Ah! The perfect deal! How we all fantasize about finding it. No doubt you have heard a story similar to the one about the guy who finds the barely used 1957 Corvette stashed in the back of someone’s garage. It has sat there unused for years. The owner just wants to get rid of it and agrees to let it go for a song.

Sounds great, doesn’t it? Unfortunately it is rare that this ever occurs at auctions and estate sales, and it is even rarer that it occurs in the world of deal-making or business acquisitions.

But still, even in today’s tough economic climate where lenders are tightening their purse strings and our government is conjuring up ways to implement new taxes, I continue to get buyers calling me and giving me a 60 minute exposition on the business acquisition they wish I would help them acquire. But alas, imagine their woe when after my patient listening and patient rebuttal, they are fated to discover that what they are looking for is in fact, a perfect deal, and thus does not exist.

On the surface I understand and recognize they want to make sure they get the best value for their dollar they can possibly achieve. But the reality of the situation is there is no such thing as a perfect deal.

First, let me explain what I am talking about when I say the “perfect deal.” In the world of business acquisitions, the perfect deal would be the buyer finding the convenience store that has the right size building; located at the best spot in town; has updated pumps and credit cards systems; the roof, air conditioning and cooling units are fairly new; has a profitable foodservice program with minimal competition; has a high volume of fuel gallon sales; and has consistently high inside sales (but with not a lot of cigarette sales). In addition, the seller is very motivated and is willing to sell the store below the current market value of a c-store.

Have I got your attention? This would be pretty close to the perfect deal. Everybody has different criteria, but this will give you a general idea as to what I am talking about. Are these kinds of deals out there? Absolutely. Are they plentiful? No.

The reality is that almost all deals will “have some warts on them.” There is generally going to be something that is just not right about the deal. Maybe it has a great location, but the assets are a bit run down. Perhaps it does a great business inside and out, but the size of the building is too small for expansion in the future. Maybe it has a branded obligation that cannot be changed and the buyer is not interested in becoming part of the new brand. There are many different things that will come into play when looking at acquiring a convenience store.

My point is, there are a lot of great opportunities in the world of convenience store acquisitions, but you first have to understand that there is no such thing as a perfect deal. Once this realization has been met, then the search becomes realistic, and you can find a really good convenience store or group of stores that are available to be acquired with most of the criteria you are looking for at a fair price.

Just this week I was presented with a group of eight convenience stores that an owner wanted to sell. Is it the perfect deal? No. Three of the stores are leased properties and five of the stores are owned in fee. But they are all profitable and have a great upside. Upside is the part of any deal that a buyer should be seeking. What is the upside of this acquisition? The buyer knows he will have to invest money to acquire these stores; however, based on his expertise and knowledge in the operation of c-stores, it is also known that by adding certain items and maybe changing the floor plan and a few other things, he can raise the sales too. This means there is plenty of upside for him in this transaction and that the new profits generated from changes made are going to be his.

All of the hard work has already been done. By this I mean it is a lot easier to take an existing business and build it to a new level than it is to build a business from scratch and not know if or when you are going to make a profit. You see, when you buy an existing business, you have a cash flow from the very first day you take over the operations.

So put on your deal-making hat and take off your rose-colored glasses, and you will see there are many opportunities available for those hardworking owners of c-stores who are looking to expand and find some very good (but not perfect) deals In today’s marketplace.

The result is an historic number of people filing for unemployment benefits putting a tremendous amount of financial strain on the state governments. This, in turn, is prompting the federal government to draft legislation to send emergency bailout money to the states in order to pay the people who are currently receiving unemployment benefits.

There is little disagreement as to how bad it is out there. In his new book, “The Great Depression Ahead,” New York Times best selling author and renowned economist Harry S. Dent, Jr. wrote, “Businesses need to understand that a ‘survival of the fittest’ battle is coming between 2008 and 2012 that will determine the leaders for many decades to come. The businesses with the largest market shares or niche dominance and with the lowest costs and strongest balance sheets and liquidity will grow stronger and gain long-term market share, but many more will fail or be taken over by the stronger companies.”

