As at 31 January 2017, there were more than 18.8 million registered motor vehicles in Australia. This huge potential market makes buying a petrol station a viable option for commercial property investors or those looking for an ongoing business to run.
However, there are several considerations you’ll need to take into account before buying a petrol station. This article examines how you can find a suitable petrol station, how much a petrol station will cost, and how you can find the right loan to finance your purchase.
What factors should you consider when buying a petrol station?
Thinking of buying a petrol station? Make sure you consider the following factors first:
- The fuel supplier. Most people who buy a petrol station enter into a franchise arrangement with Caltex, Shell, 7-Eleven, or another major provider. Under such an arrangement, the tanks, pumps and lines are the responsibility of the larger company. If you choose this option, make sure you carefully consider the terms of the franchise agreement, particularly the lease, before you sign to make sure you’re getting a fair deal.
- Going independent. If you don’t want to join with a major brand you could consider buying an independent service station. While this means you don’t have to answer to a major conglomerate, it also means you don’t get the support with marketing, fuel shopping and setting up your service station that you could expect from a major brand.
- Your experience. If you want to qualify for petrol station finance, you’ll typically need to demonstrate previous experience successfully running a business in the same industry. If this is your first service station, it’s much harder to get loan approval and the bank will likely review your funding arrangement yearly.
- Location, location, location. The location of a service station and the traffic that passes by it are crucial to its financial success. It’s much easier to get financing to buy servos on busy roads and highways than on quiet backstreets.
- The competition. While location is critical, service stations in prime locations will usually also have plenty of direct competition nearby. This can have a huge impact on profitability and is another factor banks will consider when assessing your application.
- Financial position. You’ll also need to take a close look at the financial position of the petrol station to determine whether it represents a viable purchase and can continue providing a profit.
How much will a petrol station cost?
Costs vary widely depending on the size and nature of the business, as well as its location. The cost will also differ depending on whether you buy a leasehold petrol station, which means you only own the business, or a freehold petrol station and purchase both the business and the land. Then there are business-specific factors such as whether or not the petrol station has electronic doors and a state-of-the-art security systems, as well as the cost of due diligence (for example, soil testing to make sure contamination is not a problem). You’ll also need to arrange a site assessment report from your state’s Environment Protection Authority, which can be a significant cost.
As there are so many factors that can influence the price you should pay, it’s important to have the business properly valued before you buy. You’ll need to consider:
- Previous years’ financial statements
- Physical assets (machinery, buildings, equipment, stock etc)
- Other assets, for example, intellectual property or business goodwill
- Registration papers and permits
- The business lease
- Market conditions, including competition in the local area
- Sales reports and forecasts
- Business plan for future growth
- Employee skills, experience and pay rates
- Supplier details and arrangements
While you may consider trying to calculate the value of a business yourself, this is a task that’s usually best left to an expert. An accountant, a business advisor or a business broker can help you analyse both your own finances and the value of any business you’re considering buying. They can also examine market trends to help you work out a fair value for the petrol station.
How can I make sure a petrol station is worth buying?
Before buying a business of any kind, you’ll need to determine its financial state and future potential to decide whether it’s worth it. Factors you’ll need to consider include:
- Business financials. Look at financial statements for the past five years as well as sales reports, forecasts and future business plans.
- Reason for selling. Find out why the current owner is selling. Are they simply looking for a new challenge, or are they moving on because the business isn’t turning a profit or faces a future threat to its survival?
- The business itself. Is it in a good location? Is it part of a franchise that restricts how it operates? Does it have all the necessary permits and licences? What arrangements does the current business owner have with suppliers and will they remain in place?
- Competition levels. Examine the strength of the competition from nearby petrol stations and the risk this will pose to your ability to turn a profit.
- The industry. Look at the petrol station industry as a whole to consider any risks to the business’s future success. For example, what effect will the rise of electric cars have on fuel sales? Will apps and other technology that allow customers to pay for petrol at the pump without entering the shop cut into your bottom line?
- Staff. What skills and experience do current staff possess? How much are they paid? Do they require any licences or additional training?
How can I finance the purchase of a petrol station?
If you need financing to help you purchase a petrol station, you’ll need to apply for a business loan. Petrol station loans are available from a wide variety of banks and other lenders around Australia, so it’s worth shopping around to find the lender and loan that meet your needs.
To qualify for a loan you will need to provide a business plan and profit forecasts for the petrol station, as well as details of its current financial position. The lender will also consider your own financial position as well as any previous industry experience before approving your loan.
Frequently asked questions
How can I check whether a petrol station’s underground petrol tanks have caused contamination?
Check the Contaminated Land and Environmental Management Registers to find out whether contamination has been a problem in the past. It’s also recommended that you conduct soil testing to check for any contamination.
How much can I borrow?
As a general rule, it’s possible to borrow up to 50% or even 60% of the property value for leasehold purchases, and more for freehold petrol stations.
Are interest-only repayment options available?
Yes. Depending on the strength of your application, some lenders will provide the option of interest-only repayments for a set period.
I don’t have any experience running a petrol station – will I still be able to get financing?
Yes, depending on the strength of your application, it may still be possible to find a loan. However, lenders will view applications from people with previous experience in the industry in a much more positive light.
Extracted from Finder.com.au.