Whether or not you choose to sell

October 1, 2002 By    

Hundreds of you own and run retail propane operations of all sizes and complexities across the country. I applaud your fortitude, your self-reliance, your focus on customer service and your fierce independence.

I have always envied you. In a sense, you have it all. You live in what I consider the best parts of this country ­ the small towns and wonderful rural countryside. You are well respected among your friends and colleagues. You often serve as leaders in your communities, and many of you are top performers from a financial standpoint within those communities.

Plus, most of you can probably hit a golf ball where you want it to go much better than I can!

But there is something I often observe ­call it a weakness, if you will ­ among the many independents I meet. Let me elaborate on this observation, and share a couple of suggestions.

“We are NOT for sale!”

A common thread, among those of you who are fiercely independent, is that your business does not have a plan for discontinuing. That means most of you not only are not for sale, but you never think about selling your company.

You may consider it bad luck to talk about it, or maybe you just choose to think the business will continue forever. Perhaps you are a third- or fourth-generation owner whose business has passed the longevity test. Longevity of operations is a true measure of a successful business.

Each year, however, a percentage of you will either have a change of heart and choose to sell, or you will be forced to sell. Sometimes it’s well planned after years of contemplation, but more often it’s a sudden decision without much forethought or preparation. Either way, I observe that sellers often lack a basic understanding of what buyers are looking for.

The value of your business

This lack of understanding causes sellers to become discouraged when their business doesn’t bring the market value they expect. Often this can be attributed to one of three things: the amount of energy spent on non-propane related sales; the amount of investment you’ve made in non-revenue producing assets; and too much focus on low-yielding customer segments.

My suggestion? Even if you are not currently a seller ­ in fact, especially if you have no immediate plans to sell ­ spend some time seriously considering who might one day be a potential buyer for your business. Make it your mission to understand that company’s strategy for their operations. What part of your business would be the most valuable for them?

If you take a good look today at what would be of value to a potential buyer, you can begin now to work on those areas of your business, long before you ever hold a discussion with anyone about a possible sale.

What do buyers want?

I can’t speak for all buyers as to what is important to them. For very good reason, different buyers in this industry value different things. For example, some may have a strong appliance or HVAC business that might attract them if that is an area in which you excel. Others may avoid the appliance business altogether.

You can generally expect most buyers to search for an operation that has a quality customer base, has a high likelihood of retaining those customers after the company is acquired, and generates a steady, high-quality income (cash flow) year to year.

It is this recurring income stream that will be the basis for the buyer’s most important decision: The value of your business, and the terms under which they are willing to pay you for it.

I strongly believe you must constantly consider yourself as being evaluated by potential buyers in your marketplace. It will help you address various segments of your business that are in need of improvement. That’s critical, especially as you pass off the business to your next generation. And it will help you, your management team and your employees make smarter business decisions.

So my best advice to you is to continue to act as if your business is not for sale. At the same time, always consider what may be important to a potential buyer, and adapt your business strategy accordingly. By doing so, you will increase the value of your business, either for yourself, your successor or your heirs.

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