Large numbers of entrepreneurs want to buy gas station business opportunities because the industry seems to be thriving whether the economy is strong or sick. Like a grocery store or an energy supplier, the gas station provides something that almost everyone needs.

And connecting to a complementary business, such as a car wash or convenience store, can generate substantial profits for the entrepreneur with a “buy a gas station business” strategy. No special knowledge beyond basic business competence is needed to run it efficiently.

However, there are risks, specific to this type of business, that a potential buyer must understand. Understanding these risks and how to avoid them can help the entrepreneur enjoy success with a solid gas station purchase.

1. Soil contamination is common among petroleum retailers that have not upgraded to newer, leak-proof storage tanks. Most communities enforce environmental regulations for gas stations. Any oil-leaking business will be forced to close in order to remove contaminated soil and upgrade storage facilities. Finally, a new station is built on the site. What a problem for a new station owner! Anyone looking to purchase gas station business opportunities is advised to insist that any purchase agreement requires testing of soil samples and that the results show no contamination.

2. A related problem is the condition of the storage tanks. Older steel tanks invariably start to leak after years of use. Newly installed and renovated service stations are equipped with double-walled fiberglass tanks (referred to as DWFGs in the industry). And the tanks are equipped with leak detection sensors. Any offer made to buy gas station business must include a provision that requires upgraded fuel storage to be part of the deal.

3. Failure to determine who owns the property the station is on before the purchase is complete can lead to a terrible surprise. In many cases, even the franchisors of major California oil companies have placed their large, familiar signs on properties that they do not own. Imagine the anguish of big-name oil company franchise owners who find out, the hard way, that the franchisor’s rights to the property were “shorted out.” A ten-year sublease is meaningless if the sublord, the oil company with the main lease, loses its right to conduct business locally.

4. It is reasonable to expect when bidding for a gas station that access to the property will continue to be as easy in the future as it has been in the past. But what if the local government plans to demolish the streets adjacent to the station to repair underground utilities or improve roads? Most commercial offers do not include a contingency on obtaining satisfactory information from the city planning and development department. But a condition with that requirement should be included in any offer to buy gas station business assets.

5. The possibility of paying too much for a company in this category is a significant risk for someone who is willing to buy business opportunities at gas stations. It is a mistake to believe that the seller or broker is claiming that the appropriate price is determined by gross sales or the number of gallons pumped each month.

Like any small business, a gas station should be valued based on the seller’s earnings before deductions for interest, taxes, depreciation, and amortization. Pump volume or gross revenue may not be related to profit and should not be considered when determining the value of a station. The buyer is safe using the multiple earnings applicable to most small businesses.

The top of the range of multiples is about three times the average annual earnings recorded in the last three to five years, and can be applied to a business with a seller ready to help finance, lots of equipment in good shape, and a long lease. term in competitive rates in the market.

The buyer who has “buy gas station business” on the to-do list and is considering a business that does not offer these benefits should consider that the correct price is about twice the average annual profit. And many opportunities in the industry have value using a multiple between two and three.

The entrepreneur who wants to buy business opportunities at gas stations can invest in a company or companies that are very profitable and not too complicated to operate. But the benefits will only increase for a buyer who is cautious to avoid the risks inherent in buying this type of business.