Dent bases his economic forecasts on the demographics of people throughout the world, not just the United States. You may ask, “How does this affect me? Why should I care what goes on in India, Indonesia, Latin America or China? My store or stores are in Ohio or South Carolina or California. I am worlds away from these places.” Well you should care, because what is going on in the production and manufacturing countries; is going to dictate what you pay for the gas and products you sell.

Remember the $4 per gallon gas last summer? Did you have enough credit to keep your tanks full? With fuel prices fluctuating so rapidly, did you get caught with gas you had bought at a high price and then had to sell under cost?

Do you remember the pain of the consumers who had to spend $80 or more to fill up their vehicles? Did your inside sales take a hit because the high fuel prices left the consumer with too little money to go inside and purchase the products they usually buy?

Remember the price increases on food products that were a result of corn prices going up to help satisfy the demand for ethanol — prompting you to charge higher prices for some of the daily items you sell in your store?

All of this sounds like a long time ago, doesn’t it? Well, based on the predictions of many economists, we are not out of the woods yet.

OPEC, the cartel that has made billions and billions of dollars from the run-up in oil prices, has publicly stated that it wants the price of oil at $75 a barrel and will do whatever it takes to get it there. And since OPEC either controls or influences more than 60 percent of the world’s oil supply, there is a good chance that it will get the job done.

Now that I have set the stage for future doom and gloom, let me make my point. Last week I talked with two operators of convenience stores. Both were men in their late 50s and each has been in the business for more than 30 years. One has approximately six stores; the other roughly 40 stores. Both are very knowledgeable about the convenience store business and understand how to purchase fuel, merchandise a store, how to buy correctly and all the other functions of running convenience stores. In short, they were both very experienced operators.

Both of them lost money last year.

Why? They took their eye off the ball and lost focus on running their operations. Both of them knew what was going on in the marketplace — with the fluctuating fuel prices — and did nothing. They were not paying attention to where their business was going until it was too late. There is no sugar-coating this situation. They both lost a lot of money. Admirably, both operators admit that it was their fault, and I respect them for taking responsibility for their actions. But they messed up and they know it.

So how does apply to you? Because unless you want to become one of the businesses that doesn’t survive the competitive evolutionary climate to come; you must be very proactive in your business. You need to surround yourself with competent people who know what questions to ask and have ideas and solutions about what should be done to remedy the situation.

Are you reading your profit and loss statements as a banker would (i.e., with no emotion and seeing things in black and red)? Or are you too personal with the stores you operate and treat them like a family member?

Never fall in love with a business or a building, because it can’t love you back. The operators who emerge victorious from this “survival of the fittest” competition will be those who can stand back and look at their business in an objective manner. The survivors know when to hold them and know when to fold them. They’ll be able to cut out the non-performing items within the stores or get rid of the under-performing stores altogether and reinvest into new stores or get liquid.

Continuing to operate a non-performing asset is just dumb! Especially in a market that is not expected to improve for several years.

Many people will take a wait and see approach when it comes to selling off under-performing assets. They will wait until the market is better and try to get a better price. Nobody wants to sell at the bottom of the market, right? Well, what if we are not at the bottom of the market?

To test this theory, I checked the records on all the stores I had sold five, three and one year ago. I compared their market values then to their market values today and discovered that all the stores have decreased in value every single year. These results were based on more than 100 stores that were sold by our company within the last five years. None of them are worth more today than they were when they were sold.

Some of those sellers still call me to say thanks for selling their stores when they did. Like most people at the time, they thought they had missed the high point of the market and were hesitant about selling their assets. Ask them about the “wait and see” approach now.

I’m not trying to convince you to sell or get out of the business. Quite the opposite, actually. This is a call to action. Get your business tuned up and running properly. Capitalize on the existing opportunities that are available in the market. Yes, there are opportunities.

A banker friend of mine, who is a past convenience store operator/retailer and manufacturer, told me that the convenience store business is one of the few making money right now.

