With Americans commuting as much as ever and electric car-dominated roadways a long way away, opening your own gas station can be a lucrative business for entrepreneurs with the right expertise able to obtain sufficient funding.
However, since the petrol industry is a highly competitive, ever-changing market, success is not guaranteed in this business. Opening a gas station takes careful planning, plenty of capital, and the development of long-lasting relationships with suppliers and local officials.
In this post, we’ll examine the necessary qualifications for opening a gas station and then delve into each key step in the process of getting a fueling station up-and-running.
Is the gas industry right for you?
Due to high start-up costs, strict licensing requirements, and plenty of other factors, opening up a gas station isn’t for everyone. Here are some qualities that make one eligible to own and operate a gas station.
You can take an active role in day-to-day business operations.
Diesel fuel and gas prices are constantly going up and down and a variety of outside factors, such as nearby road construction or the opening/closing of local businesses, can significantly affect a gas station’s business. Therefore, operating a gas station isn’t a business where you can take your foot off the wheel: once you open your location, keeping the business moving along steadily necessitates daily management and frequent decision-making.
You are able to gather the necessary capital to open a business.
Opening a gas station can require between $250K to $500K in startup costs. Most people don’t have that kind of cash on hand, so securing a loan from a bank or the U.S. Small Business Administration will likely be necessary. If your credit and financial history aren’t up to par, you may have trouble obtaining adequate funding to open a gas station.
Gas industry statistics at-a-glance
- Per capita, gas station spending in the US is around $1,500 a year, and most customers prefer to pay with a debit card.
- Gas stations in the United States collectively generate between $30 and $50 billion in monthly sales.
- There around 168,000 retail fueling stations in the U.S., although the number has slightly declined over the past decade.
- The average U.S. gas station has 7.3 employees.
- ExxonMobil is the leading fuel supplier in the country, bringing in $255.6 billion in revenue in 2018.
Sources: Statista, IBISWorld, Fueleconomy.gov
Opening a gas station step-by-step
1. Plan your business
First on the agenda is to draft a detailed business plan that includes prospective operating costs, products and services you intend to offer, marketing strategies, and financial goals. Having a comprehensive business model prepared will aid in securing funding from a financial institution and help land an operating agreement with a major franchiser.
2. Buy a franchise
Independent gas stations are exceedingly rare and a majority of retail fueling stations operate as a franchise of a major gas company. For most entrepreneurs, this is the way to go, as in exchange for monthly royalty payments the parent company will assist in many aspects of running the business.
Do some research and speak to representatives of major gas companies such as BP, Shell, ExxonMobil, or whichever company accounts for a major portion of the gas business in your region in order to find the most beneficial franchising contract.
Here are some aspects to consider when shopping for a franchising agreement:
- Royalty payments: flat monthly fee or sales percentage
- Franchiser and franchisee obligations
- Term of contract
- Fuel sales quotas
- Maintenance issues
- Repair history of existing pumps, tanks, and equipment
Evaluating franchise agreements can be a difficult process and may require legal expertise, so it’s a good idea to hire a lawyer or legal professional to help you parse the terms of the contract.
3. Acquire funding, choose a business entity, register your business, and obtain federal and state tax ID numbers
Refer to our How to Start a Business Guide for instructions on how to complete these essential steps.
4. Select a location
For those that are opening a new business rather than purchasing an existing gas station, location is one of the primary concerns. If the station is remotely located, customers are unlikely to show up in sufficient numbers. Here are some things to consider when choosing a location for the gas station:
- Don’t set up the station too close to a competing gas station, unless you’re confident that you can offer lower prices and better services.
- Analyze local traffic patterns to choose a spot on a roadway that sees a lot of traffic during rush hours with professionals headed to and from work.
- If you are opening a gas station in a small community, setting up your station near the entry and exit ramps of a major highway will draw in customers on long-distance road trips.
5. Obtain the necessary licenses and permits
Entrepreneurs opening a gas station should expect to require a number of licenses, permits, and certifications in order to legally operate, although exact requirements will vary between regions.
