Hey looking for some advice a family friend of mine owns a convenience store/gas station. My wife and him were talking and she floated the idea of buying a percentage of his business., These are the details and facts I have gathered over a few casual conversations between me and the owner. I will obviously due further due diligance and review the books but I think put the general gist of it here and getting feedback will be valuable. It is a family friend and I don't want to dig in his books and grind him until I feel its necessary.


-Valuation of store and inventory is between $500,000-$550,000. Based on prices of other similar sized business I have seen for sale I believe this to be plausible.
-He said he would sell 25% for 125k
-I would only be able to raise ~80k at the moment. So I was thinking of offering for 16% with an option to by the other 9% for 45k in one year (advice on this part)
-He stated to me a few times in the past before my wife even asked him if he would be interested in selling his Gross take home profit is typically 135k per year and at 16% I could expect 1800-2000 monthly profit.
- He stated he is planning on either selling the buisness or running it absentee within the next 5 years he stated we would be the only people he would trust to run it while absentee if we weren't interested or able at that time he would sell.
-All of the major items are taken care of (long term lease has 18 years left and an tenant option to extend for another 10 years in 13 years so could be up to 25 years left on the lease)
-Shell branded and accounts in good standing he recently broke into a volume discount where he is getting quarterly cash back on sales,
-Has liquor license
-Is in Phoenix metro area that is expanding and will be getting bigger. Upscale area average home value in this area is ~450,000



Anyways this would be for investment only I currently own a custom home building company I am doing fine, I was just looking for different investment opportunities that aren't tied to the housing market as it seems to be a bit bubbly to me. As far as time it would take to run it currently has 2 full time employess  and then the owner works full time we would be expected to cover 2 shifts a week which wouldnt be a problem for my wife as she just does my taxes and accounting and other paper work for me during the week generally totallying 12 hours or so.

Am I being an idiot? I feel like this could be a good little investment. Wanted to get some outside voices to see what I may be missing.


Bottom line should be a ~25% annual ROI not including man hours of being there.

Run away as fast as you can unless you're going to be there every day running the show.

All kinds of opportunity for shenanigans with accounting at a Stop'n'Rob

My advice: don't go into business with a family friend if you value the friendship at all.

It sounds good on paper, i doubt it will work out that well.

Do you due dilligence. If you are interested i can offer detailed advice based on the actual numbers if you go that far. I run a "store" (we actually call it a store but its more of a dealership) that sells parts, equipment, supplies, service and new install. Around a million a month. We are extremely low margin, high overhead so i know numbers very well. I also run cattle and own rentals.

Ive always believed that if you know your margins and overhead, you can run nearly any business or investment. The accounting shenanigans is a real concern in a cash business. Ive seen some businesses go pretty bad pretty quick when guys brought in a partner and were still skimming cash.

It never hurts to roll the dice if you research and think it out beforehand. Just make sure you have a plan b if it goes south. At the end of the day its just money. Sometimes you win, sometimes you lose. I lost 380k on my first business in my early 20s because i didnt know my numbers.

In the end i bet you will make closer to 10 points on your investment.

I couldn't be there everyday. My wife or I could be there daily but for that return I don't think it would justify that time of time commitment.

Valid point.

Yeah everything sounds good on paper. I know how that goes. Im sure our business is similar to yours I am basically running off of margins between my subcontractors and my clients. The skimming is a definite concern like Fredman said unless I am able to be there it could be hard to detect.

We dont use subs very much. We are focused on parts. Labor is a necessary evil. I have 3 parts guys and 6 salesmen. 90% of our business is selling parts and equipment.

Your deal sounds like it might be okay if you planned on buying it out down the road, then buying a few more. Otherwise, id likely pass.

Is he leasing the "Shell Business" or is he leasing the land and gas pumps? Gas station land decreases in value exponentially once the business closes. It is near impossible to sell the land due to the tanks in the ground that are leaking or will leak which causes further expense with the environmental impact.

I personally wouldn't join in due to the whole family friend aspect, but also the 16% equity only returning $21,600year (or $33,750 at 25%) wouldn't be worth covering the variety of shifts and other managerial duties required. Your return of $21,600 divided by 52 weeks*2 shifts equals out to be $207.69 per shift ($25.96/hr for 8 hour shift) you have to cover.

