Here at Franchise City the vast majority of
calls we get from investors are for Subway, Gas Stations or a 7-11. Now all of us here are also franchise and
business owners – but how many of us own a Subway, a 7-11 or a Gas Station? The answer is zero. So I’ll leave that to your imagination why. Now I did once know a broker who owned a gas
station in a great location. It was worth about 2 million dollars. So let me begin by saying if you can afford
a gas station in a great location, and these don’t come up for sale very often because
they are good moneymakers, you could conisder buying it. But good location and traffic gas stations
are rare and typically sell for over 1 million. What people are usually calling us about however
is one of the “great deals” they saw on Bizbuysell or a similar website. You can see here how many are for sale some
of them as low as $13,000. And armed with exactly zero business knowledge
they speak with the seller who tells them how much potential there is in the business,
and how they have to sell because of a sick parent back home, or how another business
is taking up their time, but for the right person this location is a goldmine! You, the buyers eyes light up and you write
a check envisioning going on cruises as your gas station back in the USA pumps out the
cash. Of course once you actually invest you quickly
discover the downsides of running a gas station franchise. Well hopefully I can give you the other side
of the story. We hear the downsides often from people who
bought these franchises and now want to sell them, often at a loss just to get out. There is good and bad to every story, the
seller gave you all the good now lets give you the bad and you can make a decision from
there. Lets start with an interesting statistic. According to the NACS 2017 Retail Fuels Report,
59% of gas stations in the U.S. are one owner-operated. They own one store and often that store is
attended by the owner. That type of business is what we call buying
a job. The owners aren’t working in the business
because it makes so much money they are workimng there because they have to. Also interesting to note is that most major
oil companies have sold off all or most of their fuel station holdings. Do you think you as a small business buyer
have more market knowledge than the best business minds hired by the oil companies? Big oil is getting out of gas stations that
should be a warning sign as should the huge number of single store owner operators. Many of these are struggling business owners
making a living on very small margins. Which bring us to the next point 1. Small Margins. Here is a great infographic from the Orange
County Register on where $50 spent at the pump goes. $30.75 to the oil company, $7.00 to the refineries,
$6.00 on taxes, $4.00 to the delivery company, $1.25 on processing and transaction fees and
finally right at the end of the chain you get $1.00. And that number can and does change sometimes
even lower most owners suggesting an average of 1-3 cents net per gallon. If you speak with gas station owners as we
do or even just visit forums and chatrooms with actual gas station owners most will tell
you the gas is just a way to get people to the location and they actually make their
money on cigarettes, soft drinks, coffee, and snack foods. But a huge problem today is more and more
gas buyers are paying at the pump and not even entering the store making it even less
profitable. But you will still have non driving walk in
traffic leading us to reason #2 – rough customers 2. Most cheap gas stations are located in less
than desirable neighborhoods and open 24 hours a day. And lets face it most gas stations are often
frequented by some interesting people particularly in the late and early morning hours. We all watch Youtube and see some of the crazy
stuff that happens in convenience stores and gas stations. That will also be happening to you – is that
something you want to deal with? Ask your seller if they have ever had any
issues where they had to call the police, and Google the address and see if any crime
reports come up. There are over 7000 robberies each year at
gas stations and 15,000 at conveniece stores which is disproportionate in relation to other
businesses. 3. Franchising. Now there are many situations where the franchising
model works. In my opinion gas is not one of them. In fact if you are at the mercy of buying
only one companies gas at a fixed price, being unable to shop for better pricing, stuck with
every promotion they decide on as well as having to pay franchise royalties and fees
with your already slim margins, being profitable can be difficult. 4. Environmental issues.This is a problem specific
to gas stations. Are the tanks leaking? If so the cost of cleanup can be costly. Many unwary buyers found themselves on the
hook for huge bills because they chose to survey only assets that were above ground. 5. At the mercy of potential construction. Some unethical sellers pull a fast one and
after determing that weeks or months of construction will make thier location inaccessible put
it on the market. Always check with the local department of
transportation prior to making an offer on a gas station. Or any business for
that matter. Now in closing yes I understand that gas stations
and convenience stores CAN be a good business or franchise. In these videos I provide the negative side
because as we all know the seller is only giving you the good side. An business decision that has considered both
the bad and the good is an educated one. Don’t forget to like and subscribe and leave
your business and franchising questions down below.