How could that be? Well, he had seen the profit and loss statements of dozens of c-stores that were making money because they were well run and kept up. He spoke about one 12-store chain where every store was profitable. “Not a non-performing store in the bunch,” he said. That was because every time a store became unprofitable the owner either sold it, or closed it and replaced it with another profitable store.

The banker reminded me of my experience years ago when I was in the entertainment business. He said, “When people have discretionary time either from lack of work or loss of employment, they tend to spend more money on the things they can get pleasure from.” For example: cigarettes, beer, movies, snacks and sodas. “The reason is simple,” he said. “They tell themselves regardless of how bad their economic situation may be, they feel entitled to these items and still deserve the pleasure derived from them. Therefore, they will spend the money for them.”

I know this it true, having seen it in the early 80s when people were losing their jobs. It seemed that they always had money for color televisions, movies, a 12-pack of beer or a carton of cigarettes – even when they didn’t seem to have the money to make the bank payment.

Tough times call for tough decisions. Don’t go the way of the businesses who won’t survive because you are reluctant to make the tough decisions today. Take control of your business and make those tough decisions. It is a lot more productive to make those decisions now rather than waiting and having to make them later … or worse yet having someone else making those decisions for you.

When the time comes to make capital improvements, more convenience store operators are making the smart decision to remodel now, rather than wait to take care of the maintenance when it’s too late. Recent trends indicate this shift is a positive direction for owners who understand the importance of operational maintenance. In addition, industry figures show the gap between remodeling years is narrowing (9.8 years), while the percentage of stores that have been remodeled in the last five years is growing (33-plus percent), according to NACS.

When defining capital improvements, or operational maintenance, we’re really defining curb appeal. When assessing the quality of a store’s assets, c-store owners must determine if there needs to be maintenance done for issues including cracks in the parking lot; peeling or faded paint on the exterior; plumbing leaks or clogs; interior design; and any other issue related to the overall look and functionality of the store.

I often suggest to my clients that it’s better to take care of operational maintenance immediately when there’s an opportunity to earn a return on investment. The “pay me now or pay me later” theory suggests that store owners who put off making capital improvements are those who want to be “paid now.” The best scenario, however, is getting “paid later;” because that involves a return on investment, which usually yields financial gains. For example, during a sale process, a buyer will assess the assets of the store or stores for sale. If one is in need of capital improvements and maintenance, the buyer will deduct the cost of the improvements from his or her offer. In those cases, if the store owner paid for the maintenance when it was needed, he would have reaped the benefits – which many times include an increased store value – from the improvements. Unfortunately, however; not making the improvements when needed will lead to the store owner ultimately losing money at the time of the sale.

While making capital improvements is most often associated with preparing to sell a store, it’s also vitally important to the overall business function. Store owners that suffer from declining assets are often those who operate highly successful businesses. In actuality, the stores that are most successful are the ones that suffer the most wear-and-tear. The highs that come from consistent consumer traffic usually bring the lows caused by the overuse of gas pumps, restrooms, soda fountains and coolers. A new store becomes a well-worn store in a matter of years. The key is keeping the well-worn store from becoming worn-out.

Store owners should always keep in mind the idea of maintaining a positive public image. Think of the image a business is sending to its customers when the parking lot is full of potholes, the restroom is closed because of plumbing problems or a pump is bagged because it’s out of order. It is no coincidence stores that maintain their curb appeal also maintain a healthy business. Just like customers are drawn to new stores because of the cleanliness, shine and polish, they’re also drawn to old stores that are constantly maintaining the look and feel of a new one.

The convenience store industry is composed of nearly 150,000 stores. At any point in time, several thousand stores are available for prospective buyers. Opportunity is abundant and forthcoming, but there are still plenty of obstacles that could turn a sweet buy into a lemon deal for the potential single- or multi-store buyer.

Here are some tips to prepare you in finding and purchasing a good convenience store for a great price:

UNDERSTAND YOUR BUYER TYPE

People are looking at new and different ways to invest and make money in today’s market. As a result, the definition of the c-store buyer has evolved. I’ve narrowed down the list to include three different types of buyers. The first is the “job buyer,” who is looking to purchase a c-store because he wants to buy a job. The second is the “investment buyer,” who is looking to invest a portion of his financial portfolio in the hopes of a favorable return. And the third type of buyer is the “trade buyer,” who is already in the business and looking to grow his operation. Correctly identifying what type of buyer you are will help you evaluate a potential business for sale.

