Lessons Learned From 20 Years of Valuing Propane Businesses

By Tamera Kovacs… Over the past 20 years, I’ve had the opportunity to work with many retail propane marketers on a wide range of projects. It seems that each and every project had the same underlying theme — building value. I have learned that to build value, business owners must set clear goals/plan ahead, work as one with partners/family members, employ and train great staff, and document everything. Above all else, each owner or business manager is in charge of making the company the best it can be.

One of the areas of greatest opportunity for retailers, and probably the most difficult, is planning. It appears to take valuable time away from other tasks that seem more important…and, it’s not fun. Forethought can be the difference between a partnership that has deteriorated yielding you a smooth exit strategy, or, leaving you a strong successful business and being held hostage by an angry partner…all the while watching the value of your years of hard work slowly erode. Something as simple as a buy-sell agreement between partners can save undue stress and money.

Unfortunately, we see this too many times, and it’s usually after the pain has become so great the retailer doesn’t know what to do next. Putting agreements in place when everyone has the same agenda is critical. We all say, “Oh, that won’t happen to me.” But history lives to tell. If you haven’t begun planning, start now! Be proactive. If you have partners, work with your attorneys to create a buy-sell agreement, making sure you include the triggering events to act on as well as methodology for valuing the company. Do it while everyone is in agreement. And please, purchase key-man insurance to protect the business in case of an unfortunate event. We always think it will happen to the other guy, but not us.

The question I receive most is, “How does my company compare to other retail propane companies?” Everyone wants to make decisions based on the (perceived) success of others. Our advice: Build your business based on your goals. Compare your business today to your business yesterday, last year, and/or five years ago. This is where you begin to see the greatest impact. The benefit of understanding how other retailers operate should not be to compare your businesses, but to gain insight into new practices that if implemented could make your business more successful.

Put together a one-, five- and 10-year plan. Sure, it will change, but you’ve thought about who you are and who you want to be as a company. Many owners try to be their competitor, and not themselves. They also set their prices based on the competition. I guarantee your cost of doing business isn’t the same as the competition. Understand your cost of doing business. Decide who you want to be in the marketplace; be creative and do what isn’t easy to duplicate. When you do things right (not easy), you’ll set yourself apart from the competition.

The retail propane industry was founded by family-owned businesses. While some work like well-oiled machines, others are messy. Running a business is challenging…even during the best of times. Add family to the mix and it gets even more interesting and complicated. Again, planning becomes absolutely critical when there are multiple family members working at the business. Without careful planning, families become fractured and alienated. One of the most common issues is when one member of the family works and grows the business while other family members not (as) involved (yet with equal ownership) benefit from the former’s labors. Is it fair for the family member charged with growing the business to get the same amount of benefits as the family members not involved? There is no right answer — careful planning and working through this process, making sure everyone is in agreement, can avoid family strife.

Employees typically make up 40% to 60% of the total operating expenses. With so much of the operating expense tied to employees, it amazes me how many retailers approach the subject of employees as, “I have a position to fill and I’ll pay $10 to $12 per hour.” That is one way to approach the role, but you may miss out on someone who may cost $18 per hour but accomplishes the same as three employees earning $10 per hour.

One of the primary differentiators between companies is employees and the flexibility and control they are given to get their job done. If you’re a controlling leader, give this a thought. Consider how much one person (you) can accomplish compared to a staff of well-trained employees who understand the goals you’ve set and who have been trained and delegated certain authorities. Delegating and relinquishing control takes faith, which means you need quality employees whom you trust. Take the time and effort to train employees. It’s not easy; if it were, everyone would do it. Ever hear the saying “You get what you pay for”? If you want high-level performance from employees, you may have to pay a little more to get it. After all, it’s your staff that will make or break your profitability, and it starts with you.

Run your business like you are selling within the next three years (with the exception of capital purchases). You’ll be amazed at how this impacts the decisions you make. Your focus will shift to one of building value. Every decision will be based on “Will this increase or decrease my value over time?” It will also force you to do the things that are not fun and are difficult to judge related to profitability — documentation and business analysis. Documentation such as signed tank leases on file, gas/leak checks on file, employee records, DOT records, vehicle maintenance files, etc., inevitably increase your company’s value. Business analysis such as gallon growth, gross margin trends, and net tank sets by size, reasons for customer gains/losses, managing zero-throughput tanks, and maximizing delivery efficiencies, etc., also increase your company’s value. In the end, companies are valued based on the last three years’ trends and profitability. The quality and effort in which you run your business will impact the multiple applied to that profitability. Even though you may not be thinking about selling in the near future, why not maximize profitability and improve your business practices throughout the life of your business, not just the past few years?

For the first several years valuating businesses at Propane Resources, I would almost get physically ill before sending a completed valuation to the customer. I was so afraid, no matter what the value of the business, that the customer would think it was too low and blame me for the lower-than-anticipated value. One day, after being raked over the coals by a customer about the valuation of the company, I had an epiphany. I wasn’t the person making the business decisions that resulted in the value. I realized I shouldn’t be worried about what a company’s value is and I certainly shouldn’t feel responsible.

This is probably the most important lesson I learned over the years, and it should be the most important one you take from me. You, the owner and/or business decision maker, and the decisions you make, will ultimately determine the value of your business. It’s not the buyer’s fault your business isn’t what you believe it should be, nor is it the buyer’s responsibility to pay more than it is worth. Start now. Learn what your business is worth. If it’s not what you want it to be, then start implementing value-building changes. Plan, set goals, set guidelines to improve partner relations, hire for greatness (not value), and above all else…remember, you’re the catalyst to make your company great.

Tamera Kovacs is a financial and business consultant for Propane Resources, which provides financial and operational consulting, merger and acquisition services, supply, transportation, and marketing communications services for the propane industry. She can be reached at

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