This process starts with the obvious question
Should You Buy Or Lease
The answer relies on your budget. A typical gas station business / convenience store cost anywhere from 250k to all the way 2 mills depending on location, age and many other factors.
A good solid profitable gas station business / convenience store maybe sold with real estate and priced high compare to a mediocre store on lease. But again it all depends on your personal finances. If you have a good bit of savings for down payment along with good credit and other collateral than you may be able to obtain a loan for a top notch station that is profitable from the very first day.
Before you decide to go this route, there are few things you need to do to make sure you will be able to accomplish this goal. Check your credit and make sure there are no errors or mistakes which are often found in 60% of the credit reports now days. Than talk to a CPA and get a good personal financial statement prepared for yourself where your debt to income ratio is favorable. Do an online appraisal to check the market value of your home or land and or other real estate investments you may have t see what your true equity is in those. Once you determined that you have enough down payments and enough equity and a good established credit report behind you, you can start your search to find that perfect gas station you want to buy and operate.
Next step would be to contact some brokers and commercial real estate agents and let them know you are in the market for a store. Make it known that you are only looking for stores with proven financial track record and with real estate.
Once you get a list of all the available stores for sale, the most important part of this process will begin, determining which one to buy. This is by far the most important factor of all the decision making process you will go through, and once you are able to pick the winner, everything else will fall in the right places from that point and on.
Once you get a few stores to consider, first ask for as much information as they can provide to you, you may have to sign a NDA (Non Disclosure Agreement) to be able to access the financials. Get professional help in reviewing these financials as most times a typical seller will provide 6-12 months of P&L and or income statements. Keep in mind these financials are a good starting point to narrow down the choices but they are only as good as the owners providing of sales and expense data to his or her accountant, so in other words these is never the ultimate decider as these number can easily be manipulated to make it look more attractive than it actually is.
Ok now let’s say you narrowed the choices down to 3 stores after doing the basic review of the financials, next you need to physically visit the stores to get the feel of the business, look at the location the neighborhood and take plenty of notes. One general rule of thumb is not to make it obvious or known to the cashier or person behind the counter than you are assessing the business to buy, instead keep it low profile and act like any other customer would do. You may have to visit each store more than once at different time of the day to see different time traffic flow so you can determine what prime business hours for that specific location are.
Once you visited the stores and taken plenty of notes, it’s time to create a work sheet like this one below (a box where one side says good, other side not so good and bottom will have a list of questions for the seller)
Time for you to ask the agent to make a face to face meeting with the seller
Let’s say you only have 50-100K and average credit than your options are more limited. In this situation you may still be able to find a station to buy with real estate, but you may have to find one that is FSBO where the owner will agree to sell it you on a Vendor’s lien or you can find one that is for lease with little to no goodwill value. Most times these types of stations are barely breaking even and require more hands on approach to make them profitable through excellent customer service to lower prices to be the most competitive store around and a top notch marketing effort.
Deciding which one to buy: Due Diligence Checklist
The key point in deciding which one to buy boils down to one point and one point only and it is the very important century old questions all perspective business owners have asked for hundreds of years “ does this one make money?”
Now you know which store makes the most money out of all, but that is not the only factor here, as we still need to see what the expenses of those stores are too. That way you can see which one makes the most NET profit, that is also known as the money you take home after everything is said and done.
One important factor to ask the seller is the status of their UST and if they are in compliance with your state environmental requirement.
Finally you now know which one of your pick nets the most money, but also do consider a few issues, like the distance to and from your home, the safety of the neighborhood and attractiveness of the location..Debate yourself if all those factors are acceptable to you in the long run? If so, than you now have your store you need to go forward and sign that purchase agreement and go for it.
There are few ways to finance your purchase, you can always stop in and talk to your local bank that you already bank with, see what their requirements are. You can also contact a local reputable mortgage broker who can find other non local specialty lenders who o=specializes in deals such as yours.
You can also go to SBA.GOV for some information and see which one of their loans you qualify for as they have various loan programs to fit most needs.
Once you gather up a few loan application packages (it is always a good idea to apply at more than one lender )its time to prepare some documents for your loan package.
- A typical commercial loan package should include the followings:
- A Detail business plan (include a plan)
- Your updated resume
- A recent signed personal financial statement (preferably prepared by a CPA give a sample)
- 3 years of personal tax return copy
- A copy of the Purchase agreement that you signed with the seller
- A current P&L of the business
A projected P&L of the business( shows how you see yourself financially a year after you take over, this is more like a forecast, typically should show you have improved the cash flow and the business)
Most commercial lenders will also ask for some environmental testing reports like Phase I and or Phase II testing of the premises.
It can typically take anywhere from 30-90 days from application submission to actually closing on the loan, especially if SBA is involved as generally SBA requires lot more documentation than other banks.
One point to note, when you sign a purchase agreement and put earnest money deposit, make sure there is a clause=use in that agreement that clearly states that the you will only buy the location if you can get “favorable financing from a lender”, this words can also act as an exit strategy in case you want to back out at some point in this process. This way you will get back all your deposit also.
Closing the Deal
Once you secured the loan, it’s time to set up a date for the actual closing, but before doing so few key thing to remember, ask a meeting with the seller to discuss the date and how to handle the inventory count.
Hire a reputable company that does inventory counting. Remember every item in the store is priced at retail and you should only pay the whole cost of that inventory and not retail. Typically it is decided between buyer and seller a day or two prior to the actual closing
It is always a good idea to ask the seller a week or 10 days in advance to shrink the inventory and keep the gasoline at minimum and not full tank, since gasoline prices are so volatile you never want to buy too much of it in advance.
Ask the seller f they have any prior inventory count sheet from any previous months so you can get an idea as to how much they have. It can be a benchmark for you
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