WHAT’S THE UPSIDE?

Once you’ve determined what kind of buyer you are, the next step is to search for a business that has an upside. I always advise my clients to be on the lookout for businesses that are only running on six of eight cylinders. Why? Because regardless of what type of owner or operator you are, you cannot improve on something that is running at maximum efficiency. When evaluating a business’s potential, or upside, it’s important to take into account several factors, including the store’s cash flow, location, environmental records, lack of products or services offered and quality of assets.

HOW MUCH CAN YOU AFFORD?

If you’re thinking about buying a c-store that sells gas, you need to know how much money you have available to invest. The banks will usually finance 80 percent of the purchase price, but you’ll need enough money to cover more than just the down payment. Beyond the down payment, you’ll also need to think about inventory, deposits, operating cash and merchandise.

KNOW WHAT YOU ARE BUYING

Once you’ve identified a store that you want to purchase, determined its upside and how much you can afford, you’ll want a list of the assets that are included in the sale. You cannot assume anything in the purchase, and obtaining a list of assets assures that you know exactly what you are buying and exactly what is being sold. You don’t want any surprises on closing day.

DUE DILIGENCE

Doing your homework is perhaps the most important part of the process. It’s crucial to always remember when buying a business, the seller has the upper edge. The seller knows all about the business, the good and bad points, competition, weaknesses and employees. Your job is to create a checklist covering all aspects of the business, starting with the financials. Double-check the specifics, so at closing you can verify the financials are accurate, the taxes are applicable and the assets are yours.

(This article first appeared in the June 16, 2008 edition of Convenience Store News)

Silver bullet: a product or service that, when added to an existing business, will instantly become a profit center, add to the overall value of the business and put cash in the owner’s pocket.

Myth or reality?

While that is my own personal definition, many owners and operators within the convenience store industry can identify with the term “silver bullet.” As a former owner, I too was lured by the magic a silver bullet had to offer. It came with the promise of immediate increased profits and was a guaranteed cure-all for sales woes.

The search for the silver bullet, or new profit center, in the c-store industry is evident in the recent explosion of foodservice. In 2006, the average c-store reported nearly $313,629 in operating expenses per store, up 16.3 percent over 2005, according to Convenience Store News’ 2007 Industry Report. To offset those expenses, operators have been seeking to add profit centers to help raise store margins. Most of that search has been focused on in-store sales, specifically in foodservice, which featured a 9.9-percent rise in gross margin dollars nationally last year.

One example of a c-store owner investing in the silver bullet came to me from a client in Terre Haute, Indiana He decided to put pizza in his store to boost profitability. After investing thousands in startup costs (along with adding equipment and hiring the labor to operate), his sales figures rose slightly. Then, after six months, his pizza oven broke. Interestingly enough, the loss of pizza sales did not affect his bottom line. The overall cost of installation -coupled with added labor costs, and food and paper costs- negated any profit he could have anticipated, making his six-month sales figures look remarkably similar with pizza as they did without it.

Foodservice is not a bad idea. However, it’s important to consider the factors that influence the performance of your business before investing in that profit center. In this example, my client thought adding pizza would increase profits, but he underestimated the other factors that affected his bottom line, including the costs of additional labor, employee training, construction, and equipment and supplies.

Sometimes we hear about a fellow operator adding a new product or service that results in a $5,000 increase in-store sales, tempting us to do likewise. However, the mistake many make is not planning for the upfront and included costs of buying into, developing and maintaining that profit center. To help prepare for those costs, I counsel my clients to do two 12-month projections. Factor the new profit center into one projection and do the other projection without it. If the new profit center projection works out to $30,000 in increased sales, determine what it is going to cost you to add that additional $30,000. Keep in mind the upfront costs and that it may take you more than one year to realize that $30,000. Most importantly, discover the real bottom line and determine whether it’s going to be worth your time to develop.

