Gas Station Buyers: Franchise or Independent? What to Know

Picture of Schuyler "Rocky" Reidel

Schuyler "Rocky" Reidel

Schuyler is the founder and managing attorney for Reidel Law Firm. | Gas Station Buyers: Franchise or Independent? What to Know

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Despite a push for fully-electric and hybrid vehicles, gasoline use remains high.

Especially when you have to shell out an average of $66,000 for an EV. Ouch.

Savvy entrepreneurs like yourself understand this. And are entertaining the thought of buying a gas station.

The only question is, independent or franchise?

By the end, we hope to shed light on your final selection.

Definition of Franchising and Independent Ownership

Independent stations have no outside influence in the daily operations or management of selling fuel. This is often appealing to new small business owners.

In this scenario, you’re starting from scratch with personal assets.

However, the business structure changes when joining a successful gas station franchise.

Plus you get access to:

  • Existing customers
  • Existing equipment

Let’s compare the two in more detail.

Benefits of Franchising Vs Independent Ownership

Advantages of Owning a Gas Station Franchise

  1. Brand recognition and reputation in the gas station industry
  2. Access to established business systems and support networks
  3. Advantages of franchisor’s advertising and promotions
  4. Based on a proven comprehensive business plan

Disadvantages of Owning a Gas Station Franchise

  1. Startup costs are going to be higher
  2. Ongoing fees and royalties are required
  3. Potential loss of autonomy in your own business
  4. Your franchise agreement may include restrictive terms

Advantages of Owning an Independent Gas Station

  1. Retention of complete control over the business
  2. No royalties or other fees to pay out
  3. Greater flexibility in regard to gas prices and services offered
  4. Potential to attract customers due to unique offerings

Disadvantages of Owning an Independent Gas Station

  1. Difficulty establishing brand/reputation in a competitive market
  2. Need for business credit until fuel sales start coming in
  3. Lack of support from other franchise gas station owners
  4. No established business plan to adopt as your own

You don’t need to make a decision yet. For a better idea, we’ll look at the steps involved in a franchise.

How to Open a Gas Station Franchise

Many gas station owners go the franchise route. Profit margins may be slim, but there are also fewer long-term costs.

Joining a well-known brand helps in another way. Marketing.

To sell gas under the name of Chevron, for example, carries a measure of trust. Besides high-quality content, your marketing expenditures will go down.

Because you don’t have to raise awareness around Chevron. Only your specific business location.

The following are points to consider when you buy a gas station franchise.

Know What Products and/or Services Your Gas Station Will Offer

Before selling motor fuel to consumers, make a list.

Nothing fancy. Just an outline of possible services and product lines.

Refer to your franchise purchase agreement to guide you. If it isn’t mentioned, reach out to the franchisor.

Gas stations usually have convenience stores as part of the package. But does it make sense for your small business?

You could also weigh having a car wash on-site for extra revenue.

Please know that you aren’t committing to anything just yet. But the brainstorming is good.

Who Owns the Tanks and Pumps?

Most gas stations operate on a lease from the property owner (franchisor).

This allows you to:

  • Launch sooner
  • Build business credit faster

Prior to signing the lease, check who owns the fuel tanks and fuel pumps.

With the help of a franchise lawyer, negotiate until your purchase agreement includes ownership of these items.

Besides the gas station location, access to revenues from someone filling up their vehicle is key.

It will have a direct impact on your business bank account. A very positive one!

Determine the Property’s Environmental History

Your gas station investment needs to be protected. Even from the unseen.

After all, discovering contamination after purchasing a location won’t do you much good.

Ways to avoid this scenario:

  • Add a clause to your franchise agreement
  • Have an environmental site assessment performed

Because it’s a legally binding document, your wording for the contingency clause matters. Once again, your franchise lawyer is a great resource.

Next, get a professional to review the site’s history. Testing or soil samples may need to be taken if the assessment reveals prior ground pollution.

Secure a Gas Supplier Contract

Station pumps shouldn’t ever run dry.

Sure, they may need repairs from time to time. But consumer trust may go down if you run out of fuel.

Retain current customers by partnering with nearby providers.

Preferred gas suppliers might already be listed in your franchise agreement. If not, consult with your legal help.

The goal is to maximize profits for your gas station business. So, an honest rate comparison for the sale percentage owed to the supplier is helpful.

Hopefully, this quick overview has been valuable. Next, we’ll discuss typical costs you should expect.

How Much Does It Cost to Open a Gas Station?

Numbers vary widely when you use an established gas station brand. So, this section will only deal with the independent variety.

Here’s a tip. You can expect lower initial costs when you take one over. Versus building it from the ground up.

Also, negotiate with the fuel supplier for a reasonable price to decrease the amount you spend to launch.

What Are the Costs Involved in Opening a Gas Station?

As with any new venture, your largest financial output is up front. And it’s the most testing time because revenue is far off when you hand over the cash.

  • Launching a small gas station will run you around $300,000

Since it’s a sizable investment, ensure the purchase agreement includes conditions in your best interest.

What Are the Expenses of a Gas Station?

Your own costs may differ from the gas station owner down the street.

Besides paying for gas and your grand opening, some other possible expenses are:

  • Being added to highway exit signs
  • Extra gas pumps
  • Business insurance
  • Charging stations for electric cars
  • Convenience store expenses
  • General liability insurance

Even though EVs are becoming more popular, you aren’t required to offer this option. But insurance that protects you from lawsuits is almost always worth it.

Moving along, it’s time for your favorite topic. Profit.

How Profitable Are Gas Stations?

After paying off any loans and recouping your startup expenses, your gas station business can deliver a return.

And you can help it along using an effective medium. Marketing your business online.

In a franchise model, you can tap into existing channels. An independent station will need to work harder to raise awareness.

Either way, there are two methods to use:

  • Content marketing
  • Social media marketing

Both are cost-effective. And proven pillars of digital marketing.

Proper usage will allow you to retain existing customers and attract new ones.

Back to the topic at hand.

Is Owning a Gas Station Profitable?

Here lies the top metric for all small businesses.

After deducting employee wages and other expenses, your gas station business plan will likely generate $70,000 in profit.

Going back to our typical startup cost, it may take you several years to enjoy your first gains. If you do it on your own.

That’s why most gas station owners go the franchise route. At least initially.

Receiving a line of credit from your local bank is also easier as a franchisee.

And there you have it! Whether you go independent or partner with a current franchise, owning a fuel station is exciting.

But make sure you have the right representation in the entire process.

Reidel Law Firm and Gas Station Buyers

As experts in franchise law, we can help you handle the legal aspects of any gas station franchisee issues.

In addition, our legal team can advise you on ways to shore up gaps in the following areas:

  • Review personal guaranty and real estate control docs
  • Franchisee formation, guidance, and asset protection
  • Franchise operating compliance audit and coaching

By effectively managing risk and maximizing opportunities for businesses we answer the needs of our clients wherever and whenever they arise.

Call Reidel Law Firm today at (832) 510-3292 or fill out our contact form. And see how our advice can bring you success in the franchise industry.

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