business don't have.

Learn More

To Learn More about Proven Strategies and Legal Representation When Buying a Gas Station in New York or New Jersey:

  • Order: A "complimentary" copy of Mr. Internicola's Book "An Entrepreneurs Guide to Purchasing a Business" including the "Purchasing a Gas Station Supplement".
  • Read: Mr. Internicola's additional articles about "Buying a Gas Station";
  • Contact: Mr. Internicola's Staff at (800) 976-4904 or (718) 979-8688 to learn about our programs involving representation for individuals and investment groups purchasing a gas station.
  • Read: Articles and Publications by Charles Internicola About Buying a Gas Station in NY or NJ - continue reading here.
  • Read: Buying a New York or New Jersey Gas Station: Due Diligence - continue reading here.
Charles Internicola

by Charles Internicola
National Business and Franchise Lawyer

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