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Franchise or Independent: Five Critical Questions to Ask Before You Buy a Gas Station

By Richard K Parker

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Published: 05Jul2009
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If you're thinking of buying a gas station, good idea! But should you buy a franchise or an independent? To make sure you're making the wisest choice, spend some time considering in-depth answers to questions like these:

Question #1: Who is on the hook for environmental problems?

Environmental compliance issues are the biggest difficulty in buying a station. If you run afoul of environmental laws, and have to pay for costly clean-ups or new equipment, it could be the end of your enterprise. I'm not exaggerating! Here are some situations that you might not have thought about . . .

* Underground leaks. If one of your tanks leaks, who pays for the clean-up - you, or the gas company who sold you the franchise?

* New equipment. If every station in your state is suddenly required by law to install a new kind of vent for underground tanks, you will have to pay for that equipment if you're an independent.

* Site remediation. If you sell your station, who pays for removing the underground tanks, cleaning up the soil and getting the certification that states your property's remediation (clean up) has been approved by the state?

Question #2: If you buy a franchise, can you stop worrying about environmental problems?

In general, the answer to this question is yes. Your parent company (Exxon, Mobil, etc.) will install any new equipment that the state requires, and will step in to do the clean-up if one of your tanks suddenly develops a leak underground.

However, you should never make any assumptions in this area. You and your attorney have to comb through your franchising agreement to understand exactly what's covered, and what's not!

Question #3: If I'm buying an independent, what do I really own?

If you buy a small independent station with no ties to a major brand of gasoline, the answer to that question is relatively straightforward. You're probably buying the business as an entity, as well as the real estate where the business is located, along with the tanks, pumps and other equipment that you'll need to sell gasoline. However, the picture can become complicated somewhat if you are buying the business, but not the real estate (land, buildings). You and your attorney need to pin everything down.

Question #4: If I am buying a franchise station, what do I really own?

The answers to this question can be more complicated than you'd expect. After you buy, for example, you might end up owning the building - but not the land and equipment, which are owned by the parent company. Or you could lease the building and the land, but have the canopies, pumps and other equipment owned by the parent company.

Bear in mind, different franchising companies structure their ownership packages in different ways. To find out if the deal is right for you, you'll need to go over all franchise plans and documents closely with your attorney.

Question #5: If it's a franchise, who pays for what?

If you buy a franchise, you'll probably be surprised to find out about all the things that your parent company expects you to pay for. Some or all of these items might not be covered, so be sure to ask ahead of time:

1. Insurance and Repairs - You may have to pay to insure and maintain the parent company's pumps, signs and canopies.

2. Rent Increases - If the parent company leases you the premises, be prepared to get socked with large rent increases every two or three years. Try to get these terms spelled out in the franchise agreement.

3. Promotional Items - When the parent company decides to sell a new kind of coffee in your convenience store, or to offer special gas discounts on Tuesdays, and decides to advertise those offerings with special signs - will you be required to pay for them?

4. Payroll and Benefits - Don't expect the parent company to pay salaries or provide benefits for your employees. It's the one area where you'll find that you're suddenly operating like an independent business.

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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