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How to buy a convenience store

Interview with a Convenience Store Buyer

Interviewee:
Tony Popat
CV:
IT Manager and Entrepreneur 
Key tips:
Thorough due diligence is vital
Temper your expectations
Consider hidden costs
Typical price range of convenience stores for sale:
$70k - $1m plus

Technology and running a store remotely

The store is based in Michigan and I’m based in California, but I’m able to see my store live (via computer). Using different cameras from different angles, I can see the entire store. If I want to see the drive in, I can see which cars are parked, which car has gone out and who’s filling gas. I can zoom out and see all of the customers who have come in.

Technology has been so powerful these days. They have given us a lot of tools to manage a business remotely from anywhere so you can have a close watch on your employees. You can even see the cash register from here, and you can see which buttons he’s pressing on the cash register, if you really want to see in detail. I can easily catch if somebody is doing something wrong or not doing what is expected.

I can correct my employees from time to time, if they are not smiling or if they are not doing the right things. I can call them up and tell them what to do. I can keep a close watch on my business as though I were there physically or live. 

What should people look for when considering buying a convenience store? 

They need to decide whether they’re only going to buy a convenience store or if they will have a gas station with it. If they buy both, then they need to find out how much gas is being sold and how much inside merchandise is being sold. If they only buy a convenience store, then they just need to worry about the inside and how much the store is selling a month. 

Plus they need to understand the break up. The break up is usually a part for cigarettes, which has a lower margin, the part for lottery and the part for the rest of the food and merchandise. 

Then they need to also understand what is the break up of the other items. They need to make a total of the gross income and then compare that with the expenses, like total employee payroll and your utilities costs.

Consider the monthly expense for electricity, the trash, heating and cooling. Then they need to calculate all the expenses and find out what you make overall at the end of the month. 

I think if you have gas outside, you need to calculate the gallons and see if it is branded or unbranded. If it is branded, find out the margin they are making on average and compare the last three years’ or five years’ income tax returns and compare. Look at the records and make out whether it’s making sense for you to invest and the return of investment. 

Anything to alarm potential buyers?

I think the due diligence that they need to do before they buy a store, if it’s gas related, to check on the environmental aspect. That’s the key thing. They need to make sure that environmentally, the site is clear and that they don’t have any gas leakage or anything in the gas tanks at the gas station. 

Secondly, they need to see if their purchase comes with the property or if it’s only on lease. If it’s with the property, you are buying a business. They need to value the price. Value the business and the property separately and combine them and see whether the price being asked makes sense or not. 

If you think the asking price makes sense, then you need to see if your investment capital is the down payment and if the bank is going to loan against that. If the loan is goes through, then you can put less amount of a down payment and that would make sense for you. If the bank is not ready to finance a business, you need to put all your money down. 

In that case, there is a possibility it might not make sense for you. You need to do your due diligence and understand how much money you want to put down into a business, and whether you will be able to afford that business, or if it will be trouble for you to get into it.

You need to do your due diligence and understand how much money you want to put down into a business, and whether you will be able to afford that business, or if it will be trouble

 

How much does it cost and how do you raise financing?

It depends on the reason you are in, especially if you are into a place where real estate prices are high and market is really high. Those kinds of places have a higher rate to get in to the businesses. I have a gas station in Michigan, so Michigan price ranges are pretty low. 

Owning a property like a gas station with a convenience store with property in Michigan would range anywhere between 2 – 3 hundred thousand to 5 – 6 hundred thousand or even up to a million dollars. With a loan, a down payment for a 3 hundred or 5 hundred thousand dollar business would be about about 20%, so you need to have around a hundred thousand down to get a business. 

If you don’t have financing, it would be tough. Comparatively, if you go to California or New York/New Jersey, the same kind of property would be valued much higher, so you would be looking at around 2 million or 2.5 million. It depends on where you’re located. 

Financing is another aspect where you might want to get in touch with bigger banks to see if they would be able to finance. These days, I’ve seen that getting financing on gas stations is a little tough. Markets are not very good and a lot of banks are not really ready to finance gas stations.

I have seen credit unions and smaller banks that are keen on financing these kinds of business. You could find the right kind of credit union, small bank or a private bank who’s ready to get into this kind of thing. 

Did you purchase a previously owned business?

I purchased an existing business, which was already established for the last 30 years. I had noticed that the owner was not available, and that it was an absentee owner business. I thought if I get involved in this business there is a possibility I will be able to improve the business to a great extent, which I was able to do.

So if you pay close attention to your business, you can do a lot of wonders and you can improve the business, improve customer service, add more merchandise and increase the business significantly. 

How did the transition to new ownership go?

It was a pretty smooth. First of all, there are a lot of business processes that you need understand - like how to order merchandise or what the merchandise is that you need to order. You also need to know things to avoid, because a lot of times sales people want to push their own merchandise that you might not want.  You need to have an understanding of what would sell and what would not sell in your area. 

We changed the person who’s at the counter and who’s the face of the business. We had the old owner work with us for a week, and he introduced all the customers to the new employee at the counter and new manager so people would start getting acquainted with the new staff.

If a new employee is friendly with customers, then we become part of the community where you know the people and businesses that frequent your place. They will see that the new staff are friendly and customers will keep coming, especially since the old owner introduced us, so that gave us a good kick start to the business. 

If you could go through the process again, what would you change?

If I were to go through the buying process again, I would look into the calculation in detail and how things work, like the inside sales and outside sales. I would calculate the numbers and record the right percentages. But overall, the expectations that I had from growing the business have been overachieved now.

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