Gas Station

[mjedwards409]

EDIT: I had to rewrite half of this post because I was logged off. I punched the table 3 times and now I feel better.

I hate my job. I have always told myself someday I want to be my own boss. Currently I am an Account Executive for a Fortune 500 company, and the micromanagement drives me insane. I am very organized, good at allocating my time and costs (business and personal), and I would rather work 60 hours a week when I am motivated than 30 hours a week when I am not. Fast forward to my business idea:

One of my pet peeves when driving to my home office in the mornings (besides the rush hour traffic) is when my gas light comes on, or when I didn't have time to make coffee. Thats because the ONLY convenience store on my route is right up the street from home, but you have to take a horrible left turn to get in, and an almost impossible left turn to get back on the road. I have to make time to go out of my way on my lunch hour to get gas if my light comes on during the week. Granted, if I left 5 minutes earlier, I could go about a mile out of the way, get my coffee, some gas if I need it, and I will be fine. But it never seems to turn out that way, and isn't convenience the whole idea of a convenience store?

[It was at this point of my post that I posted a diagram, tons of notes, and a long paragraph about why I think I have a great location. Then I was logged off, and Auto-Save didn't work. So I will stick to my main questions and we will assume that my location is incredible.]

Does anyone have any experience with a gas station/convenience store? From the brief reading I have done, (just got this idea today), I am getting the impression that it is a VERY complicated process. I know the pros of owning a franchise are offset by having to answer to "Big Brother" and having most of your profits taken from you, and the pros of owning an independent store are offset by the massive costs of conforming to all of the necessary environmental and fire department regulations. Also, what would I be looking at financially to get something like this off the ground. Obviously I would need some sort of financing. Right now I have $20K liquid in cash, a $15K car that is paid off, as well as $10K-$15K in equity in my home. Is this even close to enough of my own money to put into an investment like this? Where would you suggest I go for Step 1 of research on this? Thank you for your help.

[MyITGuy]

Does anyone have any experience with a gas station/convenience store? From the brief reading I have done, (just got this idea today), I am getting the impression that it is a VERY complicated process. I know the pros of owning a franchise are offset by having to answer to "Big Brother" and having most of your profits taken from you, and the pros of owning an independent store are offset by the massive costs of conforming to all of the necessary environmental and fire department regulations. Also, what would I be looking at financially to get something like this off the ground. Obviously I would need some sort of financing. Right now I have $20K liquid in cash, a $15K car that is paid off, as well as $10K-$15K in equity in my home. Is this even close to enough of my own money to put into an investment like this? Where would you suggest I go for Step 1 of research on this? Thank you for your help.

I don't have any experience in this particular market, but two separate clients of mine did have gas stations. The first closed down because they were unable to afford the monthly lease as there wasn't enough volume (IIRC, they were paying approximately 5K a month for 4 pumps and a small convenience store and this was about 8-10 years ago)

Another client of mine was pretty much forced to close up shop as they were required by law to upgrade their pumps, but the property owner didn't want to pay for this upgrade and my client couldn't afford this purchase. I seem to recall him mentioning a figure of 600K for this upgrade...while I'm not positive on this I do know that it was a 6 figure number.

From what I've seen of some business listings, I wouldn't expect anything less than 500K to start up this business between property, employee costs, upgrades, merchandise and a buffer for operating costs.

[Steve B]

I don't have much to add either, but my landlord owns a gas station. She told me she makes 5 cents per gallon. I'm sure it adds up - but, they all need the merchandise part of it to make any real money. She told me when pay-at-the-pump started it killed their merchandise business because people didn't have to come into the store anymore and they lost a lot of impulse sales.

[SteveM]

Hey, mjedwards409. I do own a gas station. I bought one in January of 2008, right before gas prices started peaking and the economy blew up in everyone's face. It's been a rough ride with the economy for the last few years, but we're luckier then the 4,000 c-stores per year that have gone under!

My station is a 2400 sq ft convenience store with 12 fueling stations, and two car washes situated on 1.5 acres, and I do own the real estate. We are located in a town of about 70,000 in Southern Minnesota. It has two 12,000 gallon fiberglass tanks, and state-of-the-art fuel system monitoring and decent POS systems for the cashiers. We do about $3.5M in sales per year, which is down from it's peak. Currently, market value is roughly $1.6M. We are branded as a Shell station. Steve B mentioned gas margins being around 5 cents per gallon, which is a little light, but he is correct in saying you need very strong inside sales to make the bills. Our car wash sales carries our business...without them, we wouldn't be around either! BTW, my wife runs the business full time, with me helping out on the weekends (I work another job).

