Multiple choice

by Andrew Tellijohn   Phil Dworsky’s grandfather came to the United States from Europe in the early 1900s with little more than his skills as a cooper. But he turned those talents into a barrel refurbishing business that stayed in the family’s hands for more than 90 years.

When the third generation sold Consolidated Container Co. to a public entity in 1998, it began a string of four ownership groups in six years. Customer service dropped. Employee morale sank. And the once-solid company had begun to lose its way.

Dworsky, who had stayed with Consolidated to find out what it was like to work for a public company, began exploring what it would take to buy the company back as early as 2000. It wasn’t until two purchases and four years later (early this year, to be exact) he was given an ultimatum: find financing to make the purchase in 10 days or we’ll sell to someone else.

That ultimatum started “quite a roller-coaster ride,” Dworsky says, with a laugh. And suddenly he was thrust into the position of entrepreneur, or small-business owner-to-be, with financing needs and not all the resources he needed to secure them. So he sought help.

He first hired a chief financial officer and then assembled a team. He worked with Minneapolis-based law and accounting firms Lurie Besikof Lapidus & Co. and Winthrop & Weinstine to help analyze some options.

“I think that’s important,” he says. “You just don’t go in blind to opportunities.”

The team first considered a conventional loan from a local bank or teaming with the city of Minneapolis under a bonding program designed to keep local jobs in town. Neither of those options materialized fast enough, however. So Dworsky had a discussion with a close friend in the business community who got him in touch with Edina-based Fidelity Bank.

In the nick of time, Dworsky settled on a three-pronged financing arrangement that included a seven-figure loan from Fidelity, an equity investment from his own savings, and a factoring of Consolidated’s future accounts receivables.

As a result, in March 2004, Phil Dworsky and his brother William repurchased the family business their grandfather started nearly a century ago.

“That was how we constructed the deal in 10 days to close the transaction,” Dworsky says. “We started back in business with our main focus on retaining customers and stabilizing the company.”

But Consolidated’s financing tale does not end there. While they had successfully repurchased the company, the financing terms were not stellar.

At a more relaxed pace, Dworsky immediately set about finding a more favorable interest rate. He also was interested in borrowing some more money to buy equipment so the company could expand.

His team went to three banks, again considering conventional financing. It also again explored a partnership with the city of Minneapolis. But this time the best option was a seven-figure loan from the U.S. Small Business Administration (SBA).

It’s working out well for the Dworskys so far. Consolidated Container in August acquired a Simpsonville, South Carolina-based company that will diversify the firm into plastic barrel recycling and refurbishing. The firm also plans to use some of the proceeds from the refinanced loan to upgrade its fleet of trailers, Dworsky says.

Customers and employees seem happy. The company is poised for double-digit growth in 2005. “We are enjoying ourselves,” he says. “We are really happy to be back.”

Fidelity Bank officials also were glad to help the Dworskys buy back the family business. The bank provides a lot of short-term and long-term commercial financing options. As long as the borrower has done his or her homework, banks and other lenders generally will work together with other institutions and try as many ways possible to make a situation work, says Chuck Mueller, executive vice president with Fidelity.

“There’s a lot of ways to put together funding for a transaction,” he says.

Equipment purchase
Over the long haul, Mueller recommends finding a bank and sticking with it. You never know when an established relationship might come in handy, such as in the case of Jim Flannery, who bought a partial equity stake in Embossing Plus two years ago.

“We had experience with Jim in another entity,” Mueller says, adding that while Flannery had to prove that his entry into a new industry would not overwhelm him, his past payment history played in his favor.

Minneapolis-based Embossing Plus’ lack of equipment was costing it business when Flannery arrived. There was plenty of demand for its services, but with just eight machines with which to perform die cutting, foil stamping, embossing and other activities primarily for companies in the printing industry, the company was in dire straits.

“It was my job to bring more business in,” says Flannery, vice president with a partial, and soon to be growing, ownership stake. “We were losing business left and right because we didn’t have enough presses.”

Embossing Plus also didn’t have enough money to buy the equipment it needed. So Flannery contacted three local banks seeking proposals for loans, eventually jumping on an offer from Fidelity Bank, with whom he has established a previous relationship through another business.

