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Should a Convenience Store Be Part of the Gas Station You're Buying?

By Richard K Parker

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Published: 06Jul2009
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Several decades ago, a gas station was a gas station, and a convenience store was a convenience store. If someone had predicted back then that these two very different businesses would join in holy matrimony and become a fixture on America's highways and byways, I wouldn't have believed them.

But when you stop to think about it, it's a marriage that makes a lot of sense. When people stop for gas, why not offer them a chance to spend even more money on the things that they might also want - coffee, soft drinks, snacks, and other inexpensive items? Maybe even a pair of sunglasses to cut the glare of the road?

So, why not go ahead and buy a convenience store at the same time you buy a gas station?

Well, perhaps... But before you make a snap decision, you have these two fundamental questions to answer:

Question #1. If a convenience store is already part of the gas station business, is it profitable? If it isn't, can you turn it into a money-maker?

Question #2. If a convenience store isn't already part of the business you're considering, does it make sense for you to add one? Bear in mind that you need not hurry to add one, if none is present. You can add one later, when it makes financial sense.

Estimating Potential Costs and Profits.

Whether or not a convenience store is already part of the business you're considering, here is a checklist of expenses that can help you evaluate the associated costs. Compare these costs to profits (or potential profits) and you will be able to make an educated estimate of a convenience store's profit potential. Never accept the Seller's figures regarding these expenses. You'll have to dig deep and come up with cost estimates that you can actually verify.

Insurance - If there is already a convenience store, how much does insurance cost? Remember, the coverage that's already in place might not be enough. Speak with an insurance broker to determine what kind of coverage you really need along with the overall cost. You'll quickly learn that if a convenience store is part of the package, you're going to require a lot of additional coverage for liability, workers compensation for staff, and more...

Payroll - You'll have to hire and pay employees to staff your convenience store. You might also have to pay benefits. Ask the Seller of the business about who staffs the store. If he or she is using underpaid relatives to staff it, it can be difficult to arrive at an accurate picture of what your payroll will be once you are the owner.

Utilities - Convenience stores need to be well lit. They also need to be heated in winter and cooled in summer. Those costs can really add up.

Retail Payment Systems - These include accounts to process credit cards, cash registers and more. If up-to-date systems aren't in place, you will need to upgrade all of them.

Lottery Terminals - Many shoppers buy lottery tickets when they buy gasoline. Adding a lottery terminal might seem like a great way to generate income, but before you start counting on this extra income, check with your local state lottery authority to learn about the costs involved with owning a terminal.

Signage - To boost profits, you'll need good signage to let customers know that a convenience store is part of your operation. If signs aren't already present, you will have to buy them and add them yourself.

Paving, Snow Removal, Landscaping and Other Associated Costs - Customers need to be able to park in convenient locations and walk safely to your store. Those factors make it more expensive to run a gas station/convenience store than it otherwise would be to operate a gas station alone.

Questions to Ask the Seller If a Convenience Store Is Already Part of the Business You're Buying:

* What is your current inventory and what is it worth? (Remember not to count perishable items such as dairy products or returnable products such as magazines.)

* How much profit have you been generating from convenience store sales?

* Please provide an approximate breakdown of your revenues between gas sales and retail, and a further breakdown of the retail sales.

* Is your convenience store a franchise that is separate from your fuel operations?

* Do you operate the convenience store as well as the gasoline station part of your operation - or is the business split? If the operations are divided, how is that structured?

* Do you have automated inventory tracking and control systems in place?

* What products are you selling in your convenience store, and how much volume/profit is tied to each of them?

* Who are your suppliers for tobacco, beverages, coffee and all of the other retail offerings?

* Do you sell lottery tickets? What are the costs and profits?

* What hours are you open? Which hours of operation are the most - and least, profitable?

So, should a convenience store be part of the package when you buy a gas station? Should you think about adding one, if none is already there? To find out, you need to take out a sharp pencil and work with the checklist above. You need to make sure you're buying a station that is profitable both today and in the years to come.

Richard Parker is the author of the How to Buy a Good Business at a Great Price series. As President and founder of Diomo Corporation - The Business Buyer Resource Center, his materials, seminars and consulting have helped thousands of business buyers realize their dream of buying a business. Want to find out more about business buying strategies that really work, then look no further than=> http://www.howtobuyagasstation.com/

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