Merger and acquisition (M&A) activity continues to rise in the propane industry, creating both opportunities and challenges for business owners. If you own a company, it’s essential to understand how these market dynamics could shape your eventual exit planning.
Many owners focus their energy on daily operations, which include customer service, equipment maintenance and managing staff, among other things. Unfortunately, long-term planning often takes a back seat. But delaying exit planning until you’re ready to retire often results in rushed decisions and missed opportunities. Taking time now to understand your company’s value and explore transition options can help you secure a better outcome, whether you intend to sell in a few years or a few decades.
Why Business Valuation Matters in Exit Planning
A formal valuation gives you a clear, objective measure of your propane company’s worth. Without it, you’re essentially guessing when making decisions about retirement income, tax strategies or estate goals. It also helps determine which exit paths might yield the best results.
Valuation is not a one-size-fits-all exercise. The number can change dramatically depending on your chosen exit strategy. Selling to a strategic buyer in the industry might produce a higher price than selling to family or management. Strategic buyers often look for ways to reduce costs through consolidation, while family or internal buyers may have to use the business’s cash flow to finance the purchase, limiting how much they can pay.
Different valuation methods produce different perspectives on worth:
- Asset-based valuations add up everything the business owns and subtract liabilities. This is useful to estimate the value of hard assets, which buyers often find important. This is also used to help determine liquidation value.
- Income-based valuations focus on cash flow, assessing how steady it is and whether it’s expected to grow or shrink after you leave. This approach provides the buyer with a realistic picture of cash available to fund debt and provide distributable earnings after purchase.
- Market-based valuations compare your business to recent sales of similar companies, offering insight into what buyers are currently paying in the propane-butane market.
- Industry “rules of thumb” provide quick estimates, often based on multiples of revenue or earnings. While convenient, these averages can’t account for your company’s unique strengths, risks or growth potential.
Understanding these approaches allows you to have a more informed conversation about value and helps you recognize how changes in operations or market conditions might impact your eventual payout.
Choosing Your Transition Path
When it’s time to step away, propane business owners have several options — each with its own trade-offs.
Selling to a strategic third-party buyer often produces the highest price. These buyers typically seek operational efficiencies and economies of scale and may offer additional payments through “earnouts” if the business hits certain targets after the sale. Earnouts can increase your total payout but also add risk since part of your compensation depends on future performance.
Transferring ownership to family members or your management team can preserve your legacy and keep the business in trusted hands. These deals often require seller financing and careful planning to maintain cash flow. Many professionals recommend a three- to five-year handover period to train successors and help ensure a smooth change in leadership.
Some owners keep their business but reduce involvement, stepping back from daily management while retaining ownership. A capable management team, incentivized through profit-sharing or stock options, can keep operations running effectively. This option can offer ongoing income and influence but requires strong leadership and oversight.
Liquidation is usually the least desirable option but may be necessary if the business isn’t sellable due to declining performance or market shifts. Knowing the liquidation value of your assets helps set realistic retirement expectations and guides estate planning.
Starting Your Personalized Exit Planning Process
Early preparation is critical, no matter which path you choose. Consider questions such as:
- Do you have a written succession plan that outlines who will take over and how?
- How much will you need, after taxes, to fund your retirement lifestyle?
- Could your business operate effectively without you for 30 days or more? If not, what steps could reduce owner dependence and strengthen operations?
Addressing these points can help identify gaps that could undermine your transition. Enhancing efficiency, documenting processes and mentoring future leaders not only reduces risk but also makes your propane company more appealing to potential buyers.
Planning your exit is not just about getting the highest sale price. It’s about safeguarding what you’ve built, ensuring your retirement security and leaving a stable foundation for the next generation of leadership. In an industry that is evolving quickly, proactive owners can maintain more control over timing, structure and legacy.
Starting the process now, even if retirement is years away, can help give you time to improve operations, strengthen financial performance and position your business for the best possible outcome. While you may not need to act immediately, discussing your goals with financial professionals, including an advisor familiar with the propane sector, can help you prepare a clear, well-structured plan that works for you and your family.
Authors’ Note: This is intended for informational purposes only and should not be construed as personalized financial advice. Please consult your trusted financial professional regarding your unique situation.
