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 pause to consider it, the merger makes a quite a bit 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? Perhaps even a pair of sunglasses to reduce the glare from 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 choose what you’re going to do, you should answer these two fundamental questions:
• 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 currently part of the business you’re thinking about buying, is it worth your while to add it? Remember that you don’t need to hurry to add one, if one isn’t already there. You can add one later, when it makes financial sense.
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 take at face value the Seller’s figures dealing with these expenses. You’ll have to dig deep and come up with cost estimates that you can actually verify.
Insurance – If there is already a convenience store, how much does insurance cost? Keep in mind, the level of insurance that’s already in place may not be sufficient. Speak with an insurance broker to determine what kind of coverage you really need along with the overall cost. You’ll rapidly realize that if a convenience store is part of the deal, you’re going to need quite a bit of extra coverage for liability, workers compensation for employees, and more…
Payroll – You’ll have to hire and pay employees to staff your convenience store. You may also have to pay out for 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 – Quite a few shoppers purchase lottery tickets when they purchase gasoline. Installing a lottery terminal may seem like a fantastic way to increase your income, but before you begin counting on this additional income, contact your local state lottery authority to find out about the expenses involved with utilizing 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 there, you’ll need to purchase them and put them up 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 package when you buy a gas station? Should you think about adding one, if none is already there? 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 President and founder of the Diomo Corporation – The Business Buyer Resource Center. His inspiring materials, seminars and consulting have assisted thousands of business buyers with achieving their life long dream of buying a business.
