By - Jeremiah Grant
Last Updated - March 11th, 2024 12:42 AM
Mar 11
If there’s one thing that gas station owners are always keen on knowing, it is the value of their business. And for good reasons, as gas stations are one of the most complex businesses, with their value fluctuating frequently.
Not to mention, with multiple businesses in one establishment, it isn’t easy to establish a dollar value for gas stations either.
Picture this: You’ve recently added a fast-food franchise to your gas station. This will increase the overall value of your business, leaving you curious about the extent of the increase.
Now, the only way you can know the fair market value of your business is through a gas station valuation.
Sounds complicated, right?
Well, it need not be.
As a business valuation expert, I’ve evaluated over a dozen gas stations in the last decade. And I know one thing for sure: Valuing gas stations can be straightforward with the right data and methodologies.
Eager to know how?
Read on, as I’ve detailed everything from fuel station valuation methods to multiples to examples and more, along with my own expert insights.
At its very basic, a gas or fuel station valuation is an estimation of the establishment’s fair market value. Herein, business appraisers like myself will establish a dollar figure for your business.
You can think of this as a net amount calculation that a willing buyer will pay to purchase your gas station.
Now, there are various methods that an appraiser will follow to evaluate your establishment. And this includes popular gas station business valuation techniques like EBITDA, SDE, discounted cash flow to name a few.
Know Your Gas Station’s Value Today!
With our expertise in gas station valuations, we provide insights tailored specifically to the unique dynamics of the fuel industry.
While the methods and multiples used to value a gas station business are universal, the practical valuation aspects are completely unique.
For instance, if I am valuing your gas station using the EBITDA method, I’ll calculate the EBITDA of all your businesses operating within the gas station premises. And in addition to the fuel pumps, this will include the convenience store, ATM, restaurant, car wash, etc., to name a few.
Furthermore, I’ll also derive a valuation multiple applicable to your business after analyzing similar businesses.
Simply put, evaluating a gas station involves business and industry-specific calculations and metrics, even though the methods or approaches remain similar.
The one question that I am often asked about as a business evaluator is the importance of valuing gas stations.
In fact, be it a seasoned business person or someone new to the industry, they all have this question. After all, knowing the worth of your gas station has its own price tag.
But let me tell you that getting a valuation for a small amount can help you save thousands to hundreds of thousands of dollars.
How?
To begin with, an accurate value of your business will help you make the right operational decisions.
Not to mention, one such valuation of your service station will also come in handy when calculating your tax liabilities, negotiating a partner’s exit, planning business succession, etc.
Most importantly, a fair market value of your gas station helps you prepare for situations like an unforeseen buyout offer and strategic capital raise, among others.
As such, it is essential to get your gas station valued every once in a while and keep yourself updated with the latest valuation estimates.
Now that you know what a gas station valuation is and why it’s important for you, let’s jump to the next major aspect, i.e., how gas stations are valued.
As I said earlier, evaluating a gas station is simpler than it seems. However, you do need accurate and up-to-date data, which, depending on your business, can be complicated sometimes and might even require a company valuation service.
For instance, let’s say you own a large gas station which besides the fuel pump also has 7-Eleven, McDonald’s, and Mr Clean Car Wash franchises.
So, in order to obtain the EBITDA or SDA of your gas station, I’ll have to gather recent sales data of the same franchises operating nearby. Moreover, I’ll preferably look for data from such franchises that operate from a gas station.
Meaning business valuation data and methodology will depend entirely on the type of filling station being evaluated.
Curious about how business appraisers like me determine how much is your gas station worth?
Well, I’ve detailed all the valuation methods and multiples that I use to evaluate gas stations.
#1. Valuing a gas station using EBITDA multiples
EBITDA multiples are by far the most common valuation multiples for storefront businesses like gas stations, making EBITDA a preferred valuation method.
For starters, EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization and reflects the profitability and expected ROI of your business. This makes it a highly sought-after method for such businesses who want to know the real market worth and prepare for a favorable sale.
You see, among all business valuation methods for gas stations, EBITDA is among the few that provides the most widely accepted fair market value. After all, it is based on how much profit your business can generate, something potential buyers are keen to know.
How much is a gas station worth as per EBITDA multiples?
To value a gas station using EBITDA multiples, I’ll first need to calculate the EBITDA.
And while the accurate EBITDA of your business can be different, here are two common EBITDA examples for gas stations:
A. Suppose you own a large gas station with multiple business operations. In this case, the EBITDA of your business can be $800,000 or upward.
B. If you own a small to medium-sized gas station with some businesses like a store and ATM, estimated EBITDA can be in the range of $150,000 t0 $300,000.
Next up, I’ll need an applicable EBITDA multiple sourced from the latest sales data of similar gas stations. Here, if I go by the industry average, I’ll get multiples ranging between 3.45x and 4.49x.
So, going by the EBITDA-based valuation formula, i.e EBITDA x multiple = business value, here are estimated values for your gas station.
