Is Your House in Order?

FIRST SEEN IN BPN MAGAZINE | One of the first things you should ask yourself ff you’re starting to think about selling your propane business is, “Is my house in order?”  I’ve 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 tell 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.

Here are some examples of items that are important to have in good order:

Tank Lease Agreements:  Do you have tank lease agreements for each company-owned tank?  Is it signed by the customer? You may want to consider mailing or emailing one to each customer lacking an unsigned agreement if not.  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 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?  Are they in a separate file, all together?  I can tell you from years of experience, it is certainly preferred that they are in a separate file, all together.  It will make this part of due diligence go much smoother.

Leak Tests:  You’ve 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?  These are the questions that will be asked by any prospective buyer’s Safety & Compliance personnel during due diligence.

Strange discoveries have often been made during the acquisition due diligence process.  During one, I remember reviewing leak test documents and noticed that the test readings recorded were the same on nearly every completed test form.  The same “starting pressure”, “ending pressure”, and “time held” was repeating 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 particular technician 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.  So, 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 NFPA 54, National Fuel Gas Code!

Employee Benefits-Perks:  Are your benefit offerings consistent among your entire staff?  I’m not necessarily referring to health care or your 401(K).  I’m referring to the one-offs; Charlie has a gas card (and no one else does), I let Susie roll over any amount of vacation she wishes (but nobody else can), I 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 deal breakers, they “show” inconsistency and put the buyer in a delicate situation post-closing.  Ideally it will be great if you can “fix” these inconsistencies in advance of a sale, but at the very least you should be prepared to disclose them to your buyer of choice.  Don’t make them the “bad guy” after the sale.

Vehicles:  Do you have more than an adequate number of spare delivery or service trucks?  Do you have a vehicle that simply hasn’t 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 sure don’t 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?”  I realize finding and keeping good employees is a challenge, especially drivers and technicians, but that doesn’t 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/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 files in order?    Is everything that’s required to be in the DQ file actually in there?  Is everything current, nothing expired?  Are the DQ files separate from the drivers’ regular employee files?  Be sure there’s a process in place to manage this very important area of compliance.  Don’t 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 pick-ups?  Do you track customer gains and losses?  Do you track gallons gained and lost volume?  If you do all of that, great!  If you do not, it’s never too late to start!  Most companies track tank sets and tank pick-ups, in fact most software platforms will do that for you.  The same holds true for customer gains and losses.  But few companies actually 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 pick-up report, or at least ask how many pending pick-ups you think you have.

I remember, very vividly, an owner telling me, “Man we’re growing, we’re really setting tanks!”  In my review of his records, I wasn’t seeing that in the volume trends.  Volume wasn’t shrinking, but there sure wasn’t any uptick that reflected what he was telling me.  He was measuring tank sets and picks-ups, 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 pick-ups.  The tank pick-up triggered the process of canceling the customer so without those pick-ups recorded the owner had a false sense of growth.  The tank set/pick-up 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 wasn’t measuring gained and lost volume and the (dead) tanks weren’t being picked up in a timely way.  There were two lessons learned in this scenario.  You really need to keep an eye on your growth/attrition by more than one method, and, remain diligent on your tank pick-ups!

I think you get the point.  I know that some of these items and tasks seem very basic, but believe me, the importance of each one cannot be overstated.  Making sure your house is in order is good for your business, good for its value, and it just plain “shows well.”


Jeff Brunner

Cetane Associates LLC

July 2021


First published in BPN Magazine, July 2021 edition

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We were very pleased to have such a knowledgeable and experienced company in our corner with the team at Cetane. It was obvious that they knew the best process and how to get the ball over the goal line. Their advice throughout the process was greatly appreciated and we thoroughly enjoyed working with them.

— Steve Lombardi, Brodeur’s Oil, Moosup, CT