Owning a service station is a dream for many aspiring entrepreneurs, but the path to achieving this dream is fraught with challenges. Many hopefuls don't know where to start or who to approach for assistance. Even those who do embark on this journey often underestimate the costs involved in operating a service station. When PetroCONNECT was founded years ago, it aimed to address these very challenges. The organisation's mission was to sustainably increase industry participation, especially among historically disadvantaged individuals who now have the financial means but lack direction. Despite these efforts, significant struggles persist.
One of the major hurdles is the disparity between those who have industry experience but lack financial means and those who have the financial means but lack experience. This dichotomy creates a significant challenge. Additionally, there is a general lack of knowledge and information about the requirements and processes involved in owning and operating a service station.
In South Africa, while there are government funding options, securing this support can be complex. For example, the National Empowerment Fund (NEF) aims to grow black economic participation through various funds like the iMbewu Fund and the Umnotho Fund, each with its own funding requirements and criteria. However, despite the availability of these funds, the stringent and often lengthy vetting processes associated with government funding can be a challenge.
Furthermore, PetroCONNECT has found that working with our own funding institutions tends to be more efficient, with quicker turnaround times compared to government funds. This preference is due to the streamlined processes and faster decision-making of our banking partners.
Oil companies and funding institutions typically require HDI applicants to contribute at least 20% of the business value in funding and working capital. This requirement has led to confusion and frustration, as many argue that the promise of government funding can be misleading if a 20% own contribution is still necessary.
The rationale behind this requirement is to ensure that new buyers have a vested interest in the business and that it is less geared, which increases the chances of long-term sustainability. Oil companies, which have invested heavily in service stations, may prefer candidates with more financial stability. While they do not openly acknowledge this position, there is a noticeable trend of favoring candidates with stronger personal financial contributions over those with solely operational experience or little own contribution to put down. The oil companies themselves are caught between the competing goals of promoting inclusivity in the industry and ensuring healthy returns for shareholders. Striking a balance between these priorities is clearly not an easy task. Understanding cash flows and financial management is absolutely crucial, and financial acumen could be seen as more valuable than operational knowledge alone.
Addressing these challenges requires a multi-faceted approach. Potential service station owners need access to comprehensive information and mentorship programmes that can guide them through both the operational and financial aspects of running a service station. Funding institutions and government programmes should also consider more flexible criteria that recognise the diverse backgrounds and capabilities of applicants.
New entrants that are in the process of buying service stations highlight the significant challenges they face, particularly around the 20% funding requirement. To explore potential solutions, partnerships can be a viable alternative. Individuals with the necessary funds but without the time or desire to operate a service station could partner with those who have the experience and passion but lack financial resources. Additionally, those already in the industry who have multiple service stations can partner with inexperienced individuals who lack sufficient funds. This arrangement benefits both parties: experienced dealers can rely on partners to run the business with their assistance, without having to be there full-time, and the person needing funds gains mentorship and support from someone experienced.
This win-win solution can help mitigate against failures in the business, whether due to poor cash flow management or operational challenges. Our legal department at PetroCONNECT is available to assist with drafting partnership agreements to ensure fair and beneficial arrangements for all parties involved.
PetroCONNECT continues to play a pivotal role in bridging these gaps, offering support and resources to help new entrants navigate the complex landscape of the fuel retail industry. By fostering a better understanding of the requirements and providing targeted assistance, we can help more aspiring entrepreneurs achieve their dream of owning a service station and contribute to the industry's growth and diversity.
At PetroCONNECT, we offer two programmes to help new entrants navigate the fuel retail industry:
Don't let the struggles of the fuel industry discourage you. CONNECT with us today and join our upcoming Readiness Programme (19-30 August 2024) to ensure a smooth transition into the fuel retail industry.