When I bought my station, the SBA was able to approve deals with about 10%, and from what I hear now is the SBA isn't financing gas stations. I believe they are shy about that because of the amount of stations that have gone down, plus most of those stations were the little "Mom & Pop" stores with old, steel tanks, which ended up being environmental nightmares. Steel tanks eventually rot, and the cost of clean-up and replacement can easily approach $150,000 per tank. Not to mention the POS system updates required to be PCI compliant to be able to securely run credit cards, coolers that need to be replaced, HVAC systems that are junk, and on and on. To build a gas station from scratch would be incredibly expensive, as even a modest station with one car wash would run in the neighborhood of $1.5 -2.0 million, which is why you don't find many independent owners going that route. Large chains can afford it, because they have the power of "brand" and vast amounts of cash flow behind them. These days, for a single owner to build from scratch, you would almost instantly be over-capitalized.

With that being said, it IS still possible to buy a gas station. Personally, I would want to own the real estate the station sits on, because that's the pot-of-gold at the end of the rainbow, but many people own gas station businesses which are on leased property, and those would be the most cost effective to get into, by far. You could probably find a leased operation for a pretty reasonable price - well under $1.0M - but obviously the gross sales would have to beat the costs involved with running the operation by a good margin to be worth it. No matter what the case, you won't get rich quick (if at all) running a small operation. In some cases you'd be lucky to draw a paycheck.

Maybe you could tap friends or relatives for loans to get into a larger, more established place. For a $1.5M place (for example), you would need a minimum of $300 - $400K down in this marketplace. I will say that while a tough business to be in, it is also the funnest thing I've ever done. Let us know which direction you go!

[lucas.bowser]

So I would say without additional investors it is unlikely you will be able to finance a brand new store/location. After the purchase/build, you will be left with absolutely no reserves, which means that both bank financing and franchise opportunities are likely off limits to you, especially give your lack of experience within this industry.

Your best bet may be to find someone who owns a station, is ready to retire and is willing to do owner financing on the property. Even then, I think you face a difficult road in acquiring/starting this type of business because anyone looking to get out is likely going to hire a business broker to sell it. Part of that brokers job is to evaluate the quality of the buyer (that's what they get paid for.) With your personal balance sheet so low, it is likely you will not be looked on favorably.

My advice, spend a few years building up your personal equity/reserves. I would also contact a business broker who has listed/is currently listing gas stations and see what he looks for when qualifying buyers. This should give you a really good idea of what you will need to have on hand (cash for purchase + reserves) when you purchase a location. It also let's them know that you are serious about doing this long term, so they may keep you in mind when they find a motivated buyer.

[nealrm]

Welcome to the forum MJ. Before you make a big leap from your your current job, lets make sure you are not jumping from a job you hate to hating a you own. Your problem maybe as simple as switching companies or even switching positions within the same company. I suggest you start by reading a book called "Quitters". It will take you through the steps of getting ready to move from your current position to your dream job. Along the way it may also help you to tolerate your current position long enough to give your new business a good start.

[mjedwards409]

Thanks very much for the replies everyone. I have been reading up on the process a little more, and just as most of you have said, it seems starting a station from scratch is much more expensive than I could have imagined. I thought about looking into existing stations, and I even have a colleague that knows an owner willing to owner finance at an existing location elsewhere. However, it's not so much the industry that got me interested, it was the location I discovered. It is a high traffic area, and 50% of a large mall's traffic goes right by this land, and there are no other stations between the mall and the interstate exit. It is also right across the street from a huge apartment complex with tons of 20-30 somethings, which would be great for cig and alcohol sales. (No grocery store within 2 miles of this apartment completx) Best of all, it would be a right turn into the parking lot, and a right turn to get out on the road for 65% of the traffic on this high volume road.

I mentioned the location to 2 or 3 of my coworkers. (I'm not worried about them stealing the idea, as none of them have the financial means or interest in doing such a thing) You should have seen their eyes light up when they realized what a perfect location that would be.

What would I need to do in regards to finding an investor?

[lucas.bowser]

How did you come up with 65% of the volume? Over the course of a day, I would have expected a natural 50/50 split. Half the traffic going one direction and half going the other due to people going to and from the mall and work.

That aside, you are probably looking friends and family on investors. You could try advertising in a local paper for an investor, but you better have a polished business plan that outlines exactly how their investment will be spent, how much money will be made, exactly how it will be made and what the split will be. That is the most important thing you can do when you are trying to find your investor. They will need to see that you have put enough thought into your plan. You also need to start putting together your list of objection questions. These are the questions you will need to answer in order to get the investor on board and believing that you have done enough homework. Here are some examples:

Why there is not a gas station there already?
Who will run it?
How much will they be paid?
What are my management interests (are they a silent partner or do they have a say in the operations?)
What is the expected costs of building it?

