Thursday, February 14, 2008

Opening a Kwik-E-Mart?

All stereotypes aside, I have begun to consider small business opportunities. I really don’t mind working for the man. It is also kind of nice to clock in and out for the most part at less than 50 hours/week. The biggest factor for me is developing a lifestyle business for which I could streamline operations to the point that I could have a staff run the place cost effectively.

This line of thinking was started as part of my daily Craig’s list searches. Currently I have been searching 4 phrases, casino, poker, cyclocross and weight bench. Today under casino I was greeted by a gas station/convenience store for sale at $1.3M touting $2.2M in gross sales 10 miles outside of Blackhawk. It seems very enticing however one must realize that few lenders will pony up funds for a gas station as opposed to other small business endeavors.

Even if financing could be found gasoline margins are razor thin, especially with pay at the pump. The markup is only 12 to 14 cents/gallon. Of this rules of thumb include 4 cents/gallon payroll, 4 cents/gallon rent and 4 cents/gallon credit card fees. The most money to be made is off of beverages and other items from the convenience store. However, with pay at the pump customers are not only not going inside, but they are costing the gas station owner additional fees for credit card usage.

It is worthwhile to consider the land and building themselves which are 1 acre and 3000 sq. ft. respectively. Aggressively pricing the land and building may get you $150,000 for the land and another $150,000 for the structure.

What does the remaining $1.0M get you? This can only be answered by closely looking at the financials of a historically cash industry. The cleanest numbers will be fuel volume in gallons/month. From here one can start to put a sanity check on the convenience store for the balance of the numbers. Convenience store revenue, profits after cost of goods sold, payroll expenses and debt servicing.

At this point we still have not addressed the why the owner is selling, tank capacity, age of the tanks, vendor agreements with Diamond Shamrock, or the ability to transfer licenses such as lottery sales, cigarette sales or alcohol sales.

Fortunately for a sucker like me, it is tough to get financing or get my wife to part with a portion of our nest egg. I also didn’t mention operating capital as the oil companies and food distributors will rarely front you inventory.

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