You can be in charge of a profitable business when you own a gas station. As with any opportunity like this, there are several different factors that must be considered before you decide to start one or purchase an existing company. When this business is well-run, it can generate a healthy profit that benefits your bottom line.
It is essential to find a location where traffic is high so that there is a significant volume of fuel purchased every month. You will also want to have enough room for a convenience store on the grounds to supplement the amount of income possible at that location.
This business opportunity is also one that is labor-intensive. Your ability to operate at a profit depends largely on some factors that are often outside of your control. That is why it is important to review all of the pros and cons of owning a gas station before deciding that this opportunity is the right way to invest your resources.
List of the Pros of Owning a Gas Station
1. A gas station has a product which is always in demand in every community.
People need to get back-and-forth from work every day. They are taking their kids to soccer practice and after-school activities. We are a society where transportation is an essential need. Even when there is a recession and drivers are conserving gas by traveling less or using public transportation, there is still a demand for fuel. The fact remains that most households rely heavily on a private vehicle for their daily needs. As long as we continue to drive to run our errands, there will always be a need for gas stations.
2. Gas stations provide drivers with more options today.
Alternative fuel options are becoming one of the most significant innovations in the automobile industry today. Vehicles that are 100% electric do not have the need to purchase fuel from a gas station. Some might see this as a disadvantage, but it is an opportunity to create change within this industry. People are going to need a way to add fuel to their vehicles in some manner in the future. Even if that is an electric-based resource, there will still be a demand for gas stations. They might not be offering gasoline in the future – but that’s okay.
3. You can sell more than fuel at a gas station.
Owning a gas station means that you have access to an opportunity to sell more items to your community. That is why many stations create a convenience store where snacks, beverages, and even souvenirs offer the potential of multiple revenue lines. You could also add a repair shop to your location as a way to provide drivers with the mechanical services they might require while traveling. Even if you purchase this business without the add-ons available, you can still add them in the future with the appropriate building permits.
4. It does not require skilled labor for most employment positions.
Unless you decide to add a repair shop to your gas station, send the employment opportunities that are available through this business do not require skilled labor. This benefit makes it possible to keep your labor costs down because you could hire add an entry-level position at all levels, including management. It is possible to run this business as an absentee owner if you can find a trustworthy general manager who is willing to take over your daily operations.
5. You get to call the shots.
When you own a gas station, then you are the one who gets to make all of the decisions about how the business operates. You get to decide which services your location will offer. It is your choice to offer specific hours of operation to the community. You can decide if you want to franchise the business, or you can try to operate as an independent company. This structure makes it possible for you as an owner to do what you think is right for your market. It is even possible to competitively source products for sale from local distributors and vendors.
6. There may be financial assistance available for you.
If you decide to purchase a gas station from an independent owner, then it is possible for the seller to finance a sizable portion of your initial purchase. This benefit is also a potential advantage when choosing to work through franchises instead, especially if you work with a department like the Small Business Administration. Although this will not reduce the overall capital cost of your investment, it can make it easier to have additional liquid capital available during the first few critical months of ownership.
7. You can sell your business when you are ready to leave.
When you own a gas station independently, then there are no restrictions placed on how or when you can sell the business. If you are ready to retire or pursue a different opportunity, then you can place this asset for sale. This advantage is possible with franchises as well, although there are more restrictions in place that can sometimes make it a challenge to find a suitable owner. You would need to ensure that the new ownership group has the net worth and available capital to meet the demands of the brand.
8. It is possible to work under an established name brand as a gas station owner.
When you look at gas stations in the average community, they are operating under a familiar brand name thanks to franchising agreements which are available in this industry. Companies like Citgo and Shell work with local providers to create a business opportunity that can generate jobs and profits immediately because of the consumer’s recognition of the branding. Although you must maintain your station based off of the standards of the parent company, becoming a franchisee is a fast way to become a local business owner in this industry.
9. You can receive insurance against environmental problems.
When you decide to operate a gas station under a franchising agreement, then you receive insurance and protection against possible environmental problems that may occur at the site. If inspectors determine that there are issues with your gas station, then it is the franchisor who becomes responsible for correcting the issue and cleaning up the problem. The parent company is usually the one on the hook for tank upgrades and equipment leaks that are sometimes expenses that are necessary for the continued operation of your business.
List of the Cons of Owning a Gas Station
1. It is a business that sees high levels of fluctuation.
Although the potential for profits is high when you have a gas station in your business portfolio, there is a lot of consumer fluctuation that occurs within this industry. There will always be a need for fuel at some level. When gas prices are high, then you will see fewer consumers coming to do business with you. There could be daily fluctuations based on traffic levels, road construction, and even the weather. When you add these factors to the changes in fuel price that occur, this business can be challenging when trying to estimate profits.
2. Gas stations operate on extended hours.
If you want to maximize the potential profits of a gas station, then you must operate the business on a 24/7 rotation. Even if you hire someone to be there frequently, there will be times when you must be on the premises to ensure that everything is operating smoothly. That means you are either giving up your own time with this business opportunity or your profits to ensure that the gas station continues to operate.
