Advice For Conducting Due Diligence When Buying A Gas Station

A gas station for sale can represent a very dynamic business opportunity for an entrepreneur. In this specific kind of business - more than ever before, location is absolutely everything. Even if you might have discovered what you believe to be a “rough diamond,” next to two major traffic arteries or along side a very busy intersection, it's still unwise to "take the plunge" until you've performed a thorough and detailed process of due diligence.

One of the biggest mistakes that someone can make, especially if they have never operated, owned or purchased a business before, is to let their enthusiasm get the better of them. Even if the sheer volume of vehicular traffic that goes by the specific location you're considering is almost beyond belief, or you're concerned that some other buyer might jump in ahead of you, never even think about short-cutting your own discovery process. Most ideally you should spend at least four weeks getting a real feel for what you're letting yourself in for, before you act.

If you have made up your mind, and you are going to buy gas station business with a convenience store too, make sure you are generally happy with the fundamentals presented to you by the seller and you do not see anything “glaring” which could cause red flags to be raised, then you should tell the seller that you want an observation period to allow you to become more comfortable.

During your observation period, you will be able to analyze the actual operation of the gas station and convenience store and get a very good idea whether the financials that you have been given represent an actual or a contrived position. If you happen to be inheriting members of staff, you'll have the opportunity to see how well they do their jobs and how useful they are at maintaining your profits. This is infinitely preferable to just sitting down with them for thirty minutes and asking them questions. Above all, this observation time will allow you to come up with a number of ideas that you can ideally implement following purchase to increase revenues and profits.

Get ready to check all the following items during your due diligence work:

• The financial records, profit and loss statements, balance sheets, tax returns, and registers.

• The inventory records, being on the lookout for discrepancies.

• The employee records - watch to see that they are well-maintained, all legal elements are covered and the liabilities are unearthed.

• All equipment should be inventoried and maintenance records checked. Is a process of regular maintenance scheduled?

• Review all supplier contracts and attempt to contact the major suppliers. Are there any clauses which cause renegotiation following a sale – if so, you will need to be sure that you are covered before you proceed any further.

• A business such as this can be heavily regulated. You do not want to purchase gas station business problems caused by their failure to keep up with inspections or any citations issued due to irregularities.

Important: Get environmental reports and be certain the business is in full compliance. Have your attorney check for any prior infractions. Make sure all tanks meet the latest standards, and proposed ones. If not you may face an enormous expense soon after taking over, not to mention the lost business from closing down to make these adjustments.

If you are generally happy with the paperwork, use your observation period to do just that – observe. Keep your eyes and ears open at all times and see what makes this business “tick.” Make a note of anything, however small, that you think might have grounds for improvement and while you should not live and breathe at the location for the entire period of time, you should nevertheless aim to be there during strategic moments – during opening, during major deliveries, during rush periods, during slow periods, during closing.

It isn’t advisable to cut short your observation period, as time spent now could represent a wise investment in your time.

Richard Parker is the President and founder of the Diomo Corporation - The Business Buyer Resource Center. His inspiring materials, seminars and consulting have assisted thousands of business buyers with achieving their life long dream to buy a business.