Service stations businesses are currently in high demand. Why is this? Because they sell ‘a commodity’, and can be very profitable. I get phone calls every day from people wanting to get into the fuel industry because they think it will be easy, or they have friends who operate a service station and say they should get one too. To operate a service station successfully takes dedication, commitment, and customer service. Some people have poorly stocked shelves and lack cleanliness. A service station is like a baby as it needs constant attention and love.
Today I will focus on buying the business and what do you need from a financial point of view. The best way to help you understand is to create a fictional service station and build from there giving figures to illustrate the process. This service station is in a metropolitan area and is selling for $300,000 goodwill plus SAV (stock at value). Can you afford this? Well let’s look at what you will need to get started (Capital Required to Operate).
Besides the goodwill, you will need to know what the value of the stock (wet/dry), monthly rental in advance, licences, insurances, stamp duty, legal costs, wages, uniforms, other set up costs and lastly you need to know if you have to pay a bank guarantee or bond? With a service station selling for $300,000 it is reasonable to estimate for the CRTO would be $550,000. Yes, it does add up very quickly.
What will the bank lend to me?
Generally banks will lend only 50% of the goodwill and will not lend on stock or the other capital required. So with the example above you will need $550,000 to purchase this business and if the bank lends to you 50% goodwill this will be $150,00 you still need $400,000 cash. Many buyers don’t realise that it is not just the goodwill needed to purchase a business, there are a lot of other hidden costs.
Do you own a property and have assets? Without this it is an unsecured loan and banks will want some form of security to lend to you like a ‘Right of Entry’. This means they will want to take over operation if you fail to meet your financial commitments to them. So will the landlord grant a ‘Right of Entry’?.
This is only one aspect of owning a service station and I hope this have given you some insight on what it needed before you take that next step.
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Patty Taylor is in her 7th year with Benchmark. She is one of our business brokers who is an expert with the operation and sale of service stations. Since joining Benchmark Patty has assisted many clients to buy and sell service stations across a wide area, and a variety of locations. If you are looking to buy or sell a service station – Patty is the person to speak with.
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