GSB-59: 4th Q&A Episode | Part-1

In this episode, I answer three questions all related to buying gas stations and how to understand the numbers and if the stores are really making money or losing money. I think you may find this episode helpful if you are in the market to buy a business. Here I analyze some sales numbers and see which ones are making money and which ones are not. Stay tuned.

Welcome to Gas station business 101 podcast, I am Shabbir Hossain, and this is episode 59. This is the show where we discuss how to start, run and grow a gas station business successfully and give you an inside look at many real life case studies so you can follow and be successful in this business.

First my apology once again for not coming up with an episode sooner, I was busy with a few projects and had to put the blog and the podcast on the backburner for just a bit, but I am back, and hopefully I will be posting new episodes sooner rather than later. I still haven’t forgotten about the episode I promised you where I would share the new P&L of the subject store I helped some investors buy about 14 months ago. I have some new updates on that store and recorded that episode halfway through already, which I will share soon I promise.

Now as for this episode, I had to do this one first because I have had way too many emails lately where many of the blog readers and podcast listeners have been asking me various due diligence questions, and it is hard to answer them via email. So I have decided to pick just 6 out of them since they are mostly all similar in nature, and I thought by sharing them with rest of you, it will benefit everyone. For various privacy reasons, I have decided not to mention any names of the people that sent me these emails here.

Let’s dive right on…

 

Question #1

I need your advice about the valuation for the store based on the following information.

Inside Sale# $55000/month (27% profit margin)

$55,000 x 27% = $14,850

Outside Sale# 25000 Gallon/month (10 cents per gallon)

25,000 gallon x 10cents =$2,500

Lottery commission# 4000/month, ATM# $200/month

Total Gross Profit $21,550

Owner absentee

Capability to open deli with grill.

Store located in small town and mostly neighborhood business.

 

Expense:

Rent# 5000 "NNN."

Utility# 1300

Credit# 1000

Payroll# 2400 (Two full-time employees)

Other# 500

______________________

Total Expenses: $10,200

Net profit: $21,550 – $10,200 = $11,350

Asking price is $225,000

What would be the price we should go for?

Question#2

Shabbir, here are few questions.

Please note that I do not have prior experience, so how can I convince them that I am serious and are there any training provided by gas companies?

 

1. When buying just the business, I mean just goodwill without R/E, how do I make sure that my investment is protected? For Example, If I buy the lease for 500k and pay 16K a month. What if the lease is for two years and after two years the owner does not want to renew the lease. How can I make sure 100% that I will not lose everything?

 

2. As far as tax benefits are concerned at the end of the year, which option is better buying or leasing? I would appreciate if you only focus on the tax benefits since you have already talked about pros and cons from other angles. For example, let's say that gas station A is leased with goodwill paid by on-hand cash and gas station B is bought with R/E with a bank loan. Let's say both gas stations have exactly same per month profit after all lease or loan payments.

 

Now at the end of the year when I will file income tax, which option will give me bigger return? What is the best way to approach companies which own multiple stations around me?