Do not Lease or Buy a Fuels Retail Station Until You See this First

TEN CRITICAL THINGS TO LOOK OUT FOR WHEN BUYING OR LEASING A FUEL RETAIL STATION

Story Time!!!

Our client once leased a fuel retail station in November 2014 from a major brand in a highly populated and high-traffic area of Port Harcourt, Nigeria. He visited the location personally and checked the entire facility without bringing in professionals.

From the inspection he did, everything looked well. The canopy design was new, and the building was aesthetically pleasing. The floor was smooth and shining, etc. In summary, the look and feel were perfect. He paid for the station and began operating the station after fulfilling all requirements and documentation.

His expectation for the station was to do a minimum of 20,000 liters of Premium Motor Spirit (PMS), known as petrol in Nigeria, Automotive Gas Oil (AGO) or Diesel, Household kerosene (HHK), Lubricants amongst other products and services to render in the station. Four months after he started sales, we consulted the station for numerous operational and sales challenges. Top of the list was the decrease in operating capital at the end of sales made and the nonrealization of the expected margins. Our team moved to investigate the issues raised to advise the client on solutions for the station to become profitable. The findings revealed that a significant reason was a result of product loss from the buried tanks, pipeline, and dispensing pumps.

The client reverted to the landlords to take up the cost of the damages, but they declined to take responsibility. A few weeks later, our client moved out of the station and took the landlords to court to get a refund of the rent. All this hassle, including the time and money lost, would have been prevented.

This episode gives a guide on areas to check before buying or leasing an already-built fuel station. The information helps the investor to manage his expectations on when he can recoup his investment. It would enable him to identify design and construction errors and prevent the loss of significant investment funds.

I am deeply touched when I see an entrepreneur or a station struggling because of completely avoidable issues. This series creates an opportunity to collaborate and eliminate these errors.

See below a list of items to check:

1. Underground Storage Tanks and Pipelines: This is one of the most common reasons why investors get frustrated in the fuel retailing business. Unfortunately, these items are underground and do not come to mind.
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3. Investigative questions include:
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• Could they be leaking already?
• Are they tilted or dented?
• How are they buried?
• How badly rusted are they?
• What is the current thickness of the steel plates?

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2. Investigative Actions include:
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• Physical inspections from the tank man-holes and pump island for any irregularities
• Dip the tank using a dipstick and water paste to check for possible water content
• Investigative tests like a leak detection test, pressure test, and UTM (Universal Transverse Mercator)
• Request for drawings and other documentation to see how the condition of the tanks
• Whether in a concrete vault or if strapped, or if there is a dead load on the tank
• Ask the current operators, shift supervisors, or attendants about the present performance of the tanks, pipelines, pump suction, etc
• Check the gradient pipeline from the tank cover to the suction point (applicable for suction pumps only).

1. Station Layout: The station layout is one unnoticeable way to make more sales. It enables forecourt efficiency, resulting in more revenue, especially during peak periods.
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3. Investigative questions include:
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• How efficiently can vehicles navigate through the station to buy fuel?
• Can every vehicle, after fuelling, drive out without waiting for another to finish refueling?
• Is the access to the station free of all encumbrances, markets, and public transport vehicles?
• Is there enough space for all available pump nozzles to be able to dispense to cars at the same time (asset optimization)?
• Are the entrances of businesses, mart, restaurants, and lube of the vehicular driveway leading to and from the forecourt pumps?
• Is there appropriate car parking space for supporting businesses like lube bay, mart, etc
• Is there a designated area for truck parking when discharging fuel into the tanks?

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2. Investigative Actions include - All of these are hindrances to maximizing the sale?
3. Dispensing Pumps:
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5. Investigative questions include:

• How old are the pumps?
• What volume has passed through the pumps?
• To what extent of functionalities can the central board support?
• Are the spare parts available locally?

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2. Investigative actions include:

• Check the totalizer reading, electronic and mechanical
• Inspect nozzles and hoses
• Check the central board to ascertain what extras would be needed

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2. Power/Electricity Provision/Generation
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4. Investigative Questions:

• How is the station powered?
• What is the hour run on the generator (if available)? Is there a public power metering device?
• Are the power storage batteries still retaining power?

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2. Electrical panels, cablings, and lighting
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4. Investigative Actions:

• Check the size of cables for each area of the station
• Check if all available electrical appliances are functional
• Check the earthing of the station

1. Safety/fire equipment
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3. Investigative Actions:

• Check if there are visible pasted safety and directional signs
• Check for the appropriate fire fighting system and if the arrow on the fire extinguisher is on the green region

1. Canopy and building roof covering
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3. Investigative Actions:

• Check for leakages
• Check for deterioration

1. Operational staff needs
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• Check for changing rooms for attendants
• Check for an appropriate safe

1. Security
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3. Investigative Actions:

• Is the area generally safe?
• What degree and how many private security personnel would be needed to protect lives and properties?
• Is there any armed security presence in the vicinity

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2. Haulage ground
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4. Investigative Questions:

• Is this available
• Is it a level floor

Conclusion

We have seen why we must look further than the surface when acquiring a station for

business. These methods would enable you to:

1. Plan appropriately – If you go ahead with the deal, you are already aware of what it would cost to put the asset in top shape and how long it would take to put it.
2. Make better negotiations – Depending on the condition of the facility, construction errors or failures would be factored into negotiations to determine the final purchase or lease amount.
3. Have guided expectations on asset rehabilitation costs, loan refund, breakeven or payback time for the investment made, etc.
4. Protect against bad investment decisions and losses.
5. Prevent the worries and pain associated with bad debts and failure since everything would work as planned.
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7. Recommendations:

• Do the due diligence. Sometimes it takes valuable time and energy, but it is usually worth the effort, especially in the long run.
• Engage experienced professionals to examine a station before committing funds. The resources set aside to engage them would save you from losses.

Dear Reader – If you have other ideas that you think are critically important to check before buying or leasing a fuel station, kindly put them in the comment section. Watch out for the next episode of this series. Remember to subscribe to get notified when the next episode is uploaded.

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