A variable-rate and two fixed-rate loans have resulted in a 40-inch die cutting machine, a foil stamping machine and other equipment totaling more than $1 million.

The investment has truly paid off. Embossing Plus still isn’t where it needs to be, Flannery says. It is still losing some business because of its remaining equipment shortage, but it has stopped the hemorrhaging to a large extent. Sales increased from $900,000 in 2002 to $1.4 million in 2003, and are on pace to exceed $2 million this year.

“That’s all due to the capital expenditures,” says Flannery, who agrees with Mueller by saying it’s important to find a lender you feel comfortable establishing a relationship with, preferably one with experience in your industry.

“They knew what we were doing,” he says of Fidelity. “It was very easy to work with them.”

Another example of a company that has benefited from establishing and maintaining an ongoing relationship with a banker is Precision Coatings Inc., which provides thermal and Teflon coatings that reduce wear and tear for machine components.

About two years ago, the St. Paul-based family-owned business was contacted by a potential customer in search of a specific product. Precision Coatings had generally outsourced that part of its business, but the contract’s size — the customer immediately increased sales by 25 percent and became Precision Coatings’ second largest customer — made it efficient to seek financing for the precision grinders and spray unit required to do that work in house, says Linda Grundtner, vice president of marketing.

Since it was founded in 1988, Precision Coatings has worked with Minneapolis-based Associated Bank Minnesota on its financing needs. In this case, after company officials presented their financial projections and made the case for purchasing the new equipment, the bank came through again with an SBA loan.

“We’ve had several SBA loans through Associated over the course of our history,” she says, adding that it has a long tradition of working with small businesses dating back to when it was Riverside Bank.

First, do the math
Doing the math is important when preparing a presentation for a banker, says Dave Faust, executive vice president of commercial lending for Bremer Bank. Countless times, business owners come in with a loan request for a piece of equipment they think they need without showing how much that purchase will raise expenses or overhead costs or will need to produce in order to pay back the loans.

Providing a vision for both expected and worst-case scenarios impresses bankers and proves to them that potential borrowers have put some thought into their requests.

If folks aren’t well-versed in finances, they need to use a board of directors or some other advisers besides well-meaning friends and family. “What you need is three or four outsiders,” Faust says. “I’m surprised at how few utilize a board of directors.”

The SBA has participated in many success stories over the years, both as a lender and as a provider of information for start-ups and businesses looking to grow, says Mel Aanerud, assistant director of the SBA’s Minnesota office. In addition to his offices, he says the SBA has ties to several organizations that can kick-start a company’s expansion plans with information or money.

Entrepreneurs should consider visiting the Business Information Center in St. Paul, which offers businesses an opportunity to test software and hardware before buying it.

The Minnesota Department of Employment and Economic Development (DEED), the Service Corps of Retired Executives (SCORE) and nine Minnesota Small Business Development Centers (SBDC) around the state each has multiple publications and offices available for advice.

“Everybody is within an hour’s drive of an SBDC,” Aanerud says.

Dave Thompson, executive vice president of business banking with Associated Bank, says way too often business owners have a great idea but overlook the importance of having a financial game plan.

“The financial side of it is rarely considered a vital part of an entrepreneur vision,” he says. “They don’t understand the importance of it.”

On the upside, there are a lot of resources available. Thompson suggests including a finance person on staff at the outset of the business. He also says many accounting firms focus on small-business clientele.

While their services might be expensive, they will come in handy.

Entrepreneurs “hate spending money on something they don’t realize is important,” Thompson says. “If someone has a relationship with an accounting firm, that’s a tremendous place to start.”

[contact] Mel Aanerud, Minnesota SBA Office: 612.370.2324; melvin.aanerud@sba.gov; www.sba.gov. Phil Dworsky, Consolidated Container: 612.781.0923; jpdworsky@containerexperts.com; www.containerexperts.com. Jim Flannery, Embossing Plus Inc.: 612.362.9301; info@embossplus.com. Linda Grundtner, Precision Coatings Inc..: 651.641.0878; sales@precisioncoatings.com; www.precisioncoatings.com. Chuck Mueller, Fidelity Bank: 952.830.7251; chuck@fidelitybankmn.com; www.fidelitybankmn.com. Dave Thompson, Associated Bank: 612.359.4432; david.thompson@associatedbank.com; www.associatedbank.com.