Enhancing Propane Retailer Value: Factors That Matter

By Bill StompPropane InsiderSep 11, 20232 min read

The value of a propane retailer’s business hinges on two primary drivers: the growth and sustainability of cash flow and the company’s operational and marketing strategies. While cash flow forms the foundation for valuing a propane company, the active and marketing practices influence the multiple applied to this cash flow.

Enhancing Propane Retailer Value: Factors That Matter

Not all cash flow is created equal in the eyes of potential buyers. Recurring cash flow holds more value than one-time cash flow. Moreover, cash flow generated through propane sales is generally regarded more favorably than that derived from refined fuels. Even the type of gallons sold can impact cash flow value, with retail propane gallons typically carrying a higher weight than wholesale propane gallons.

Trends also matter when determining value. Analyzing the historical performance of the previous three years provides valuable insights. Depending on the company’s fiscal year-end and the current time of the year, evaluating a comparative trailing 12 months might be beneficial.

While growing sustainable cash flow is crucial, the operational and marketing practices you employ significantly influence the multiple applied to your cash flow. Several key factors come into play:

1. Tank Control: The percentage of company-owned tanks directly correlates with the multiple applied to your business value. The closer you are to 100 percent tank control, the better. Ensure you have customer-signed tank lease agreements and charge some form of tank rent, even if it’s a nominal fee. However, avoid sacrificing your customer-owned business to increase tank control percentage. Instead, work on growing your company-owned business while maintaining a balance.

2. Growth: Positive growth in customers, gallons, and cash flow is a positive sign. Your net tank sets per year should ideally be in the positive. Balance is critical; avoid sacrificing cash flow to gain customers and gallons. Sometimes, buying market share doesn’t translate to increased value.

3. Quality of Information: Buyers discount what they can’t see or what doesn’t align. Quality of information is critical. This encompasses everything from financials and gallons to customer records, tank information, safety records, and more. Clean, easily accessible records are invaluable for building value.

4. Quality of Assets and Staff: Well-maintained assets, including trucks, can significantly enhance your business’s value. Quality staff is equally important. Some buyers may require the existing team, so if your business can operate independently of the owner, it broadens the pool of potential buyers.

5. Gallon Concentration: While large accounts are beneficial, a high concentration of gallons in a few top customers can potentially impact the multiple received. Consider how losing a significant customer might affect your cash flow when multiplied by a multiple. Balancing with residential users can offset this.

6. Image and Community Presence: Your image and community involvement are unique and invaluable aspects of your business. Make the most of them.

7. Acquisitions: Strategic acquisitions can significantly boost growth if integrated wisely. More extensive, established companies generally command higher multiples. However, more gallons don’t necessarily equate to more value.

Every propane retail business is unique, so the factors that enhance value can vary. Examine your business and identify areas to strengthen. Take proactive steps to improve them, as inaction poses the most significant risk to building value.