Fueling vehicles and on-the-go lives, a gas station business has the potential for serious profits. With initial capital demands ranging from a hefty $500,000 for a basic setup to several million for a feature-rich, branded establishment, the financial runway to this venture is substantial. Beyond the pumps, success in this industry leans on adept inventory management, unwavering customer service, and an understanding of the constantly fluctuating fuel industry.
Though the margins from fuel sales often hover between a modest 5% and 7%, the real financial caffeine kick often comes from ancillary services, like convenience stores, boasting margins of 20% to 40%. However, the journey is paved with challenges, from volatile fuel prices to the daunting shadow of big-chain competition. Eager to turn the ignition on this venture? Let’s discuss the mechanics of setting up a thriving gas station.
|Initial Investment||Starting costs can range from $500,000 (independent, no-frills station) to $3 million or more (branded station with a convenience store, car wash, etc.).|
|Skills Required||Knowledge of the fuel industry, inventory management for convenience store items, customer service, basic accounting, and business management.|
|Demand||Steady and essential, with peaks during travel seasons. Dependent on location, traffic patterns, and fuel prices.|
|Location||Best near high-traffic areas, highways, intersections, or areas underserved by existing stations. Visibility and easy access are crucial.|
|Hours||Many gas stations operate 24/7, especially those near highways or in urban areas. Others might have extended hours, such as 5 a.m. to midnight.|
|Permits and Licenses||Business license, fuel distribution license, environmental permits (due to underground fuel storage), and retail permits for convenience store operations.|
|Profit Margin||Margins for gas sales are typically slim, ranging from 5% to 7%. However, associated businesses like convenience stores or car washes can have higher margins, from 20% to 40%.|
|Challenges||Fluctuating fuel prices, competition from big chains, environmental concerns, maintenance of fuel equipment, and managing the security of 24/7 operations.|
The process of opening a gas station hinges on two different business models: are you opening a private gas station or a gas station franchise? Each has its own pros and cons. The former tends to be a bit less expensive, but the latter has a proven business model, built-in customers, and business owner support.
Either way, you may want to do a preliminary search of what franchises operate in your area and what competition is nearby before you decide on a plan of action. Some areas work better than others. Once you choose, you can use this checklist to guide you.
A business plan for a gas station business is particularly important because it can help you land a business loan, but beyond that, it can mitigate financial risk. There is little room for error in the gas station industry. According to NACS, most gas stations run on a razor-thin 2% profit margin, which is significantly low for the average 7% seen across all privately held companies. To help you get a clear picture and stay on course, your business plan could include:
For more detailed business plan advice, check out our complete guide to writing a business plan.
All businesses need a legal business structure, and limited liability companies — or LLCs — are among the most popular. This structure helps business owners avoid the double taxation of corporations. Rather than being charged both a corporate tax rate and personal tax rate on income, gas station profits are “passed through” to your personal return and taxed just once. LLCs also offer limited liability protection, which helps business owners protect their personal assets in the event of a lawsuit or bankruptcy.
Sole proprietorships function similarly. Those are generally quicker to start and only require business owners to file for an employer edification number (EIN) through the IRS’ website. You won’t have all the fees and legal requirements of LLCs, but sole proprietorships do not offer liability protection. In other words, your personal assets could be at risk in the event of a lawsuit or bankruptcy.
For this reason, most gas station owners opt to structure their business as an LLC, even if they’re opening a franchise. You can file for an LLC online, but there are some steps you may need to take before the process can be completed, like obtaining various insurances and business licenses. Check out our complete guide to forming an LLC for more information. If you want to save time and effort, hire an LLC formation service to handle this process on your behalf.
Naming a business isn’t easy, unless you’re opening a franchise, in which case it’s already named for you. Otherwise, you want a unique and snappy name that’s easily recognized but isn’t already taken. Run a search through local business registration services to make sure that your name is unique so you can avoid the grief of a trademark lawsuit.
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Before you can run your business, you need to register your business with the IRS, obtain the necessary permits and insurances, and open a business bank account. Permits and licenses vary for gas stations depending on the business model. All businesses need a business license, but gas stations also need environmental permits.
If you’re serving food, you may also need permits from the local department of health. Check with your local municipality for detailed info on securing these.
Insurance is another thing that varies. Most businesses need general liability insurance to get a business license, but you can also consider franchise insurance, insurance for fuel tank contamination, liquor liability insurance (if you sell liquor), worker’s compensation insurance (if you have employees), and more.
