Gas station franchises can be a very profitable business to be in. It doesn’t appear that Americans love affair with gas guzzling vehicles will be over anytime soon!
However, most will fail within the first year. Listed below are the top five reasons why I think they will fail. With the proper planning, you can avoid these common mistakes.
#1 LOCATION, LOCATION, LOCATION
When looking for a gas station franchise to buy, you want to ensure that you will have the highest traffic area possible. Without people coming to your gas station…you won’t be in business for very long!
So some key things for you to be aware of (and communicate this with your realtor or business broker).
- What is the current traffic counts?
- What is your current competition? Is there space for competition to build near you?
- Visit the local planning commission to determine if any building permits have been issued or if any road construction is planned?
- Is the gas station easily accessible from all sides or is it boxed in with one way in or out?
#2 IS THE CASH REALLY FLOWING?
Most people who are not in the gas station business, mistakenly assume that the owner is making a ton of money off of them each time they fill up their tank (I’m paying how much per gallon!!!). But that is wrong. In reality the owner has very low margins when it comes to gasoline sales. They actually make very little money.
So how do they make their money?
With all the other services they offer, such as:
- Attached car wash
- Convenience store
- Attached fast food restaurants
The mark-up on these extras is usually pretty high and that is where the money is made. As with any business you will want to verify the current owners financial statements (you must verify…do not blindly believe what you read on their financial statements). Make sure that the revenue and profit margins make sense for that location and industry standards.
#3 TRYING TO DO IT ALL ALONE
Before you buy that gas station, do a little networking with current owners. By networking, you can learn what the current “hot” issues affecting the industry in your area, where to find local suppliers and other things of interest. Some national organizations to check out are:
* National Association of Convenience Stores
* The Petroleum Marketers Association of America
#3 WE NEED SECURITY OVER HERE!!
The gas station franchise business is a business where everybody wants to steal from you! Probably the biggest problem is drive-offs (where customers fill up with gas but forget to pay for it and just drive away). You will also face theft from employees and vendors, so make sure that the property has a good security system in place. If they don’t, you will want to look into the cost of getting good security system in place. You will need cameras in key locations, alarms and employee protocols in place (in case of robbery, fire, etc).
#4 CHECK LICENSES & PERMITS
So many first time gas station franchise owners are so busy looking into the financials that they forget this piece of it. You will want to make sure that the curent owner has all of the state licenses as well as any license to sell liquor, lottery tickets or cigarettes. You will need to find out how to transfer and/or qualify for those under new ownership. There is usually a cost associated with these licenses & permits, so plan accordingly.
The brand affilation is an important aspect of your business. When you buy the business from the current owner you don’t necessarily maintain the same brand. This is an important aspect that will require investigation on your part. What does the current franchise agreement look like? What are the current franchising fees? You will want to set-up meeting with the Brand/Oil company representatives to make sure that you meet their qualifications. It is a good idea to include in your sales contract that the current franchise agreement must be transferable.