An accurate and reliable filling station valuation, which a prospective buyer can trust, is imperative when you want to become part of this niche industry.
Many new filling-station dealers have faced the shock of not making anything close to the net profit per month anticipated or disclosed to them by sellers, brokers, or agents.
Undisclosed costs and expenses – not known to non-industry experts doing filling station valuations – are the biggest reason for the above.
Two examples of expenses and costs not always accounted for on valuations
1.
Evaporation – a hidden cost that is a reality when the fuel bought belongs to the dealer and not the oil company. The major reason for evaporation is the difference in temperature on loading, transporting, and delivering the fuel. The industry benchmark on evaporation might seem to be small, being 0.25 percent, but at an average 300 000-litre filling station, the loss can easily equate to R10 000 per month.
2.
Non-industry experts might accept sales reports of convenience shops as being cast in concrete. However, the sales and margins reflected on the reports only encompass products actually sold. No provision is made for stolen, damaged, or out-of-date stock in monthly sales reports.
Another pitfall is that certain valuators when valuing a filling station will exclude certain assets for which the buyer has to pay additional amounts. The valuation of a filling station is based on profits (free cash flow) and all assets such as bakery equipment, car wash equipment, camera systems, etc., (income generating and/or protecting assets) are to be included in the goodwill.
Some other factors better described in the due-diligence section might also be part and parcel of lesser profits.
Our managing director French van Heerden’s experience from owning more than thirty- eight sites resulted in Finmil being an industry leader on filling station valuations. He also played a prominent role in developing the industry-accepted filling station valuation model.
French was also involved in numerous court cases, being an industry expert on the valuation of filling stations, representing dealers as well as oil companies.
A proper filling station valuation must be done on twelve months data to ensure all seasonable fluctuations are taken into account.
A proper filling station valuation must be based on historical volumes and turnovers, current expenses, and margins. No cognisance must be taken of potential or promises.
OFFER TO PURCHASE
An offer to purchase will follow after the valuation of the filling station is done and the value of the goodwill is agreed on by both parties.
Finmil can also assist in the offer to purchase, ensuring that all the suspensive conditions needed to safeguard the buyer are accounted for, such as:
- Performance verification on a proper financial due diligence;
- Completion of a proper risk due diligence;
- Approval of the buyer by the oil company; and
- Approval of the Department of Minerals and Energy and granting of a retail license to the buyer.