Say you value your time at $20hr. You would receive a salary of $16,640/year for your shift work and would only receive $4,960 (6.2% yearly return on investment) for your yearly return on investment. It would take 16 years to recover your investment without including taxes or the time value of money of your $80,000. If you invested your $80,000 into an asset gaining 3% per year, over 16 years your $80,000 would be worth $128,376.

That would be the thought is total ownership at some point.

look at the tax returns, that's where the rubber meets the road.

Do not do it in any capacity.

Can you expand upon that?

Also investigate who owns the environmental liability. Gas stations have USTs (underground storage tanks) for the fuel. Older tanks will have leaks and the newer ones have the potential for leaks. If they leak someone is on the hook to remove the tank (tank yank) and any contaminated soil. There may also be groundwater contamination issues that can require monitoring or mitigation.

1. You will be working "nonstop" in this venture, or so much your return is crap.

2. Do not do business with family friends!

3.. I also find that typically an owner of a business does not bring in a partner unless they are looking to obtain a skill set, have a very expensive bill coming up and need help there, or are looking to bilk a partner out of their investment. More specifically with this case I was would ultra damn sure about the fuel tanks. Very expensive and you are liable for "life" on getting them fixed and remediation. Plus any fines etc.

The main question to me is:
Do you really want to have to work at a convenience store a good portion of your life?  I strongly suspect, It is not a deal where you will simply throw this money in and you have a cash cow with no work/labor.

If I was to consider it check all tax returns, check out business lien/loan status, bank account summary, etc.

Thank you much more informative than the first one and valid points.

No problem. I know how it is to get emotional on a big decision like this and forget the "real" stuff. Make sure you check all the info you can get and go from there.

Good luck

My take on the simplest level is its a bad investment.  I don't need to look at returns or even at the business at all.  They invited you into the business, so that tells me things are not going the greatest.  NOBODY invites you to invest in something that is booming when they could be taking in all the profits.

It sounds like that 80k might be all your liquid cash, so you are setting yourself up for financial problems if anything remotely goes wrong.

My

My thoughts in a summary as well.

Actually it was my wife's idea not his. Thank you for the advice but he decided he wasn't wanting to sell and after some great points brought up here. I think it's for the best we don't get into this investment.  He said when he does plan on selling he will let us know but I really don't have an interest is doing that as a full time job as it doesn't make financial sense.

Secondly plenty of buisness invite people in to raise cash when's things are booming. What do you think stocks are?

In small (non public) businesses that is red flag number 1. People take partners because they are in a difficult spot.

^^ This.  A partnership is not the same as just being a common stock holder.

I'm glad you both decided it was not the best decision.

How did he come up with the valuation of $550k? C-stores don't have much for inventory, it's delivered twice a week for the most part.

You don't make squat on actual fuel sales. Then factor in theft. The Thornton's that I frequent, the manager told me that he sees about $200 a day just in theft from inside the store, and fuel.

This.

OP remember you will be a minority shareholder, which means your distribution is zero unless the majority shareholder wants it otherwise.

Not only that, but your valuation numbers mean essentially nothing.  Run, unless you want to drop $15k up front on a valuation and understand very well the disadvantages to a minority shareholder holding an illiquid investment like this.

Personally I have never invested in a business where it wasn't purely financial. I don't want to invest cold hard cash just to get a job. Any business I invest in is already running and looking for additional capital not employees. I constantly check the books and make sure there is an independent audit.

Run, don't walk to the exit.

keep your friend... as a friend.

Wanted to update this I took the consensus advice and stayed away from this.  My friend seems to be having financial problems at the moment and we'll unfortunate for him. I am not involved in these problemc. Thanks again for the opinions.

Op, you can always wait until the bank goes and reposes the building, then you can buy it, start from scratch and have your friend run it with the incentive that every year the business does good he gets some ownership back.

That allows his to eventually get his store back and not have to worry about his credit for loans and such since it will be jacked up due to the defaults.