Due diligence strategies when buying a gas station
A gas station for sale can represent a very dynamic business opportunity for an entrepreneur. More than ever in this particular type of business, location is everything. You may have found what you consider to be a “gem,” near two major arteries or near a busy intersection, but never be tempted to jump in with both feet first until you’ve done a proper due diligence process.
One of the biggest mistakes a person can make, especially if they have never run, owned or bought a business before, is allowing their enthusiasm to get the best of their good judgment. Even if you are absolutely amazed at the incredible amount of traffic going through the location in question, or worried that other buyers might bid before you, never be tempted to bypass your discovery process. Ideally, you should invest at least four weeks of your time before taking action.
If you’ve made up your mind about buying a gas station convenience store business and you’re satisfied for the most part with the basics the salesperson presented to you, and you don’t notice anything obvious that might cause the red flags to appear . , then you should have a conversation with the seller immediately and tell them that you would like an observation period before deciding whether or not to buy.
During your observation period, you will be able to analyze the actual operation of the gas station and convenience store and get a very good idea whether the finances you have been given represent a real or artificial position. If you inherit employees, you can see how they operate and how effective they are at generating income. This is infinitely preferable to just sitting with them for thirty minutes and asking questions. Above all, this observation time will allow you to come up with a number of ideas that you can ideally implement after the purchase to increase revenue and profit.
Be prepared to check all of the following items during your due diligence work:
– Financial records, profit and loss accounts, balance sheets, tax returns and records.
– Inventory records, looking for discrepancies.
– Employee records: see that they are well maintained, that all legal elements are covered, and that liabilities are discovered.
– All equipment should be inventoried and maintenance records verified. Is a regular maintenance process scheduled?
– Review all vendor contracts and try to contact major vendors. Is there a clause that causes renegotiation after a sale? If so, you will need to make sure you are covered before proceeding.
– A business like this can be heavily regulated. You don’t want to buy gas station business problems caused by not keeping up with inspections or any citations issued due to irregularities.
Important: Obtain environmental reports and make sure the company meets the requirements. Ask your attorney to check for past offenses. Make sure all tanks meet the latest and proposed standards. Otherwise, you may face a huge expense shortly after taking over, not to mention lost business at closing to make these adjustments.
If you’re generally happy with the paperwork, use your observation period to do just that – observe. Keep your eyes and ears open at all times and see what makes this business “work.” Take note of anything, no matter how small, that you think may have reason to improve, and while you shouldn’t live or breathe in the place for the entire period of time, you should aim to be there during strategic times – during the opening, during important deliveries, during peak periods, during slow periods, during closing.
It is not advisable to shorten your observation period, as the time that passes now could represent a wise investment in your time.