Finally, before you decide to invest, locate an operator outside of your market area who is not a direct competitor and who has already invested in the same profit center. Many times, you can ask your vendors to give you the name of someone and then call them to ask how the new product or service has worked for them. The point is, do the research and fact-finding first, before you pull the trigger. You may find out that adding the silver bullet is worth your time and money, but you also may find out that the silver bullet is really a blank.

(This article first appeared in the January 14, 2008 edition of Convenience Store News)

A new year is upon us and many within the c-store industry will be expecting better financial results in 2008 compared to the reduced fuel margins, high credit-card fees, and record-breaking gas prices that negatively impacted the industry over the last two years.

However, 2008 has opened ominously, with oil futures rising to $110 a barrel during the last month, marking the first time prices have reached that milestone. Soaring oil prices could further impact the c-store industry in the form of reduced fuel margins, and is also an indi­cator that things may get worse before the economy makes the eventual upward shift we’re all anticipating.

While this certainly does not paint a rosy profit outlook for the c-store industry, there are options available to help fight rising fees and increase the overall profit margin of your stores. For c-store owners and operators, it’s time to start looking inside the store to raise profits. While low gasoline prices ultimately drive traffic to your store, it’s in the sale of in-store items where the profits hide. I have conducted my own unofficial sur­vey and determined that nearly 90 per­cent of the items sold inside c-stores are not pre-priced, meaning you as the owner or operator have control over setting your own prices.

Most consumers will shop around to purchase fuel at the lowest-priced mar­keter in town, sometimes driving several miles just to save a penny per gallon. For those consumers, that’s only about a 20-to-30-cent savings per fill-up. What’s interesting is that those same consumers don’t shop around to find the lowest priced soda, snack, coffee or other in-store sale items, which could easily be marked up to cover the diminishing margin at the pumps. Gas prices might be the curb appeal that gets consumers to your stores, but the price of items inside will ultimately make up for the loss you’ll experience due to high oil prices and credit-card fees.

So where do you start when consider­ing making those changes to your in-store items? It’s important to be accurately priced for your market. Therefore, I always advise my clients to know their competition as well as they know themselves. Consider the fact that you already survey your competition when it comes to fuel prices. Why not do a price com­parison of frequently purchased items like sodas and snacks?

By performing a market basket survey, you might realize that you can raise candy prices by 15 cents and still beat your competitor. Conversely, you might find that your competitor has raised prices by 25 cents on soda and the con­sumer has not flinched.

Let’s not forget that your stores are called convenience stores for a reason. You’re not supposed to be the cheapest guy in town. However, consumers can’t beat your location, easy in-and-out access, and product selection. If people were searching for the best price on those items, they would be going to Wal-Mart or some other big-box retailer.

Once you’ve done your survey and have an idea about pricing, the next step is to market, or advertise, your in store items in order to bring people from the pump to the register. Simple signage on the front door, at the pump, and on the curb will remind consumers to stop inside the store for the $2 hot dog lunch specials.

In addition to adjusting prices, there are other options available to you that could boost that profit margin. You should also consider promoting a co-branded credit card or the use of debit cards, both of which carry much lower transaction fees than typical credit cards. In addition, monitor your stores and employees to be sure authorization is received for every transaction that occurs in-store and at the pump.

As an owner or operator, don’t get so caught up in the gas game outside the box that you forget there’s money to be made inside the box. Make the most of what you can control, inside the store, and beat the credit-card crunch.

(This article first appeared in the April 2008 edition of Convenience Store News)

It’s staggering to consider that we work in an industry in which store sales rose by 12 percent, but profits still dropped by 23 percent last year, according to the Convenience Store News Industry Report. We all know the reasons for the decreasing profit margin, including high labor costs and credit-card fees. In my August column (CSNews, Aug. 6), I explored the options that multi-store operators (MSOs) have when feeling the pain at the pump and the wallet. Part of the rationale behind my advice on selling stores to the throngs of potential single-store owners comes from my theory of one-thirds, which I believe retailers should use to determine what units need to be folded, sold or further developed.

