Selling a Gas Station

How the fuel side gets valued

Fuel is a volume business. Buyers want gallons sold by month for several years, and they want to know the margin on each gallon after the supplier, the card processor and the taxes have taken their share. The margin per gallon looks small and moves around with wholesale prices, so a buyer will average it over a long stretch instead of trusting one good quarter.

The location does most of the work. Traffic counts, the side of the road the station sits on, how easy it is to turn in and out, and what other stations are nearby all show up in the gallons. A buyer will drive the area at different hours and will probably count cars. They will also ask about competitors that are coming. A warehouse club or a large travel center opening a mile away can move the volume quickly.

Brand matters too. A station selling a major brand gets credit card network help, name recognition and often some marketing support. An unbranded station buys fuel from a jobber or on the open market and keeps more flexibility on price. Neither is better in every case. What matters is that the buyer understands which one this is and what it does to the margin.

The store inside

The store usually carries the profit. Cigarettes and other tobacco, beer and wine, lottery, snacks, fountain drinks, coffee and prepared food all sit on different margins, and a buyer will ask for sales by category. Tobacco brings people in but the margin is slim. Packaged drinks and prepared food do better. A station that has added a food program, a car wash or a well-run coffee counter can look quite different from one that only sells packaged goods.

Inventory is bought at closing in most deals, so the count has to be done carefully. Buyers will ask how often it turns, what has gone out of date, and how shrink, meaning the loss from theft and error, has run. Point of sale reports should match the bank deposits, and a buyer will compare them line by line. Cash sales that were not run through the register will not be counted as income, no matter how much the owner remembers.

Hours and staffing deserve a look. Many of these stores run around the clock, with an owner family covering the hardest shifts. Buyers know this and will ask what it costs to staff the store with paid employees. If the owner is working most of the week and drawing a small salary, the adjusted earnings need to reflect what a replacement manager would cost. Our post on what seller's discretionary earnings means walks through that adjustment.

The tanks and the ground

Underground storage tanks are the largest risk in this industry, and buyers and lenders treat them accordingly. They will ask how old the tanks are, what they are made of, when they were last tested, whether leak detection is working, and whether the owner has any record of a release. A buyer will almost always order an environmental assessment of the site, and the lender will require one. If that assessment finds contamination, the question of who pays for cleanup becomes the center of the negotiation.

Tank age and condition affect price directly. Old single-wall tanks may need to be replaced, and replacement is expensive enough to change the offer. Records for tank registration, inspection, financial responsibility coverage and any state cleanup fund participation need to be in order. Rules vary by state and your attorney confirms what applies to your site.

Owners sometimes want to start the environmental review early, before a buyer does. It is a reasonable idea, because finding out about a problem on your own schedule is better than finding out in the middle of a deal. We would talk to your attorney about whether and how to do that so the results are handled carefully.

Supply contracts, licenses and what transfers

The fuel supply agreement is the most important contract in the deal. Branded stations typically have a multi-year agreement with the supplier that includes minimum volumes and sometimes a repayment obligation if the station leaves early. Many owners received image funding or incentive payments when they signed, and part of that may come due if the contract is ended or not assumed. A buyer will read the agreement first and will want the supplier's consent to the transfer. The supplier may also set conditions such as upgrades or a new term.

Licenses are the next layer. The store holds permits for tobacco, alcohol and lottery, and the fuel side has its own registrations and weights and measures inspections on the pumps. These generally do not pass automatically to a new owner. The buyer applies for their own, and timing needs to be planned so the store is not closed for a stretch. Our closing post explains the sequence in a typical deal.

Real estate is often part of the deal. Some stations are owned by the operator, some are leased from a landlord, and some are in a structure where the owner holds the land in a separate entity. How the property is handled affects financing, taxes and price. See the post on selling a business with real estate attached, and the lease assignment post if you rent.

Records a buyer will ask for

Buyers will want business tax returns, monthly profit and loss statements, fuel invoices and gallons by month, point of sale reports by category, bank statements, card processing statements, inventory counts, payroll records, lottery and tobacco compliance records, the supply contract, tank records, insurance policies and the lease or deed. They will also want equipment lists covering the dispensers, card readers, coolers, canopy lighting, signs and any car wash equipment, with ages.

Payment card readers deserve a mention. Dispensers need to meet the card industry's current requirements, and if yours do not, a buyer will count the upgrade as a cost they inherit.

What tends to sink a sale

The failures are consistent. An environmental assessment finds a problem and the parties cannot agree on who owns it. The fuel supplier will not consent to an assignment, or demands terms the buyer cannot accept. The books show less income than the owner expected because cash sales were not recorded. The lender's appraisal comes in below the price. A license cannot be moved in time. Each of these can be seen coming a year out if someone looks.

How to prepare

Run every sale through the register and the bank for at least a year before you list. Get tank records and testing certificates together in one folder. Read the supply agreement and call the supplier's representative about what a transfer would require. Update the dispensers if they are behind. Train a manager who can run the store without you, and show what the store earns with that person in the chair.

At Business Advisors of America we begin with a valuation built from your gallons and your store sales, then prepare the materials a buyer and lender will ask for and screen buyers before they visit the site. If you want to see how buyers approach selling a gas station, that page is a good first stop, and a short call with us can follow.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.