3. There may be fuel contracts that you must follow.
When you operate a gas station as an independent provider, then most vendors will want to lock you into a long-term contract to ensure that they can stay in business and you can have a product to sell. This disadvantage can make it challenging to switch to a new vendor if the prices under your current contract are becoming unmanageable. If you decide to franchise the business, then you may be stuck purchasing your gasoline from the franchisor over the life of the agreement.
4. You may need to have a buyer be pre-approved before a sale.
Some independent operators must receive permission from their local government to transfer ownership of their gas station when they are ready to sell it. Franchisees must receive pre-approval from the home company to sell their business to a potential investor because there are specific qualifications which the individual must meet. If you have enough resources, it is easy enough to get into this industry to create a profitable business. When you are ready to retire, the process is not always as simple.
5. Affordable gas station businesses are not always in desired neighborhoods.
If you are looking for an investment that is not going to break your bank, then a gas station which is affordable will often be in either in a less than desirable neighborhood or a small town where there isn’t much traffic available. Most stores that fit into these categories must be open 24 hours a day. That means you will find yourself encountering some unique individuals who come to your location early in the morning or late at night to create a disruption of your regular routine.
6. It can be a dangerous business.
Working with gasoline can be dangerous because of its flammability and fumes. Gas stations are also frequent targets of people who are seeking an illegal payday through a robbery. There are over 15,000 robberies at convenience stores in the United States each year. Another 7,000 incidents occur at gas-only stations annually as well. Even if you have state-of-the-art security systems protecting and monitoring your property, there is an excellent chance that someone will try to profit at your expense in a dangerous way.
7. Gas stations can operate on skinny margins.
Most gas stations, even ones that are independently owned, are operating on a profit margin that is very thin. If a customer were to spend $50 at the pump, then 60% of that amount goes directly to the oil company. Then another $7 goes to the refinery who created the fuel that you can sell. Taxes could take up another six dollars of this transaction. You have $4 to pay to the delivery company, and then there are the transaction and processing fees to consider since the customer probably paid with a credit or debit card. At the end of the day, you might make a dollar from the transaction.
8. There is a lot of competition in this industry.
Most communities with over 2,000 people have multiple gas stations supporting their needs. Knowing what your competitors are doing will become a full-time job. Many companies must try to either match or beat the discounts available at other stations to create a chance for profitability. Many consumers base their decisions on which location offers the lowest price more than they focus on quality because the price of fuel is such a variable for them. If you are the most expensive place in town, then you might not see any business some days.
9. You might have an annual purchase requirement to meet.
If your decision to own a gas station involves the franchise, then it is important to read the entire terms and conditions of the contract before finalizing it. Many of the top brand names in this industry require a minimal annual purchase requirement to maintain your status within the agreement. If you do not sell enough fuel over the year, then the remainder of your minimum purchase can become due immediately. That expense could be enough to wipe out whatever profits you were able to make during the year.
10. Some cities are reducing the number of gas stations that are available.
You must take some time to research your market if you were thinking about opening a gas station in the near future. Many of today’s largest cities, especially in the United States, are reducing the number of facilities that are available in this industry. The most congested cities, such as Boston, San Francisco, and New York City, are seeing the steepest declines. Manhattan has lost over 20 different locations since 2004.
11. Your customers are not going to want to wait for services.
If you are thinking about a gas station as a possible business opportunity, then you must think about the number of pumps that you will install at your location. People do not like to wait for commodities like fuel. They find it easier to wait in line for tickets to the movie that they want to see then they do to refill their car. Stopping for gas is treated as a nuisance. If you only have a couple of pumps, then it could create long lines that will cause people to look for a different place to purchase their gasoline. The average price for a gas station fuel pump is roughly $2,000.
12. The initial loan to purchase a business can come at a higher interest rate.
If you are thinking about the purchase of a gas station, then it is an excellent idea to think of it as a mortgage transaction. Most lenders are going to want at least 20% down on the loan if you are not able to buy the existing company or franchise opportunity outright. As one station owner said on Reddit in 2014, their $1.6 million store required a $320,000 down payment. Then the interest rate must also be taken into consideration. You could be paying 8% interest or more on the loan, around 4% in royalties to a franchise, a marketing fee of 3%, and this all comes from your gross revenues instead of your net.
13. It can be challenging to know if a business you wish to purchase is profitable.
Gas station owners are notoriously bad at keeping records. Although this disadvantage is somewhat of a stereotype, it can be problematic if you’re trying to determine how much profit potential a location has if you’re thinking about buying the business. You will need to make most of your decisions from the facts and figures that your accountant and lawyer can review and approve for finalizing the transaction. If there is not any documentation available to prove that it is profitable, then you may want to look for a different opportunity.
The pros and cons of owning a gas station are similar to the issues that anyone faces when they are their own boss. You will find that an excellent location, well-run facilities, and product availability can help to establish multiple revenue streams that help to make your company profitable quickly. There are also variables which will always be outside of your control that may adversely impact how you can serve people. That is why evaluating each critical point is essential to a successful experience.
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