A. Value of a large gas station
In the case of a large gas station valuation, I’ll multiply the EBITDA of $800,000 with a multiple of 4.38x. This will give me a valuation of $3,504,000.
$800,000 x 4.38x = $3,504,000
B. Value of a small to medium-sized gas station
For a small to medium gas station, I’ll take an EBITDA of $180,000 and multiply it by a multiple of 3.49x. This will provide a valuation of $628,200.
What are the benefits of using EBITDA multiples for gas station valuation?
As I said earlier, EBITDA multiples provide a business value based on your gas station’s profitability. And this is something that buyers or investors are most interested to know, ensuring industry-wide acceptance of an EBITDA-based valuation.
Also, it goes without saying that there are plenty of comparable gas stations to derive an EBITDA multiple. Meaning the multiple that appraisers use are contemporary, reliable, and reflect present-day market conditions.
#2. Valuing a gas station using SDE multiples
SDE multiples are very similar to the EBITDA multiples that we just discussed, making them an equally popular valuation method.
To begin with, SDE stands for seller’s discretionary earnings, which is calculated using your earnings out of the gas station before any taxation, interest, expense, or depreciation. And this is exactly what makes SDE similar to EBITDA.
Not to mention, like EBITDA, SDE-based valuations are also based on profitability estimates, making it popular across the industry and more so among buyers.
Moreover, the fact that SDE valuations are considered ideal for businesses worth less than $1 million makes it apt for small to medium-sized fuel stations.
How much is your gas station’s worth according to SDE multiples?
Like in the previous method, the first step in vaulting a gas station as per SDE multiples is estimating the SDE of your establishment.
For instance, if you own a medium-sized gas station, its average SDE can be $340,000. Similarly, as per the latest market figures, the SDE multiples for such filling stations are between 2.28x and 3.34x.
So, I’ll use the SDE valuation formula, i.e., SDE x multiple = business value, to calculate your business’s total worth. Here, I’ll take $340,000 and multiply it with a multiple of 2.29x, thus deriving a valuation of $778,600.
Why should you evaluate your gas station using SDE multiples?
SDE multiples are considered ideal for valuing profitable small businesses, including gas stations. So, if your discretionary earnings out of the gas station is up to $400,000, a SDE-based valuation will provide you with fair and widely accepted business value.
Also, the fact that a majority of gas stations are small businesses means business appraisers like myself can calculate the most relevant SDE multiple for your business.
#3. Valuing a gas station using revenue multiples
A revenue-based gas station valuation is simply a business value estimation based on the total revenue it generates. It is a pretty straightforward approach where all I need to do is multiply the revenue of your gas station with a relevant multiple.
However, this method is best suited for those business owners who are no longer earning profits and want to quickly cash in by selling the gas station.
Here’s how much your gas station can be worth as per revenue multiples:
Let’s assume that the annual revenue of your filling station is $1,300,000.
Now, after analyzing similar gas stations that have been sold recently, I could come up with revenue multiples in the range of 0.24x and 0.48x.
So, to calculate the value of your business, I’ll multiply the revenue of $1,300,000 with a multiple of 0.31x. This will give me a total valuation of $403,000.
#4. Gas station valuation using discounted cash flow
Discounted cash flow or DCF as it is commonly abbreviated as, is a very commonly used valuation method for new gas station businesses. That’s because the method is based on future cash flow predictions rather than present-day data.
You see, not only do new businesses lack an earning or revenue history but they may also lack adequate cash flow or profitability. And this makes discounted cash flow a go-to method for these businesses.
Know Your Gas Station’s Value Today!
With our expertise in gas station valuations, we provide insights tailored specifically to the unique dynamics of the fuel industry.
Suppose you’ve invested $800,000 to start a gas station. Also, let’s assume your business is expected to generate a cash flow of $1,490,000 over a period of the next five years.
Now, you can expect 10-15 percent of the projected cash flow as your operational expenses. So that’ll be the range of discount rate that’ll I’ll use.
Thereafter, I’ll take a discount rate of 13 percent and discount it with $1,490,000. This will give me a discounted cash flow of $1,296,300.
Discount rate – 13 percent of $1,490,000 = $193,700
As you can see, valuing a gas station business isn’t that complicated after all, more so if you’ve got the correct and up-to-date financial information.
Talking about the comparable valuation multiples or discount rates themselves, you can easily find them online.
In short, you can value a gas station accurately and without hassle using my guide, all you need is the right numbers.
Not sure what your gas station’s earnings/revenue or comparable valuation multiples are?
You can get in touch with us!
At Arrowfish Consulting, we are a team of seasoned business appraisers with 200+ years of combined experience. My team and I have valued gas stations of all sizes and types.
Simply put, we’ve got all your gas station valuation requirements covered.
Jeremiah Grant is the Managing Partner of Arrowfish Consulting. In addition to acting as a primary liaison for many of the firm’s engagements, He primarily focuses on business valuation and economic damages expert witness assignments, in addition to forensic accounting and insurance claims analysis.
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