How to buy a petrol station
Despite falling oil prices buying a petrol station can still generate healthy profit margins.
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Buying a petrol station ranges from roughly $90,000 to as much as $3.5 million, depending on a number of factors, including the location, size and profitability of the business.
There are currently nearly 20 million registered vehicles in Australia and driving remains one of the most popular transport options available. As a result, petrol stations, also known as fuel stations or service stations, have been a mainstay of the Australian small business industry for decades.
If you want to buy a service station, find out what to look for and compare business loans now.
What factors should you consider when buying a petrol station?
Thinking of buying a petrol station? Make sure you consider the following factors first:
- Your fuel supplier. Most people who buy a petrol station enter into a franchise arrangement with United Petroleum, Caltex, Shell, 7-Eleven or another major provider. Under a franchise arrangement, the tanks, pumps and lines are the responsibility of the parent company. If you are opting for a franchise agreement, ensure that you read the terms thoroughly prior to signing a contract. Given the number of petrol station franchises in Australia, it's important you find the one that is the best fit for you.
- Negotiating a lease. Negotiating the terms of your lease with a seller, if you opt for a franchise arrangement, will often help you to secure a better deal. Make sure you carefully consider the lease terms before you sign on the dotted line. If you're not a born negotiator, you may be able to find a third-party provider to negotiate on your behalf.
- 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. The location of a service station and the traffic that passes by it are crucial to your business's financial success. For example, it's notably easier to get financing to buy service stations on busy roads and highways than on quiet backstreets.
- Environmental site assessment. Petrol stations can pose serious environmental risks, human risks and high potential liabilities. Ensure that you carry out a thorough environmental site assessment of your chosen location prior to making your purchase.
- 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 may 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 whether it will be profitable in the future.
How much will a petrol station cost?
Buying an existing petrol station can cost (on average) anywhere between $200,000 and $2,000,000 or more in some cases. There are a number of costs associated with buying and running a petrol station in Australia. The size and location of the business as well as the nature of your investment will all influence these costs. You can choose to buy a leasehold petrol station, which means you only own the business, or a freehold petrol station, which requires you to purchase both the business and the land. You'll also need to arrange a site assessment report from your state's Environment Protection Authority, which can be a significant cost.
Since 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 the following:
- Previous years' financial statements
- Physical assets (petrol pumps, 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 adviser 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?
If you want to buy a petrol station, you'll first need to determine its financial state and future potential to decide whether it's worth the investment. Factors you'll need to consider include the following:
- Business financials. Look at financial statements for the past five years as well as sales reports, forecasts and future business plans.
- Reason for selling. It's important to understand why the current owner has put their leasehold or freehold petrol station up for sale. 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 in to 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 profitable is owning a petrol station?
The profitability of owning a petrol station will vary depending on a number of factors, such as location, size, overhead costs, fuel supplier and fuel costs, whether you buy a leasehold or a freehold, and of course, how well the business is run.
While exact profit is difficult to accurately estimate based on these factors, the annual revenue and cash flow of Australian petrol stations that are currently for sale can be accessed upon request from sellers.
There is also the wholesale and retail costs and margin of petrol to consider. Wholesale and retail costs and margin represent a small part of the retail fuel price and include:
Wholesale costs and margin
Importing costs to land fuel into Australia (other than the "international price of refined fuel"):
- These costs include the quality premium for specific Australian and State fuel standards, freight, wharfage, insurance and loss, and other charges.
- These accounted for 4-6 cents per litre for petrol in recent years, according to the ACCC.
- The international price of refined fuel plus "importing costs" is called the "import parity price" or the "refined product cost" to Australia.
Wholesaling costs and margin to store and handle the fuel once it arrives in Australia and prior to its distribution to the domestic market:
- These include terminal capital and operating costs and a small wholesale margin or profit where competitively possible.
- Wholesale margins and operational costs account for around 5 cents per litre (ACCC).
The ACCC estimates that over the last 12 years, after deducting those expenses, the wholesale sector made an average annual net profit across all fuels of 1.7 cents per litre.
Source: aip.com.au
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 a 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.
Business loans to consider when buying a petrol station
Frequently asked questions
Compare business loans
Picture: Shutterstock
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