Now that you have signed a contract to buy the commercial property, the next most important thing
is to check if it is the right business for you in the coming years. The comprehensive process
that you go through to establish the “potential” is called the process of due-diligence.
Each commercial real estate transaction is unique and the challenging part is the due-diligence.
In a gas station purchase, this is more challenging due to the complexity of the business. There are
no set parameters that you can follow in order to reach the conclusion but the following few
guidelines can be really helpful:
Gasoline Volume:
In a gas station business, the major chunk of the revenue is derived from the sale of the
gasoline. By verifying the following you can make a fair analysis of the gasoline sales and
margins.
Ask for the verified sales report provided by the Gasoline Supplier
Request minimum one year or more the gasoline Purchase invoices
Ask for the POS sales receipts for a minimum one year or more
Calculate the difference between purchase and sale.
C-Store Sales:
The C Store sales are very crucial in a Gas Station business, The C Store sales bring the
major chunk of profit to the business. Request the following from the seller and analyse to get
the potential profitability.
All purchase invoices for the merchandise for at least 2 years
POS sales invoices for 2 years
OLG sales and commission report
Separate the Lottery and cigarettes sales as it comprises the major portion of the C Store
revenue. Then calculate the rest of the items sales and calculate the difference between
purchase and the sale amount.
Fixed Expenses:
The fixed expenses in a commercial property or business are the ones that remain fixed every month
e.g. property tax, utilities, insurance etc. Get the following for at least two years and analyze;
Property tax bill (check if there is an increase in the near future or special assessment)
All utility bills
Snow removal and lawn maintenance expenses
Property and business insurance bills
Labour Expense:
Labour cost is the major expense in any running business. In order to determine the expense ask for two years of filing with the Canadian Revenue Agency, for the payroll and WSIB.
In a nutshell, we can say by following the above-mentioned guidelines one can get a fair idea about the profitability of the business. It is always important to hire a professional accountant to do a deep analysis.
Balwant Bhangu | New Homes & Pre-construction Specialist
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