The theory surmises that for most MSOs, one-third of the stores they own are highly productive, one-third are consistent in terms of productivity, and one third are losing money. You can adjust the theory in terms of percentages, but in general terms, it’s easier to break down the stores into upper, middle and lower tiers. As a former MSO, my advice is to cut your ties to the one-third of stores that are in the bottom tier. I know from experience that MSOs spend entirely too much time trying to make their underperforming assets productive again. Instead, they should be focusing their efforts on making their good stores great and working to maintain the consistency of the upper and middle-tier performers.

At one point, I owned and operated more than 150 video stores in 27 states and two countries. As I successfully opened more stores, I had to rely on the older ones to perform with a minimum amount of my attention. Then, every week I would pour through my store sales sheets and was troubled by the bottom-tier stores that were underperforming. I already knew that I could count on the productivity of about 30 percent (upper tier) of my existing stores because they were in great locations, were relatively new, and had limited competition. I also knew that the polish had worn off on another 30 percent (middle tier) of my stores, which were no longer brand new and high-producing. However, in spite of changes in the market and added competition, I could still count on their consistent sales performance.

So, once my business reached what seemed to be a sustainable size, I decided that I could better spend my time and energy focusing on how to make the bottom tier stores better. I did not realize that I had delayed too long in making that decision and was not going to be able to stop the bleeding. Nor did I realize that it would start a never-ending cycle. After all, my new stores did not remain new forever.

That experience taught me a valuable business lesson as I realized that I was wasting time and money on the wrong stores. Consequently, I learned to think in 12-month terms. When considering your bottom-tier stores, suppose you have one that is currently doing $300,000 in inside sales per year. Ask yourself, what could that figure be in 12 months, and is that acceptable considering the time and energy you’ll extend in raising sales? Let’s say, realistically, the best you can expect is to increase sales by $5,000 a month, or $60,000 a year. In general terms, if you’re making 25 percent gross profit margin, you’d be spending 12 months of resources generating an extra $15,000 in gross profit. Ultimately, it’s up to you to determine if it’s worth a year of your efforts to raise that $15,000. If you decide it’s not, then cutting those stores loose might not be such a bad option.

(This article first appeared in the Nov. 19, 2007 edition of Convenience Store News)

Terry Monroe, president of American Business Brokers, agrees that multi-store owners are seeking to sell now more than ever before, thanks to reduced profits resulting from rising prices at the pump and high credit card fees. The result has been an industry-wide drop in profits of nearly 24 percent. With the number of single-store owners continuing to increase (62 percent in 2006 according to the NACS/TDLinx Official Industry Store Count ), more multi-store owners are recognizing that selling their struggling stores to the ever present throng of potential single-store buyers is an attractive option.

Traditionally, once multi-store operators have identified that option, Monroe acknowledges that potential tax implications are usually a deterrent to sales: Paying capital gains taxes of 15 percent can make sellers change their minds. “Interestingly enough, a common IRS program like 1031 is not something everyone is aware of, and it could potentially save hundreds of thousands of dollars for the seller.”

The 1031 Exchange, also known as the “Like Kind Exchange,” is an IRS section that allows a seller to legally defer the profit or gain of a sale to a future date. The prevailing idea behind the 1031 Exchange is that since the taxpayer is merely exchanging one property for another property of like kind there is nothing received by the taxpayer that can be used to pay taxes. (What qualifies as like kind can include other retail locations, rental properties, etc. The term encompasses a broad spectrum of property.) In addition, the taxpayer has a continuity of investment by replacing the old property. All gain is still locked up in the exchanged property and so no gain or loss is “recognized” or claimed for income tax purposes.

“If a seller closes a deal without a 1031, he could potentially lose 21 to 37 percent of his sale in taxes, depending on whether he pays capital gains or federal taxes,” says Monroe. “With a 1031 Exchange, the seller rolls his profit into the purchase of a new property, thereby deferring the tax.”

