Thinking of buying a petrol station? Make sure you consider the following factors:

Fuel supplier/distributor

Most people who buy a petrol station enter into a franchise arrangement with a major fuel supplier or distributor like Caltex, Shell, 7-Eleven, BP, Metro or another major provider. Under a franchise arrangement, the tanks, pumps, and fuel 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. There are several different petrol station franchises in Australia and the success of your business will depend on finding the one that is the best fit for you.

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. A petrol station lease often covers the whole land and includes the petrol tanks kept underground and the petrol pumps. Your leasing agreement will also have specific clauses relating to your environmental obligations, specifying:

· who will be responsible for specific contamination;

· who will be responsible for remediation works; and

· what damages (if any) parties are entitled to.

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 (ESA)

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. Once you have completed buying a petrol station, you should be mindful of any state-based environmental laws that apply to your operations. These laws will impact how you report, test, or manage your underground fuel storage systems.

You should search the Contaminated Land Record (governed by the Environmental Protection Authority in New South Wales (NSW)) in your state to see whether the petrol station premises is listed on the register. The Record will list any instances of contamination that have occurred on the site. Additionally, you may want to conduct a soil test for contamination.

You should also familiarise yourself with the environmental legislation and check that the service station is operating legally and safely. For example, you will want to ensure that the fuel lines and tanks are in good working order and free of any leaks.

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 to finance the purchase of a service station business or property.

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.

Buying an existing petrol station can cost (on average) anywhere between $300,000 and $2,000,000 or more in some cases. There are several 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.

A crucial step in buying a petrol station is to conduct due diligence. This will let you determine whether the vendor (seller) has been complying with the relevant regulatory requirements while operating the business.

Your due diligence should include the following research components:

• determining whether the petrol station equipment is owned outright or on loan;
• thoroughly searching the premises;
• reviewing any employment or supply contracts;
• checking the equipment is in good working order; and
• reviewing lease documents (e.g. the lease or licence to the service station).

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?

Buying a service station is an intricate process that involves many rules and obligations. Some of these responsibilities will continue after settlement and the profitability of owning a service 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.