Exit Strategy: 4 Tips for Evaluating The Sale of Your Business

By Thomas E. Knauff… Everyone who owns a business, sooner or later, thinks about an exit strategy. For some, that means passing the business on to grown children. For others, the transition means selling to someone else — a crosstown competitor, private investor, or regional or national company.

But how can you do this well? Transitioning out of the propane business you have spent years building, with many close relationships and daily commitments, is a huge personal change. How can you plan this process so that you will feel good about the outcome in the years to come?

Let me share a few key ideas from my experience, over nearly three decades, working through more than 80 successful acquisitions of propane companies. Engaging in this process from both sides of the table, I’ve come to view business sale discussions less as a negotiation between sellers and buyers than as a joint exercise in problem-solving. Here are four tips as you start your evaluation of a transition:

Begin by exploring what you want to get out of this transition. What legacy do you want to leave from the years or decades you and your family have devoted to building a business? Is this all about “cashing out” for the maximum possible price, or do you care deeply about what the business looks like a year from now, or five, or 10?

Evaluate how you want employees to be treated during and after a sale. Should certain valued employees, or all of your employees, get assurances of continued jobs, pay, or benefits? What kind of track record do you want a prospective buyer to have as a post-transaction employer?

And consider customers. Many have been with you for years and years, and they may have personal relationships with you and your drivers or office staff. Do you know how a prospective buyer treats customers after a deal closes? What is the record for pricing and customer service?

Will the name of your business stay the same, or change to a large, less personal national brand? Will the support for community groups and events be the same after you sell? I encourage you to talk with prospective buyers about these legacy issues — and to reach out to past sellers about what worked and didn’t work for them in the sale and post-sale process.

“For me, relationships and values were the key factors as I evaluated the sale of my business,” said Russ Head, who sold Quality Propane in 2014. He now works as director of sales at Energy Distribution Partners (EDP; Chicago), which acquired his company. “I worked for quite a few years to create a strong, healthy propane company, serving businesses and homeowners in southern Minnesota and western Wisconsin. EDP addressed my concerns about who would value what I had built, especially my employees and my customers.”

Start planning for a sale well in advance. Don’t wait for a crisis, whether driven by personal factors such as health or by market fluctuations such as propane price levels. Start designing how you want your transition to look. And take actions to maximize the value of your business. Early planning and preparation will pay off in a real win once you get to the big change.

A prudent business owner takes steps to increase the value of the operation before ever starting sale negotiations. You can prepare your business by strengthening fundamentals, hiring and rewarding the best employees, driving best practices in safety and environmental protection, and upgrading accounting, back-office support, and operating metrics. These steps will benefit you near-term, and buyers will be looking for signs of a well-managed operation.

No one is an island. If you’re considering a possible exit strategy, seek out advice from legal and financial professionals with transaction experience, which may mean going beyond the lawyer and accountant who handle your day-to-day needs. And talk with your loved ones and friends about your personal and family goals, desire to keep working or not, and plans for the future.

“Over the years several companies approached us about buying our business, but we turned them all down,” said Steve Autore, who sold Autore Oil & Propane in Michigan in 2016. “Instead, we did our homework and looked for people who shared the same beliefs about building a strong culture, taking care of employees, exceptional customer service, and staying involved in the community. When we knew the time was right, we made the call to EDP. We knew they would be the right partner, and we’re glad we took a patient approach to timing.”

Making a change as big as selling your business doesn’t mean accepting some big company’s cookie-cutter deal structure, a template they use for hundreds of other deals. This is personal. It’s important that you can make a change, financially and personally, that will leave you feeling good about this transaction five or 10 years down the road.

Again, it’s time to clarify your goals. Do you want to continue working in the business after selling? Would you like to simplify life by selling parts of the business, geographic service areas, or product lines, while continuing to own other parts? Or are you looking to step away entirely, moving into retirement or a new venture?

Financially, do you need the entire sales price up-front, or would spreading the payment over time save you money on taxes? Do you want to own equity in the larger, combined enterprise and draw distributions in the future? This is likely to be the largest transaction of your career, so get advice from experts and prioritize the economic features you want.

A wise seller plans a transaction to maximize total value. Sure, that headline price matters, but so do your specific needs for timing of cash flows, tax consequences, and planning for the future. You need a buyer with flexibility to accommodate your goals.

“When I was exploring a transition to a new ownership structure, I had some ideas about what I wanted—both in a partner and in my ongoing involvement with the propane business, especially autogas,” said Steve Moore, founder of Expo Propane in Southern California and a former president of the Western Propane Gas Association. “I remain engaged at Expo because we share the same commitment to customer service and the future of our industry.”

Recognize that selling your business is a big change, with lots of emotion. It is not unlike selling the house where you have raised your family: full of memories, connections, your own blood, sweat, and tears. And the moment of closing, signing on that line to make the sale happen, can be sobering. I have seen it many times, and experienced it myself.

You can take steps to minimize the stress. Make the transition a planned process, not rushed. Don’t wait for a health crisis or, worse yet, leave it to heirs to resolve. Pursue a sale like a major building project, organizing the steps and committing appropriate time to planning.

You also don’t want to drag the process out too long. Set realistic timetables to prepare your business, identify the right buyer, negotiate good terms, and conduct due diligence. Begin talking with potential buyers early to feel them out on their approach. You’ll meet them at your regional propane association or National Propane Gas Association meetings. Or pick up the phone and call.

Finding the right partner, with a mutual understanding of your goals and theirs, is the key to feeling good about your sale — on the day you get paid, and years later when you see those longtime customers and employees at the checkout counter in the grocery store.

Thomas E. Knauff, CEO of Energy Distribution Partners, has more than 30 years of executive, operations, and financial experience in the propane industry.