“For example, a 1031 works for an owner who has a store that he bought for $200,000 ten years ago, and is ready to sell for $1 million today,” says Monroe. “In order to avoid paying a capital gains tax on the $800,000 profit, the seller can identify a like-kind property prior to the sale that he can purchase, thereby rolling his profit into the purchase and deferring the tax.” Keep in mind, however, that the like kind exchange under Section 1031 is tax deferred, not tax free. When the replacement property is ultimately sold (not as part of another exchange), the original deferred gain, plus any additional gain realized since the purchase of the replacement property, is subject to tax.

The 1031 Exchange also lays down some guidelines for the proceeds of the sale. First, the exchange must be facilitated by a qualified intermediary or accommodator – not through your hands or the hands of one of your agents – who can structure the deal according to IRS regulations. Also, the replacement property must be subject to an equal or greater level of debt than the property sold or the buyer will be forced to pay the tax on the amount of decrease.

Overall, the tax dollars saved through the 1031 Exchange may be maximized to increase cash flow and overall net worth.

(This article first appeared in the September 2007 edition of NACS Magazine)

For c-store owners who have been looking for the right time to sell, 2007 may be the best opportunity they have seen in years to get “their price.” That does not necessarily mean, however, that they can expect buyers to line up with open checkbooks and fat offers. Recent years have been wearisome for a considerable portion of the nation’s 145,000-plus c-stores, so it’s a good bet that the anticipated throng of potential c-store buyers will have a healthy selection to choose from. As a result, sellers will be walking a fine line to set a price that will be attractive to buyers without pulling the transaction into the “fire sale” category.

One way for sellers to determine the optimum fair market value for a c-store is to enlist the counsel of a reputable expert to complete a current market valuation of the business. And there’s an important distinction to be made here – we’re talking valuation, not an appraisal. The difference between the two is far more than semantics.

An appraisal is essentially an effort to determine an estimated dollar value for real property, fixtures, inventory, potential return-on-investment, goodwill and other assets. Appraisals are most often used for financing, refinancing or estate purposes.

A valuation, on the other hand, includes not only the monetary value of the assets, but also factors in current market conditions and particulars related to the sale process. In other words, the valuation will employ standardized formulas, multiples, industry rules of thumb and financial statement data to establish a dollar value for the business, much the same as an appraisal would. But the valuation goes a step further; taking into account recent sales experiences involving similar businesses, short-term fluctuations in market demand, different risk and return assumptions used by various buyers and other intangible, situational factors.

Appraisal values tend not to change significantly over time. A market-based valuation, on the other hand, should be updated frequently because it’s pegged to very current market factors and will rise and fall with the ebb and flow of the marketplace. Because a market-based valuation is based on real-time marketplace reality, it represents the “truest” determination of the value of a specific business under current market conditions.

Here’s an example of the difference between appraisal and valuation. Imagine you have a convenience store for sale, in a good retail location, with high traffic and surrounded by hundreds of homes. You had an appraisal done for the store and property, and it appraised at $1.5 million. The appraiser is not necessarily valuing the convenience store business, rather the value of the property and its buildings and improvements as to what the “highest and best use” for those assets and property are worth.

However; the “highest and best use” for those assets and property may not be an operating convenience store.

A valuation, on the other hand, represents a snapshot of today’s market value for the business as an operating c-store. It takes into account market factors like fuel margins, present competition and size of the store. The current market valuation may show that the property is worth only $1.2 million as an operating convenience store. The $300,000 difference is because the property itself may be worth more if it were a business other than a c-store.

With appraisal and evaluation in hand, what is the next step? That’s a hard decision. As the owner, should you continue to run the convenience store indefinitely while hoping for a visionary buyer to come along with $1.5 million and a plan for highest and best use? Or, should you cash out and sell the property for what it is worth today as a continuing c-store operation?

In selling a business, realistic pricing is an absolute must. Remember, in a market with lots of options for buyers, like the 2007 c-store acquisition environment, most buyers faced with an inflated price won’t wait for the number to drop; they’ll just look elsewhere for a more attractive deal.