There are a lot of questions you will need to answer in your plan, and even more you will have to have answers for when you go to pitch it. Just make sure you have all your ducks lined up before you pitch it.

[mjedwards409]

Lucas,

Thanks for the feedback. 65% may have been a stretch, but there is definitely more traffic heading in that direction. I should have clarified. It's more about the logistics of the mall entrances and exits. When you are passing my imaginary gas station on the right, you will reach the mall a half mile up, and it is a right turn into the parking lot(s). However, when leaving the mall its tougher to get out that way because you are making a somewhat congested left turn. A lot of people will leave the mall the other entrance because it is a two quick rights to get on the interstate via the exit a mile up from the original exit. On the other hand, its something to think about that those people will only pass the station once instead of twice, even if the second time they passed would have been in a left turn, it would be better to have them go by twice.

I appreciate the advice on making the pitch to investors. My biggest question would be what my resources would be to find out how to get the information I need for the investor? (Basically, whats Step 1 of Step 1 of Step 1?)

[lucas.bowser]

You could consult the Small Business Administration (SBA) or SCORE. SCORE is probably your best bet, though I'm not sure how you get in (it might be part of the SBA.) This is a program that tries to match up prospective business owners with someone who has business experience, preferably experience doing something similar to what you want to do.

Investors are all looking for the same thing; some type of assurance that they will see a return on their investment. Your plan needs to show that you've put enough thought into the cost and revenue side that the business can be profitable. It also needs to show how much money you need from them and what they will receive for that in return. It needs to demonstrate that you have a knowledge of how people buy your products, the laws surrounding the selling and storage of your products, that understand what the business risks are and how you will protect against them, etc... I'm not sure there is a point by point guide book for gas stations that would address all this. You might try Googling for the information and see what comes up, and since Steve M above said he owns his own gas station, he may have a better answer as to where to find this info.

[nealrm]

However, it's not so much the industry that got me interested, it was the location I discovered.
This phrase makes me worried. Money follows passion. If the passion is not there, one of two things will happen 1) The money won't be there, or 2) you end up owning the job the you hate.

I very much suggest that you verify that you are getting into this for the right reasons. There are hundreds of other opportunities. Choose one that matches your passion. The money will follow.

[SteveM]

It sounds like a great location, but as lucas.browser asked - Why isn't there a gas station there already? That's Step 1 and the first question to answer before you begin steps 2 thru 4,998. If you're serious, go to the City Planning Commission and talk to them about what you'd like to do, what the zoning for the area is, and what their appearance and security requirements would be for such an operation. You also need to find out what the traffic counts are for your location. They can also give you information on the various licensing requirements for lottery, cigarette, packaged food and food prep, dispensed beverage, liquor, and whatever else they require licenses for.

I went the City with the intention of installing a bulk (1,000 gallon) propane dispenser, and they threw so many restrictions and B/S on top the deal, I finally just dropped it because I would have never made my money back! After thinking about it a little, maybe a c-store/liquor store WITHOUT gas would be a more realistic goal!

Step 2 - find out exactly who owns the property, are they willing to sell, and at what price.

Step 3 - talk to a commercial building contractor for facility construction costs.

Step 4 - talk to a local bulk fuel distributor. Get some input from them on which gas brands have the best incentives, and they'll be more-then-willing to hook you up with a petroleum equipment company to get some numbers together for fueling equipment and storage systems to set up a gas station. They can also tell who to contact for an environmental impact study and how much that would cost.

Step 5 - You need to find c-store equipment suppliers for prices on coolers, freezers, hot & cold beverage dispensers, ice makers, POS systems, surveillance systems, product gondolas and racks, car washes (if needed), office equipment, computers, etc.

Step 6 - Contact some local liquor, food and beverage distributors to find out what their terms are and how much in the various inventories you'd need to get off the ground.

Step 7 - See if your state has a Petroleum Retailers Association that can give expected fuel sales numbers based on your location and traffic count. They should also be able to give you an idea on inside sales vs gallons sold.

Step 8 - Put all this information together for a sales presentation for potential investors.

Step 9 - Find investors.

Putting a deal like this together won't be easy, but if done right, will be a great commercial property investment opportunity. If nothing else, the educational experience of building a business from scratch will be worth it, even if it didn't get off the ground.

Let us know how it goes!