Having worked with a lot of propane and petroleum clients in the past, we’ve seen what drives value and price. While these companies operate in a highly competitive and volatile market, where fluctuations in oil prices and demand for energy can significantly impact their profitability, there’s a proven way to protect your company against these external factors. As mentioned in our previous post, the oil & gas sector remains a hot sector this year which means there are acquirers ready to invest in the right business.
To succeed in this industry, companies must prioritize value drivers that can help them remain competitive and profitable. Here are the top ten value drivers for propane and petroleum companies.
Top 10 Value Drivers
- Profitability: Ensure your company has 3-5 years of consistent profits & healthy gross profits/gallon
- High company propane tank ownership: This signals that your business has table and loyal customers
- Annual Gallons: This shows steady increase in annual gallons sold
- Quality customer base: It’s not enough to have customers, you need high-margin residential customers, auto delivery, committed commercial and wholesale customers, and branded distributors
- Adequate bulk storage capacity: This mitigates supply disruptions and allocations
- Quality assets: You’ll need well-maintained trucks and freshly painted tanks & facilities
- Safety: This is standard and must have -compliance with all regulatory requirements & training
- Great customer service: You want to show excellent stories, testimonials, something to be proud of
- Exceptional employees: This shows acquirers you have a trusted, experienced, well-trained, loyal, professional team
- Good records & systems: Use modern accounting & software systems, show proof of propane tank ownership, solid environmental controls, efficient dispatch and billing procedures
Will the value of my business be more or less in a few years from today?
If you’re thinking of an exit strategy, you probably have a couple of questions regarding the real value of your business. On a more macro level, the following factors help drive business values up or down. Below you’ll find a guide that can help you have a better standing to be valued higher.
Factors that drive business values up
Factors that drive business values down
|● Steadily growing profits||● Declining or unsteady profits|
|● Steady or growing markets||● Cycles – crashes/recessions – competitive change|
|● Steady or increasing sales||● Declining sales|
|● Stable owner/management||● Owner/management instability|
|● Improved health – focus – stamina – energy||● Age – illness – death – probate – dissention|
|● Interest rates go down||● Interest rates go up|
|● Income or capital gains tax rates decline||● Income or capital gains tax rates increase|
|● Inflation moves lower||● Inflation moves higher|
|● Larger pools of aggressive buyers||● Diminishing pool of aggressive buyers|
|● More money supply||● Lowering money supply|
|● Economic stability and increased confidence||● Economic instability or reduced confidence|
|● No litigation or regulatory issues||● Litigation or regulatory issues occur|
|● Strong economy||● Weakening economy|
If you have questions about exit strategy or valuation for your company, our Oil & Gas team can help. Feel free to contact:
Gary Papay is a Principal at Eaton Square. A professional intermediary and business appraiser specializing in the sale and transfer of privately held mid-market, heating oil, propane, and petroleum companies since 1976. Gary is the partner in charge of IBG’s Pennsylvania and North Carolina offices.