- A slew of safety inspections–including fire inspections, tank inspections, and water inspections–will be necessary before the gas station is able to open.
- Certificate of occupancy – Certifies that the gas station complies with local building codes and laws.
- Retail motor fuel outlet license – Required by any business that sells fuel to the public.
- Alcohol and tobacco sellers permit – Required by businesses that sell alcohol and tobacco products.
- General business license – Most localities require retail business owners to obtain a business license issued by the county or municipal government.
6. Sign a contract with a gas supplier
Gas stations need a lot of gas, which means signing an agreement with a wholesale gas supplier in the area.
For those buying a franchise from a major gas company, it’s likely that a franchising agreement already stipulates which suppliers to go with, but if that is not the case, contact a handful of wholesale distributors in order to compare prices and seek out the most favorable profit margins.
7. Buy insurance coverage
Insurance protection is necessary for a gas station, which is a business at risk for potentially dangerous accidents. Additionally, businesses with employees are required by the federal government to have two types of insurance, while others are strongly encouraged, or required at the state level.
Here are the forms of insurance you should purchase for your gas station:
Required forms of insurance for all business with employees:
- Workers’ compensation: Covers medical costs and disability benefits if an employee is injured or becomes ill on the job.
- Unemployment insurance: Provides benefits to workers after a loss of job through no personal fault.
Recommended forms of insurance for gas stations:
- Professional liability insurance: Covers losses as a result of property damage, medical expenses, libel, slander, and negligence claims.
- Commercial property insurance: Covers property damage to business-owned properties and possessions as a result of fire, theft, or storm.
- Disability insurance: Provides short-term benefits for employees suffering an illness or injury. Required in certain states such as California, New York, and Hawaii.
8. Purchase equipment
Often when buying a gas station franchise, the franchising company will take care of supplying the necessary equipment for the gas station to operate. However, it’s possible that gas station owners will have to buy or lease the equipment themselves.
Here’s a list of the most vital equipment:
- Security cameras
- Cash registers
- Card readers
- Industrial refrigerators
- Tanks and gas pumps
- Air pumps
- Car wash supplies
- Supplies for the restrooms
9. Stock inventory
In addition to gas, customers commonly buy a slew of other items during a visit to a gas station. The following are some of the best additional products to stock:
- Food items
- Tobacco products
- Hats, sunglasses, and other apparel
- Motor oil, antifreeze, and other automotive products
- Herbal supplements
- Over the counter drugs
10. Hire Employees
As previously mentioned, the average U.S. gas station has around 7 employees. However, you may not need that many upon opening. Print out a schedule with the gas station’s hours of operation to calculate the necessary number of employees you’ll need to hire.
11. Market your gas station
Although a gas station’s location and prices will be the major factors in drawing in business, buying local advertisements and conducting an online marketing campaign can also help to boost sales. Here are the key steps for promoting your gas station:
- Create a website. Register a domain name for a company website (You can use domain.com, Bluehost, GoDaddy.com, or Namecheap.com). Hire a web designer to develop the website (or do it yourself). Be sure to include detailed contact information on the site.
- Open social media accounts. Register accounts on the popular social media services (Twitter, Facebook, Instagram)
- Register a Google profile. This will allow you to add pictures of your business, respond to positive customer reviews, and address customer concerns.
- Respond to online customer feedback. Register accounts on business review platforms such as Yelp and TripAdvisor. This will allow you to write thank-you notes in response to glowing reviews and address negative reviews.
- Take out ads on billboards and in local publications. It still pays to increase visibility by buying ads in local newspapers and on highway billboards.
Gas station business resources
- ANS Distributing – A leading wholesale supplier of gas station equipment.
- Dultmeier Sales – Offers an extensive online catalog of gas and service station supplies, including brooms, trash cans, and petroleum handling equipment.
- Franchise Direct: Gas Station Franchise Opportunities – A directory of gas station franchise opportunities that can be sorted by location.
- World Oil – A premier source for daily news covering the oil and gas industries.