I have a gas station under contract right now (at about 12 cap - on broker’s supposed “actual” P&L anyway) in a very good location (near 2 freeways) in California. It’s been under contract for TWO (long) months now and the seller has YET to deliver any pertinent financial proof (other than P&L he submitted to his broker when he first listed). I asked for the following things:
- payroll + payroll tax documents
- credit card processor documents + bank deposit slips
- tax returns
- supplier + service provider agreement
The broker tells me that getting all this documentation is unlikely b/c he has 35 gas stations and that ALL are lumped into one business entity (meaning all the back office data processing, like payroll, credit card fees, taxes, insurance, etc) and that breaking down the data is not “possible”, especially since this gas station I’m buying is a relatively small one compared to the other ones he has.
Another thing is… he should “trust” this P&L the seller has provided because of several other facts:
- this broker has sold 6 other gas stations ranging between 5 to 8 million each and that every time the buyer was happy with the performance of the business/property
- the seller warrants the fact with his “personal guarantee” and that if the numbers don’t match, i can always have legal recourse with the guy
- seller is too busy to be hassled by what I’m asking for (in fact, he has been VERY slow to respond to my requests)
Right now i’m in the pre-qualfication phase of the loan (me and my silent partner who puts up the cash) and waiting for the documents so I can finish the financial due diligence. The broker also says that even the bank isn’t going to do as much investigation as I am currently doing.
To give you a background… he’s my ex-gf’s cousin… also an investor himself. I know that means sh*t of course. Just b/c he’s related to me (very vaguely) doesn’t guarantee success in this business venture.
But I wanted to get your guys feedback.
PS: Before you decide to flame me on this, please note that YES… i am not buying a multi million dollar business on a GUT instinct. Right now, i consider the deal dead but I just wanted to know if anyone has any GOOD (not just “don’t be an idiot you stupid schmuck” type of) advice
I don’t understand how everyone is guaranteeing the income when they can’t produce evidence for it. The numbers have to be coming from somewhere! You’re telling me the owner has no idea how each individual station is operating? He doesn’t know how much he pays Betty at station A compared to Joe at station B? Don’t believe it. The bank you’re dealing with SHOULD care about these things. It’s in your best interest for the bank to properly underwrite the loan and assess the risk. That’s their job! The future appraiser should care about such things as well. Do you a have broker representing you? Consider the Small Business Administration for business loans. Very competitive terms.
I know you consider the deal dead, and you should. Would you be operating the gas station? There are easier ways to make money. By the way, you’re a stupid schmuck!
Anyone that would guarantee gasoline sales volume in this day and age may not be telling the truth…I hve seen a huge increase in bicycle traffic locally.
If you want to find out how much of what he is selling, look at the invoices from his vendors.
That is really step #1 in a deal like this.
Isn’t it comforting when a broker tells you that if what he says is wrong, you can just sue the seller afterward? I love the accountability.
You pretty much answered your own question – either walk or modify the sales price to reflect the worst case sales and expense level that will guarantee a fair return (land value?).
Absent auditable data, you are buying a pig in a poke. Years ago, I owned several retail stores and an unrelated business that I ran under one corporation. Though my taxes were consolidated, in two minutes I could tell you how any one unit was performing to the penny. In five more minutes I could provide original deposit statements and expense receipts for any given day, or every day. Any seller with 35 locations can do the same – he just doesn’t want to, which should be a clear signal to you.
If it were me, I would kill the deal in writing. Right now, they still think they have a live one.
Keith – Not so fast. I know you’re joking but year-over-year retail sales at gas stations are way up. Given the price of gas, this shouldn’t be a surprise. How much is actually going the the station owners is another question:
May 13, 2008 entry)
Lastly, I know squat about gas station ownership, but shouldn’t you be asking for some sort of EPA/hazardous cleanup compliance on the land?
You may want to research rather or not the volume of higher-margin stuff sold inside the market side of the station (snacks, pop, beer, etc) is declining due to soaring gas prices or not.
