Is Your House in Order to Sell Your Propane Business?

If you are starting to think about selling your propane business, one of the first things you should ask yourself is, “Is my house in order?”

I have been involved in more than 80 transactions over my 30-year career, from the initial seller meetings all the way to post-closing integration, so I can tell you with certainty that what I am about to share with you makes a difference.

Being organized “shows well” to a prospective buyer. If everything is generally in good order, it may help boost the offers you receive and will certainly make the due diligence process much more pleasant.

This article explores some examples of items that are important to have in order.

Tank Lease Agreements

Do you have tank lease agreements for each company-owned tank? Is it signed by the customer? If not, you may want to consider mailing or emailing one to each customer lacking an unsigned agreement.

Simply state, “We are updating our customer files and noticed that we do not have a signed tank lease agreement for your propane tank. Kindly sign, keep a copy for yourself, and return the top copy in the postage paid envelope provided.” As an incentive, you could provide a discount coupon for their next delivery or service.

Next, where are these tank lease agreements filed? Are they in each customer’s file along with every other document pertaining to that customer? Or are they kept in a separate file? I can tell you from years of experience, it is certainly preferred that they are in a separate file. It will make this part of your due diligence go much smoother.

Leak Tests

You have heard it many times: “If it’s not signed, it didn’t happen.” So, do you have signed leak tests? Are they signed by the technician/driver and the customer? Are the results of the leak test recorded? Are your drivers doing one on every out-of-gas visit?

These are the questions that will be asked by any prospective buyer’s safety and compliance personnel during your due diligence. Strange discoveries have often been made during the acquisition due diligence process. During one, I remember reviewing leak test documents and noticing that the test readings recorded were the same on nearly every completed test form.

The same “starting pressure,” “ending pressure,” and “time held” was repeated form after form. I quickly flipped back to the first one I had reviewed and followed through to the most recent one, and guess what? It was the same technician.

This technician had recorded the same readings on every leak test he had performed (or didn’t perform). The forms were complete, neat and looked great at a glance. This particular company was very organized, the owner was very proud, and they did things the right way.

Believe me, I gained no pleasure in bringing my findings to his attention. What’s my point? Make sure a qualified person is reviewing the leak test forms before they are filed. It’s important. Documented leak tests are required by National Fire Protection Association National Fuel Gas Code 54.

Employee Benefits & Perks

Are your benefit offerings consistent among your entire staff? I am not necessarily referring to health care or your 401(K). I am referring to the one-off benefits; Charlie has a gas card (and no one else does); you let Susie roll over any amount of vacation she wishes (but nobody else can); you gave Joe a gas card last year instead of a pay increase (everyone else received a traditional pay increase). You get the point.

While none of these scenarios are dealbreakers, they show inconsistency and put the buyer in a delicate situation post-closing. Ideally, it will be great if you can address these inconsistencies in advance of a sale, but at the very least, you should be prepared to disclose them to your buyer of choice. Do not make them seem like the “bad guy” after the sale of the company.

Vehicles

Do you have more than an adequate number of spare delivery or service trucks? Do you have a vehicle that simply has not moved for the past couple of seasons? If you answered “yes” to one or both of these questions, please consider “right-sizing” your fleet.

Having excess vehicles can be costly by paying unnecessary insurance, registration and state inspection expenses, thereby reducing your earnings and ultimately the value of your business. Many buyers elect not to purchase “excess” vehicles, and as the seller, you do not want to be left with the task of selling these vehicles on your own after the sale.

Staffing

This is a sensitive subject, but you should ask yourself the question: “Do I have the right number of employees for the size and scope of my business?”

Finding and keeping good employees, especially drivers and technicians, is a challenge. But that does not mean you should have more than you need just in case one of them decides to leave.

An “extra” employee or two is a significant expense, which reduces your earnings and makes your company look less profitable or valuable to a prospective buyer. Keeping your staff “right-sized” is the right thing to do, and it “shows well” when you decide to market your company.

Driver Qualification Files

Are your driver qualification (DQ) files in order? Is everything that is required to be in the DQ file actually in there? Is everything current? Has anything expired? Are the DQ files separate from the drivers’ regular employee files? Be sure there is a process in place to manage this very important area of compliance. Do not be embarrassed (and out of compliance) by an expired medical card in one of your driver’s files. It doesn’t “show well.”

Gains & Losses

Do you track tank sets and tank pickups? Do you track customer gains and losses? Do you track the volume of gallons gained and lost? If you do all of that, great! If you do not, it is never too late to start. Most companies track tank sets and tank pickups. In fact, most software platforms will do that for you.

The same holds true for customer gains and losses. But few companies track (estimated) gallons, gained volume and (actual) lost volume. Smart buyers want to see volume trends but also customer churn activity. Smart buyers will also ask to see your pending pickup report or at least ask how many pending pickups you think you have.

I remember an owner telling me, “Man we’re growing, we’re really setting tanks!” In my review of his records, I was not seeing that in the volume trends. The volume was not shrinking, but there sure wasn’t any uptick that reflected what he was telling me. He was measuring tank sets and pickups and even customer gains and losses via the software platform, but not gained and lost volume. He was caught up in the tank setting activity and the positive vibe that was resonating throughout the company.

As it turned out, there were a significant number of pending pickups. The tank pick-up triggered the process of canceling the customer, so without those pickups recorded, the owner had a false sense of growth. The tank set/pickup report looked great, always showing a net gain in sets vs. pick-ups. He was, in fact, gaining new volume, but it was offset by lost volume that was never recognized because he was not measuring gained and lost volume, and the (dead) tanks were not being picked up in a timely way. There were two lessons learned in this scenario: keep an eye on your growth and attrition by more than one method and remain diligent on your tank pickups.

While some of these tasks may seem very simple, the importance of each cannot be overstated. Making sure your house is in order is good for your business and good for its long-term value.