Best Practices for Selling a Family Propane Business

A family-owned business’s legacy symbolizes the collective triumphs, struggles and dreams of our loved ones. Selling a family business, often owned for decades across multiple generations, and the fear of losing that legacy complicates an already monumental decision. Yet, owners can preserve the family’s legacy while still successfully transitioning the business toward a brighter future by strategically searching for and selecting a buyer to lead the company after a sale.

Plan Now, Benefit Later

The first step in ensuring a lasting legacy is to plan, and plan early. Yet, while most owners have considered selling, statistics reveal that most are regrettably unprepared. Forty-eight percent of owners have no exit strategy, while 58% don’t know what their business is worth.

To avoid this, company decision-makers must develop a strategic plan for the family and its legacy, often with the consultation of trusted advisers. Owners should define their vision for the sale by identifying specific goals to be achieved, values embodied by prospective buyers, and other expectations which, if accomplished, would make for a successful sale in their minds.

A cautionary word of advice: While it is compassionate to consider other family members, trying to satisfy each person’s conflicting feelings and desires is a recipe for “paralysis by analysis.” Remember what Dylan Moran said: “You can’t please everyone … because then you won’t please anyone, least of all yourself.”

Your family business thrived and succeeded in getting you to this point because of the ownership’s decision-making. Don’t second-guess what made you successful, but instead trust yourself to know what’s best for your legacy.

Brokers & Advisors: The Experts

Retaining a broker or adviser to represent a family and preserve their legacy while selling is especially beneficial given the intimate and personal family dynamic at play. Outside of family sales, typical sellers represented by brokers expect higher valuations, increased market competitiveness, discrete confidentiality and other benefits within a sale.

Another benefit which truly cannot be measured is being able to offload the colossal manpower commitment and dedication of resources the sale process demands of a third party rather than burdening your employees or staff.

Family-owned businesses benefit from brokers even more so given the complex emotional element involved with dealing with loved ones. When an internal conflict arises between family members (spoiler alert: they will), a broker acts as an unbiased, objective third party for dispute resolution. A family legacy of resentment and hatred resulting from the stress and pressure of trying to sell the family business without a seasoned expert is hardly worth preserving.

Appointing the broker with the power to represent and act on the family’s behalf establishes a cohesive authority structure when formally dealing with prospective purchasers. When it comes time to negotiate, buyers are all business, seeking out what’s in their best interest. Hiring an advisor to represent the family prevents emotions from negatively influencing the terms of a deal.

Finally, when selecting any sort of advisor — whether it’s a broker, attorney or CPA — to assist with the sale, make sure they have “deal” experience. Too often, outside advisers have been with the family since the beginning, better suited for run-of-the-mill matters rather than the highly specific issues within mergers and acquisitions.

Selecting a Buyer: To See Your Future, Look at Their Present

The future of a family’s legacy can be seen in the present day of the company’s buyer and successor. The best fit and easiest transition always comes when the family’s values — those foundational principles and beliefs which have guided the company’s success over the decades — are shared by the buyer.

For example, afraid of how non-owner family members who work for the buyer post-sale will be treated? Look at how the buyer treats their current employees. Do they offer competitive compensation, transparency in promoting and hiring practices, opportunities for talent development, attractive benefit plans, low attrition rates, etc.?

Equally as important is a family’s reputation within their community. A buyer that has a positive community reputation with a history of local sponsorships and investments will ensure a lasting civic legacy for owners and their families. Consider how the family company’s name and the buyer’s ability to retain and use it post-sale can impact how the community remembers the family for years to come.

A buyer’s organizational structure may indicate what lies in store for the family’s business, as well. Owners of a close-knit family business may not like the idea of being gobbled up by a large, multi-national corporation. An alternative may be a buyer structured as an employee stock ownership plan (ESOP), which grants ownership and control directly to its employees. An ESOP structure can incentivize a company’s employees to invest their best efforts into the future business, because their retirement and company-provided benefits become more valuable as the company grows.

Selling to Family: What Could Go Wrong?

It’s easy to understand many owners’ attraction to selling a family-owned business to other family members or employees. Who better to continue the family’s legacy than the family itself? Yet, history is filled with cautionary tales of failed attempts to sell within the family or company, even with the best-intentioned owners and families.

Statistics paint a grim picture; family businesses that maintain a legacy of family ownership through subsequent generations are the exception, rather than the norm. Just 30% of family-owned businesses survive into the second generation, while 12% make it to the third generation and a dismal 3% into the fourth generation or beyond. Even more shocking is whether the future generation even wants to take over the family business. Among owners who considered selling/leaving to family members, 89% cited a lack of interest from potential heirs.

The generation-wide reluctance of millennials and future heirs perplexes owners among older generations who value self-sufficiency, risk-taking and independence. Indeed, millennials believe the stress level of owning a family business is too high (83%), while only 64% of baby boomers and Gen Xers feel that way.

The Price of a Legacy

There are numerous ways to structure the sale of a closely held business — a lump sum sale, an installment sale or an earnout sale based on percentage of future profits. Determining ownership’s “wants” versus “needs” and the amounts required to retire, eliminate debt, pay off other stakeholders, etc., will help determine how best to structure the sale.

Legacy preservation may be a “want” luxury rather than a “need” some families can’t fully afford. Estate issues related to money play a central part in the family debate to sell. Illiquidity discounts and reductions in purchase price to accommodate preserving a legacy — such as selling to other family or employees for a reduced price — may hinder rather than help the family.

Alternatively, lump sum, all-cash offers are by and large preferred by most families. Younger generations don’t want the uncertainty of future non-payment, and older retiring generations don’t want their retirement or lifestyle jeopardized. This is an area where business and personal goals intertwine but may pull in opposite directions.

Balancing the strategic and financial demands of a family business versus the personal generational and emotional issues creates one of the most trying moments in an owner’s life and in a family’s history. The hope is that the financial proceeds are sufficiently large enough for all relatives to have a higher standard of living, and that after the sale of the business the family can create a way — through philanthropy, community involvement or other activities — to maintain unity and preserve its legacy.