22
Feb

Due Diligence for Buying, Selling, or Getting Finance for a Petrol Station

If you are looking to buy, sell, or get finance for your petrol station, it is important to know what you should be looking for when you are completing your due diligence. Due diligence should be one of your major priorities.

Petrol stations are one of the most difficult acquisitions to finance. Because of this, you should make sure that you have done your due diligence before buying and aplying for finance. Here is some important information that you should know when completing due diligence for your petrol station to save time and stress.

Legal Due Diligence
If you are looking to buy a petrol station, you need to make sure that you investigate all aspects of commercial and business law. These aspects could include:

  • Reviewing commercial leases or real estate sales contracts
  • Contractual and legal liabilities of the business entity
  • Trademark, licensing, and franchise law issues
  • Legal representations and warranties
  • Environmental liabilities

Business Due Diligence
In addition to legal due diligence, it is also important to focus on due diligence of financial statements and business conditions. As an investor or buyer, make sure that you focus on:

  • Financial statements for the past three years
  • Inventory on hand, inventory turnover rate, relationships with vendors, and business credit
  • Condition of sales equipment and fuel pump calibration
  • Quality of employees and management
  • Condition of premises and need for construction or commercial lease build out

Know Your Financing Options
When you are going through Due Diligence for your petrol station, it’s important to know what your funding options are. Most petrol stations tend to have acquisition values below five million dollars, and these acquisitions are typically made by people who want to invest in a business and become a small business owner. These acquisitions can also be made by existing small business owners who are looking to expand their holdings. Transactions are typically funded through these three sources:

  1. Your Money
    Buying a petrol station with your own money is typically the easiest way to pay for it. By doing this, you are eliminating all of the due diligence that lenders impose on buyers. Though this is the best way, it is also the least common way because few buyers can afford to buy the station entirely from their own funds.
  2. Seller Financing
    Sometimes, sellers will provide financing as an incentive to buyers. There are a number of advantages to getting seller financing, making it a very realistic option for many petrol station buyers.
  3. Business Acquisition Loans
    The majority of transactions use business acquisition loans to pay for part or most of the acquisition. However, understand that petrol station finance is a special field, and not every lender will be comfortable financing these stations.

What Will Lenders Look for in a Petrol Station Acquisition?
If you have decided to seek out a lender for your petrol station, then you should make sure that you have all of the requirements that lenders will typically look for. It is important to understand where a lender is coming from and their perspective on this acquisition. By doing this, you can craft your offer accordingly and successfully reach your goals. Some of the main things that lenders will look for in a petrol station acquisition include:

  1. Can the Petrol Station Afford the Loans?
    A lender will be more likely to finance your petrol station if it is already in good financial shape. Ideally, a lender wants a business that can pay back the loans out of its own revenues. If your petrol station is unable to do this, then it will not qualify for most types of financing. Lender’s will look at the business’s financial statements to decide if there are enough resources to cover financing, sustain the business, and pay the owner’s salary.
  2. The Buyer’s Industry Experience
    If you have direct experience in your industry, then a lender will be more likely to want to work with you. It is ideal that you have direct experience managing a service station that is similar to the one you are buying.
  3. Buyer’s Credit Score
    Lenders will look at your credit score to determine if they want to help finance your business. Lenders will do this to determine if you will manage your company in a financially responsible way.
  4. Good Financial Records
    Lenders will not feel comfortable financing acquisitions in which the service station cannot justify its revenues and expenses. You should also expect the seller to provide you with accurate financial statements before or during the due diligence process. Not properly recording your finances, such as cash transactions, ultimately reflect upon the financial statements of your business.

ServoPro is here to help

If you are looking to purchase a petrol station and need help with the due diligence process. Or maybe you have a petrol station and you need help getting it ready for sale. We can help you through this process. Contact us to discuss further.