(This article first appeared in a 2007 edition of Convenience Store News)

Consumers are not the only ones feeling pain at the pump and in the wallet these days. Convenience store owners are feeling the pinch as well, fighting decreasing profit margins due to high fuel prices and credit-card fees. Soon in-store sales, which once could be counted on to sustain margins, may also begin to slip. While the trend of rising costs and decreasing profits is affecting c-store owners on a broad scale, it’s the multi-store operators who seem to be most desperate to find a way to right the ship. And for many, culling stores with the weakest profit outlook is an option worth considering if a buyer can be found in today’s daunting market.

Multi-store operators have seen hard times in the past, only to wind up with stronger profits on the flip side. Many owners consider today’s emerging trends to be yet another valley, with an upswing to come after gas prices stabilize. However, there are indicators that suggest these new trends are not only affecting consumers’ short-term spending habits, but long-term spending as well.

A recent Reuters news report indicated consumer confidence is not as depressed by rising gas prices as in the past, but consumers’ non-fuel purchases are directly influenced by the expectation of higher fuel costs. As Americans come to terms with the annual hike in gas prices, they will adjust their overall spending habits, which will result in fewer in-store sales. In essence, consumers are cutting down on their non-fuel expenditures to make up for higher gas prices. Meanwhile, a recent Convenience Store NewsfTNS Retail Forward analysis reported that the nation’s c-stores are losing monthly and weekly gasoline shoppers, down by an average of 4.5 percent over 2006, because consumers are conserving fuel and cash by frequenting more one-stop alternative fueling locations. (CSNews, June 18 issue, page 14). Both reports indicate that as gas prices climb, Americans will continue to purchase gas, but will buy fewer non-fuel items and make fewer c-store fuel stops in order to combat the high fuel prices.

That change in consumer spending will have long-lasting effects on multi-store owners. Many are already struggling with debt and owe millions of dollars in mortgage payments, while their stores are barely breaking even, or at best, bringing in just a few thousand dollars in profit each year. In particular, c-stores in rural, non-growth markets in America are actually costing owners money each year. Meanwhile, despite sagging profits, administrative overhead remains a consistent, and sometimes rising, cost.

Facing that difficult future, the list of available options is short for the multi-store operator. Maintaining the business is the first option, but it may not provide the answer to the questionable profit outlook plaguing much of the industry. The second option is selling. Selling the business may be the more drastic, but if the multi-store operator does decide that selling is the right option, there is a readily accessible pool of potential buyers.

There are 89,957 single-store owners, which accounts for 62 percent of all c-stores in the U.S. That is a 12-percent increase in the number of single stores since 2001, which means a significant portion of new stores are being opened and that there are multi-store operators choosing the option of selling their stores to the one-shop operator. Simply put, there are more potential single-store owners than available c-stores, which means there’s an opportunity-rich seller’s market for the multi-store operator who decides to sell.

Most multi-store operated c-stores are eventually going to mature beyond the point where they are profitable, due to high gross profit-operating expenditures and overhead. Choosing to sell those stores could prove lucrative for both the multi-store operator and single-store owner. Most single-store owners already have a proven game plan to follow to ensure they make a profit, so they’re willing to pay close to top-dollar. Consider that the single-store operator can then immediately cut the overhead. He’ll operate and manage the store with a small staff, so his employment costs will be minimal, and he’ll take care of maintenance and upkeep on his own. In addition to trimming operating costs, many single-store owners are able to grow profits simply because they are able to work the business more closely. Single-store owners often have a greater sense of having their personal “nest egg” money at stake, and they work hard to keep that income steady.

As the former owner of several chain stores, including c-stores, I understand the tough decisions multi-store operators have to consider when thinking of selling. Owning any kind of business is an investment, both personal and monetary. You’re reluctant to part ways with a business you’ve grown and nurtured. You know the people who work for you. You know their families. You’ve put time, sweat equity and money into your pride-and joy business, and at times, it has rewarded you with a comfortable income. But, if your stores have maxed out, understand there is a profitable option. Selling today may pay better than banking on tomorrow.

(This article first appeared in the August 6th, 2007 version of Convenience Store News)