Being Sherlock: Investigating a Business’ Value

How much is your business actually worth?

Finding the appraised value (valuation) of a gas station business is much more complicated than figuring the value of a home. A home’s value is generally assessed based on factors like the age of the home, the structure and condition of the property, and by comparing the home to other homes in the neighborhood (“comps”). Unfortunately, when it comes to assessing the value of your business, there is not a neighborhood of gas stations to choose from.

When trying to find the value of a gas station that you’re considering purchasing or leasing, you will need to consider the real estate value and the value of the actual business. These two factors should be evaluated separately and thoroughly.

First, find a baseline value for your real estate. This can be obtained from the local tax appraiser’s office. The value that the local government assesses to a property for tax purposes is public record. Most listings are available online. Usually, this number will be much less than the asking price.

Second, discover and create a comp for your business. Like I said, there is not a neighborhood made of gas stations to find a comp for, so you have to investigate and find one.

Gather a list of the gas stations in your target area that have sold in the past 2 years. This list can be obtained from your business broker. From this list, find a few stores that look similar to yours in terms of sales figures, demographics, and so on. Create a comp for your chosen business.

These businesses are of course competitors, too, so knowing this information is key for many aspects of evaluating your business, now and in the future, if you decide to purchase or lease this particular gas station.

When finding the appraised value of your business, consider several factors:

• Merchandise sales
• Gas sales volume
• The gas pumps’ age and condition
• The payment technology that’s currently in place
• Location and visibility
• Condition and age of the facility
• The size of the building
• Regional economic growth trends and demographics
• Branded vs. unbranded fuel
• Amount of competitors and the distance between them
• Traffic volume of your nearest major road
• The potential or existing revenue streams of the business
• The ease of access into and out of the lot
• Expenses you may incur that you can predict
• Calculating the gross profit margin

Keep in mind two key points of advice:

• Just because a location has high merchandise sales, that statistic alone does not justify a higher valuation.
• If something is too good to be true, it probably is.

You’re going to have to be thorough. Like Sherlock Holmes, you’ll have to have an eye for detail when investigating a property’s value.