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How to Value a Gas Station For Sale
In many cases, the gas station evaluation process can be complicated. Far from the usual question of how you go through the valuation stages, there are many different factors to consider whether the property in question is leasehold or part-owned. there are variables. franchise agreement with a major oil company. First and foremost, always remember to apply a thorough due diligence process and pay close attention to financials as you work to achieve a superior value proposition.
As a buyer, you should be prepared to make certain assumptions and decisions yourself and not rely on the often partial information provided by the seller. It is up to you personally to determine the value of the business, because the amount the business owner thinks the gas station is worth has nothing to do with its true value.
Traditionally, there are two ways to look at the value of a gas station and they are asset-based, where income-producing assets are valued separately and aggregated to determine the purchase price, or cash flow-based, which is the most popular. . . In this scenario, the total profit is adjusted according to the known costs, multiplied and used to set the price. A lot is the premium placed on the business, which can be five times that figure.
Before you can arrive at a value you’re happy with, you need to answer some basic questions. If the business owns a rental property, you should contact the landlord. Many landlords are not interested in granting a new lease unless they are confident that the entrant has experience running this type of business. However, they are almost always willing to negotiate because they don’t want to see a property sitting empty!
As a gas station and convenience store owner, you will have many different suppliers and vendors, some of whom are critical to the ongoing success of the business. Never assume anything and be sure that you will be able to enjoy a lasting good relationship and excellent sales terms with these entities.
When considering a cash sale, if the seller can’t prove part of the sale they’re talking about, you can’t include it as part of the valuation. Often, gas station owners proudly talk about the amazing volume of cash sales and talk about it as if it were something magical. Do not forget that they benefited from tax avoidance on this part of their income, almost never prove its existence, and therefore cannot expect to make a profit from it by selling their business.
Often you will want to consider using total ownership interest as a basis for creating a valuation for the business. This is defined as the net income of the business minus any allowances, depreciation and interest added to the owner’s salary, and any amount you need to set aside for capital projects. As for the average business valuation, a full-service gas station or convenience store owner’s profit margin is often 2-3x whatever . If it is a smaller establishment and self-service, 1-2 times. Consider the size of the trade and how much time you need to spend. A 24-hour, seven-day-a-week facility requires a lot of management and supervision.
While the financial performance of the business and the profits of the owners are central to your decision-making process, remember to consider many other variables:
– Use the time you count the number of customers entering and exiting the station so that you can get a good traffic average during the tracking process.
– Remember that you should aim for a 25 to 33% return on your cash investment when buying a business like this, although you should be prepared for a lower return if you want to be a layoff owner.
– Be careful if the owner seems to be working long hours or believes that some of his family members will help him with the operation. Look at employee records and expenses and ask yourself if you’re willing to be as practical as it seems.
– Check with local authorities to see if any major road construction is planned. Sometimes it is inevitable, but it can have great destructive power.
To really get the seller’s attention to determine the purchase price for your business, why not ask them to deal with a “earn-out” scenario where a portion of the sale price is paid back to them over a period of time. time according to certain conditions. This will ensure you have their full attention during the disclosure phase!
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