I have heard that smaller station owners are getting pinched because people are cutting back on impulse purchases like those, and when they need milk, bread and whatnot, they head to the cheaper grocery store anyway.
Margins on gas sales themselves are super slim, from what I have heard.
Also if your tanks are leaking underground, its going to be really expensive to clean up but you can have them checked for leaks relatively easily I believe.
Personally I’ve heard nothing but warnings when dealing with business brokers anyway. YMMV
This is baloney. To my previous comment I’ll add that before I killed the deal, I’d ask the broker what the seller would provide the IRS should they decide to do a full blown, proctologic, deep dive on the finances for this particular location.
Almost any well run multi-unit business of this size will be computerized with data sent to a central server on at least a daily basis. He should be able to run any verifiable report you want with the touch of a button.
Personally, I have no patience for people like these.
You can’t properly evaluate a deal unless you can have actual P&L’s. The broker is lying - you are not asking for anything more than the underwriter will require. I’ve been down this road before with “lumped” accounting and the underwriter will require that they split it out. If they are giving you resistance now, then my advice is to move on. They will have to give this info to any buyer who needs financing.
All the best,
I would not walk away from this deal. Try the following
Adust the sale price to what just the land would bring.
Offer to purchase on 0 down and monthly payment with no
recourse and owner holding all the paper. If all the figures don’t match you can renegotiate the price and terms.
In the sales contract recite all the figures that the owner and brocker gave and stipulate that if all figures are not accurate AFTER the purchase then the owner and the broker will pay the difference plus fees and penaltys.
Talk to all the vendors find out what they are selling to that station.
Talk to all the other fuel vendors and ask them what they think that station is pumping.
Talk to the EPA to find out when there last tank leakage verification was.
Never walk away that just means you quit and can’t handle playing with the big boys and girls.
I work as a business broker in Canada. I deal with many small businesses that can’t prove income because their record keeping is designed for one thing… lowest possible taxes.
Here’s what we do… We require the vendor to warrant the sales. We require the vendor to hold a substantial take back loan… If the sales fall short of those warranted, then there is an offset clause in the take back loan.
IE, if we’re told the sales are X and they turn out to be 80% of X then you get 33% of your debt forgiven. All variables are negotiated in advance.
The figures from the P&L have to come from somewhere. Either the seller has figures for the business, or else the P&L figures are made up out of thin air.
The company he buys his fuel from can tell you to the exact hundrenth of a gallon how much fuel he is moving through the station.
Even at today’s fuel prices, the gas station owner’s share of fuel sales is extemely low. Most profits coem from the convenience store, and most of those profits are from cigarettes and lottery tickets. The lottery can tell you exactly how many lottery tickets he is selling.
It’s unlikely that the land is included. Gas stations are usually on leased land.
The bank is going to want to see figures before they will give you a loan on a business. If the seller won’t come up with figures, the bank will probably accept a commercial appraisal-- which is quite expensive to have done. The last quiote I got was $3500 for a very very simple business, and that was 8 years ago.
Move on to the next deal!
There are other deals to be had than to waste time on this one.
I would like to sell you one of the locations 35 I own. I can’t tell you my sales, expenses, inventory, or net profit because I don’t keep accurate records. My focus is not to work on the business and maximize my net income and net worth, with up-to-date information, but to design a record keeping system that enables me to pay the “lowest possible taxes.” In fact, the dumber I keep myself, the more taxes I can evade. Isn’t that the goal? I mean, how do you think I got to own 35 locations?
Gas stations make most if not all of their income on the inside store sales (ice, beer, cigs) and extras (car wash, lotto, check cashing, etc). If the station is an independent then you need to be sure your jobber (the wholesale gas company you buy from) will continue to supply gas at the same price. Also another thing to consider is up keep. Currently in Florida every gas station must change its tanks by 2009 to the EPA approved tanks with monitoring systems. This is very costly and could shut down your business depending on your layout.
A gas station! I strongly recommend you reconsider. The headaches that come with employees and the low margins are not worth it. You will find yourself working for minimum wages and will become married to your job/business.