You may also want to open a business bank account, which you can do at your preferred bank’s local branch. To get the lowdown on tax info for your company, check out the businesses section on the IRS website.
The price of starting a small business varies, but gas stations are generally on the higher end of the scale. Franchise fees alone can cost around $30,000, but even without that, things add up. At minimum, you’re looking at more than $270,000 in startup costs.
Costs vary based on whether you buy or lease property, if it’s already set up to be a functioning gas station, if you’re opening a franchise or going independent, and if you’ll offer any other kind of services.
To get a clear picture of your startup costs, you can look at your business model and calculate your fixed costs (on-going expenses like rent, utilities, and insurances) and one-time costs (equipment purchases like fuel tanks, point-of-sale systems, and initial inventory). These costs include but aren’t limited to:
Most people don’t have hundreds of thousands of dollars set aside for a rainy day, which means most gas station owners will have to find funding somewhere other than their own pockets. Business loans are a popular option, particularly Small Business Administration (SBA) 7(a) loans.
These loans can provide up to $5 million in capital for a small business, but interest rates can be sizable. The SBA also offers grants to certain businesses, but you can also look elsewhere for independent grants and government tax incentives.
Beyond loans, small business owners often fund their startup costs through low APR business credit cards or friends and family. The former can be a good option for smaller purchases like equipment, inventory, and supplies, but you have to be able to pay off what you owe. The latter is also a good option if you don’t want to carry interest, but if things go sour, it can ruin relationships.
Different gas stations require different equipment, and yours may range from car wash supplies to hydraulic lifts for auto repair to kitchen equipment. You’ll also need things like gas pumps (for standard and diesel fuels), dispensers, hoses, nozzles, squeegees, fuel stock, convenience store stock, and car accessories. Consult a wholesaler or like-minded business owner to determine your ultimate needs.
A comprehensive marketing plan is crucial to the success of any business. Luckily, franchised gas stations already get a marketing boost from their overall brand. Typically, going this route comes with a built-in fee. If you go solo, your costs and marketing strategy are yours to handle.
Gas stations largely rely on foot traffic, so it’s important to register with Google My Business and Yelp, as well as local directories. You want your business to show up in as many local searches as possible. You can also create a comprehensive social media strategy that spans across all major platforms like Twitter, Facebook, and Instagram.
Opening a gas station business can be a bit tricky with franchise laws, zoning laws, finding a supplier, and raising the capital, but the benefits can outweigh the challenging start. According to CB Insights, the main reason new businesses fail is because there’s no market need, but right now, people still need gas to get around.
You can also increase your profit potential by opening a gas station with a convenience store attached, adding a self-serve car wash, or by offering automotive repair. In other words, there are opportunities to expand and increase your top-income threshold.
While you don’t have to purchase a franchise, this path can make profitability easier — especially if you’re a new business owner. How? Major brands like BP, Chevron, Sunoco, and Marathon offer franchising opportunities and actually help train business owners on how to run a successful gas station.
Beyond that, these trusted brands have long-standing histories and a built-in customer base. It may feel like you’re starting your business from scratch, but don’t worry. Franchised gas stations also have more marketing opportunities — like nationally-running ad campaigns — that a typical new business owner can afford.
As mentioned, there are two main types of gas station business: independent gas stations and franchised gas stations. Within this, business models can vary. Some gas stations offer auto repair services or car wash and detailing services.
Others double as convenience stores and serve prepared food. Some independent gas stations in rural areas even have attached sit-down dining or lodging.
Even though gas stations see tight margins, if carefully run, they can turn a decent profit. This industry still has a serious market need, even with the growth of renewable energy vehicles. Right now, it’s hard to tell what the gas stations of the future will look like, so owners should enter this industry with a willingness to adapt.
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Whether you lease your gas station or buy it depends on the investment you’re looking to make. Some franchise agreements require business owners to own their own property, others allow for leasing.
Some franchises only operate in certain areas, so your local representative will be able to guide you. Otherwise, gas stations generally perform best on busy highways or areas that see a lot of traffic.
You’ll likely need at least $270,000 to start, but this figure varies based on location, gas station type, and size. Add up your costs and include a cushion for emergency expenses.
Franchises are heavily regulated, so those looking to open a gas station franchise may want to find a lawyer that specializes in franchise law.
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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