In the Know: Factors to consider when selling a propane business

May 21, 2014 By and    

In the Know is a monthly partnership between LP Gas Magazine and Propane Resources. Our focus this month is on acquisitions, addressed by financial consultant and business valuations and sales expert Tamera Kovacs.

Q. In today’s propane market, what are the most important factors retailers must consider in order to sell their business?Business for sale

A. The reasons owners seek to sell their business vary widely.

The areas of focus for businesses considering selling will be dependent on the timing of the sale and how they currently operate. If the owners want to sell in the next six months, their areas of focus may be different than if they are seeking to sell in three to five years.

If the objective is to sell in three to five years, important factors to consider include:

■ Increase profitability. Retail propane companies are typically valued, bought and sold based on applying a multiple to the EBITDA (earnings before interest, income tax, depreciation and amortization).

■ Focus on developing good records (financial, operational, employee, safety, etc.).

■ Book all revenues for a minimum of three years.

■ Stop selling tanks to customers. Buyers like high company tank ownership for multiple reasons. It increases the ability to keep the customers, and it shelters income for the buyer as they can restart the depreciation schedule on acquired assets. If a customer leases a tank, make sure you have a signed lease (by the customer) on file for each tank in the field. (Goes back to record keeping).

■ Increase other income where available, such as charging tank rent to the customers who lease a tank (which also helps confirm who owns the tank).

■ Work on improving the trends of the company.

■ If you are considering selling within the next 12 months, get your records in order. It may be too late to make changes to profitability, but have good records available for due diligence. Buyers won’t pay you for what they can’t see.

Regardless of the timing for selling your business, buyers buy sustainability. One great year won’t necessarily get you more for your business if it’s not sustainable going forward. Then again, if you can explain one bad year and why it happened and why it will not be a trend going forward, it shouldn’t hurt your value much either. Buyers look at trends, and sustainability is key.

Tamera Kovacs is a financial consultant and expert in business valuations and sales for Propane Resources. The company provides financial and operational consulting, merger and acquisition services, supply, transportation, and marketing communications services for the propane industry. Contact Tamera at 913-262-0196 or tamera@propaneresources.com.

This article is tagged with , , and posted in Current Issue, Propane Retail Operations

Comments are currently closed.