When buying a filling station a proper due diligence is needed as part of the suspensive conditions on the offer to purchase.
A due diligence of a filling station will be twofold
Financial Due Diligence
A financial due diligence on a filling station will verify the following on the valuation:
- Fuel and diesel volumes – volumes verified by wet-stock sales reports as well as delivery invoices from the respective oil company.
- Fuel and diesel margins – fuel margins are regulated, but numerous dealers offer huge discounts on diesel to obtain additional volumes.
- Shop, food, and turnover from all other profit opportunities – these are turnovers verified by the monthly point of sales reports as well as analytical review of all the purchases made per month for the shop, food, and all other profit opportunities, taking cognisance of the respective margins in those departments.
- Key expenses – this includes validation of all material expenses such as municipal charges, salaries, and wages on source documents and the monthly wage register.
Risk Due Diligence
A risk due diligence on a filling station will typically involve the following:
- The possibility of road changes and new filling stations that might influence profit margins;
- Debtors volumes – to what extent are volumes sold on credit versus actual debtors deposits and profitability thereof;
- Nature of debtors – steps need to be taken to ensure that the current owner doesn’t have inherent influence over certain debtors that will stop when the new dealer takes over (for example, the owner’s brother owning a logistical company that supported the business due to family ties, etc.);
- Verifying that there are no material volume contracts based on the current dealer’s status, ethnic group, etc., that might be cancelled when a new dealer takes over;
- Lease agreements that might come to an end.