Dec 20th, 2006 by AhYap
I always read the classifieds in Sin-chew everyday to see if there are any bargains or opportunities (not under job but under for sale!). Classifieds in Perak’s newspaper is pity when comparing to The Star KL classified. There are only 4 pages while comparing to 40 pages in KL! It is like comparing mosquito to cow.
I also like The Star online but recently some ‘smart’ guys of The Star ‘upgrade‘ their system to a worst online search and listing! This is what I call non-online guys doing online stuff. They can’t make sense of what they are doing.
Enough of classified bullshit, now come back to the Petrol Station. I saw an ad saying that there is a petrol station for sale in Perak inclusive of land, building and rights of business. Interesting because I have never saw such an ad before.
So I pick up the phone to and we talked for over 30 minutes. Here is what I get and let’s see if you will be interested in running this petrol station?
- It is a Mobil located at Teluk Intan. I pump Mobil myself because I have smile card and they accept credit card directly from pump, so I like it.
- Selling price RM930,000 (almost 1 Million). You can do business immediately. You may want to consider renovate with another RM100,000. Assume no renovation.
- Profit is around RM20,000 per month total to RM240,000 per year.
- Able to sell 150,000 litre of petrol every month.
Here comes the math I do myself.
What is the return per year?
Return will be
= RM240,000 / RM930,000 = 25%
Wow! If you are familiar with investment returns, you will be very excited with this number BUT if you are financially-blind (like my girl friend), than it is just very hard for you to get it. Compare to these, savings account return is below 1%, fixed deposit return is 4%, real estate around 8%-12%, mutual fund from -50% to 8% (wahahaha), Rule #1 investor 15%, Warren Buffet 23%, ah-long (loan shark) 50% … Does the 25% look good?
25% also means that you can get back your capital in 4 years.
What is the estimated Revenue and Profit Margin?
How do you calculate the revenue of the petrol station? (Revenue = Total sales before cost) Easy, we know the market price of Petrol which is $1.92. Round it to RM2.00, revenue would be RM300,000/month (150,000 litre x RM2). That’s RM10,000/day.
If revenue is RM300,000/month and profit per month is RM20,000, that means the cost of the business is RM280,000/month. Profit Margin is around 7%. Because your business is selling petrol and the cost of your petrol and the selling price is FIXED by the gouverment, the margin will be somewhere around that.
What are the advantanges of running a petrol station?
1. You don’t need to spend even 10 cents on advertising. Mobil, Shell or Petronas will do that for you.
2. You don’t need to negotiate price with your customer. No one will come to your petrol station and tell you, “Wei Uncle, Less 10 cents per litre can ar?”
3. Consider a very stable and consistent business for the long run. All cars need petrol and there will be more and more cars in the future. Anyone trying to invent an alternative to petrol will be *assassinated* by the rich oil companies. Wahahahahaha. Don’t play play!
What are the disadvantages of running a petrol station?
1. Profit margin is very low because it is a commodity product (7% from calculation is quite high and I believe it should be around 5%). You petrol station will be collecting most money in CASH and end of each business day, you will have RM10,000 cash and 95% of it is the COST of your business. Put in another word, that’s NOT YOUR MONEY! You need to use that money to pay your petrol company, your employees, etc. Losing others people money is more PAIN than losing your own money! You need to make sure the RM10,000 is safe everyday because 95% is not yours. If your manager run away 10 days of your money, that is RM100,000 which is 5 months of your profit! Your hair will get white in one day while he can take his holiday for 2 years. There will also be robbers waiting for you outside the petrol station everyday.
2. Petrol is a commodity product and because of this if the customer doesn’t like you or your father-in-law or your dog or your Benz, they don’t need to come to your shop. There are many other petrol stations. Your staff at anytime can poke a hole in your pocket by saying Diu-Nia-Ma (Fuck Your Mother) to your customer and they will never come back.
* Commodity is a product that a customer can buy from anyone because they are almost the same, such as petrol, rice, sugar, chickens, beef, pork … If you price it higher than someone or if the customer doesn’t like you, he can buy from someone else.
This is an incredible deal based on the return and stability of your investment if everything describe by the seller is legitimate (malay saying: no prawn behind the rock). However, you will need to be careful of your cash. You need a manager that you can trust or you manage it by yourself (go stay in Teluk Intan and watch the Clock House everyday, forget about watching movie at TGV or GSC). If you don’t, make sure you buy Wella from Watson so you can dye your hair when your manager run $100,000 away from you. Get your Great Eastern medical card ready if your heart is weak. Say Diu-Nia-Ma 100,000 times a day to your manager for the next 5 months.