Answered by: Russell L. Brown. MBA, Business Broker/Appraiser, Author on March 21, 2003 at 08:35:24:
In Reply to: How to determine the fair valuation of a franchise gas station posted by sanjay verma on December 23, 2002 at 20:21:40:
Sanjay,
First of all you need to learn as much as you can about the overall process of buying a business. There are many pitfalls that you can avoid with a little information. At the end of this answer to your question I’ll provide a link to a book that I’m sure will help you immensely.
Gas stations are good businesses which I don’t think will suffer from declining demand any time soon. Did you know there are about 75,000 gas stations in the United States? They are probably one of the most successful small “main street” businesses in the country.
When looking into the purchase of a business of this nature, there are several special issues you’ll want to consider:
Is the station full-serve or self-serve? (less labor problems with self-serve)
Is there a mini-mart associated with the business? (generally, stations with mini-marts are more profitable and therefore worth more)
Are there any unresolved environmental issues? (e.g. contaminated soil, non-upgraded underground tanks, non-conformance with vapor controls, etc.)
Are the tank reserves sufficient to meet demand peaks?
Is the business located in a high traffic area? (is the area growing?)
Who owns the property and what are the terms of the lease? Most gas station properties (real estate) are owned by the gasoline companies. This means you can’t change brands and may be otherwise restricted. Most gas station sales hinge on the property lease terms.
The Business Reference Guide which is offered for sale on this site has an excellent treatment of small business valuation and offers some very valuable specifics about gas stations in its extensive “rules of thumb” section. You can learn more about this guide by using the link below.
I hope this information has helped you.
Russell L. Brown
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