Popular Articles

Sweet marketing music

Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

read more
by Andrew Tellijohn
May 2004

Related Article

Why all owners need to sign a buy/sell contract

Read more

Focus: Mergers & Acquisitions


Saying goodbye

by Jim Martyka   Scott Schneider can’t see into the future. And that can be frustrating for him and other small-business owners, especially when thinking about selling a company.

“It’s something we all wish we can do,” says Schneider, the former co-owner of TEC Interface Systems, a prosthetics designer and manufacturing firm that sold to Otto Bock Health Care’s Plymouth outfit in January of 2003.

“Instead you have to try and evaluate exactly what the future will be like for you, your employees and your company if you sell or merge,” he says. “That can be the most difficult part for small-business owners.”

Schneider did the research and worked diligently with an attorney to try and set up the best deal he could for him, his 50 employees and his $5 million plus firm. When the acquisition went though, he took over as global products manager for Otto Bock.

With the exception of some manufacturing personnel who are being forced to relocate (or leave), his employees also seemed to gain something from the transaction, getting better benefits and more potential for working their way up in the larger firm.

We’ve all heard the stories about other owners who aren’t so lucky. They lose their own or their employees’ jobs; they lose money by not correctly pricing the firm; they lose control of their business; or they simply feel so upset about the new direction that they are forced to leave.

So it is. After all, these small-business owners can’t see into the future.

But there are steps they can take to better prepare for it. There are ways to go about finding the best buyer or partners. There are tricks to negotiating the best deal. And, experts say, if a firm is even considering selling, these are things that are a necessity to learn.

‘Has to be a plan’
“There are so many things for a small-business owner to consider and worry about in terms of running a business on a day-to-day business. Many don’t really make a plan for when they would sell and what they would expect,” says Mike Ryan, director of the Small Business Development Center at the University of St. Thomas.

“So suddenly a larger firm expresses interest and waves money at them and they aren’t sure what to do. This is something that small-business owners need to think about, especially if their business is growing. If there is the potential for a sale, there has to be a plan.”

That is the most important piece of advice experts say they can give. A sale or merger plan is something that can be set up right from the start of the company. Some small businesses will pick a revenue figure and when the firm hits it, then it’s time to start looking for a buyer. The deal can be written into a business plan or initial agreements between investors and owners.

But forming a plan means more then finding the right time to sell. It also means figuring out the right circumstances, especially in terms of buyer expectations and what should happen to the firm. These circumstances will be different for every company, but it’s important to know what each and every owner and investor wants and expects from a sale and then to document it.

Outsiders can help
“When a buyer is interested, a sale can happen very quickly, almost too quickly and you might not be ready,” says an executive of a local restaurant that was acquired in 2000. The owner didn’t want to be named. “We weren’t really ready and it did affect us in a way. We still got a good price for our business, but we didn’t fare as well in terms of taxes, our employees and especially in where the business went after we lost ownership. Looking back, I can’t really complain, but we probably could have been better prepared and gotten more from the deal.”

Here’s where a broker, an attorney or an investment banker can help.

“That’s what we’re paid to do. We’re here to make sure both parties are happy in this kind of deal,” says Bob Cardinal, mayor of Maplewood and a broker for Calhoun Cos., which helps to buy and sell companies. “Inevitably there are things that a small-business owner is going to miss. It just happens. So, work with an expert and let them cover all of the details.”

The most important aspect to consider in looking for a partner with similar plans and motivations. As Cardinal says, the best deals work like a teeter-totter with one firm helping another go up in a fluid motion.

That means that the best sales happen when either a small firm is looking for a big company to buy it and help boost revenue or vice versa. But there needs to be more similarities than just financial goals.

“You have to understand exactly why you want to sell and what a sale is going to give you,” Schneider says. “Of course the money is important, but there are other things your individual company might need out of a deal. Consider everything.”

For Schneider’s firm, finding the right partner meant finding one with high quality standards that could complement TEC’s mission statement. Also, TEC executives knew it had reached its distribution capacity, so it needed a company that could give it more. Also, with all of the high tech research being done at the firm, Schneider needed a strong defender of intellectual property, which an established firm like Otto Bock could provide.

While analyzing needs might seem obvious, it is something that experts say can fall in the background when a major firm comes in offering a hefty sum. The key is to step back, take a deep breath and do your homework before you sign anything.

“It can be a little exciting and a little scary when there are a lot of companies making offers to you and you need to be ready,” says Claudia Wilson, president of Northwestern Incentive Services.

Wilson sold her $4 million business incentives firm to Northwestern Travel back in 1993, turning it into one of the giant’s many divisions. She had built the firm knowing she would probably reach a growth threshold. When the company started making money and developing technology at a quicker pace, it was time to sell. And she had several offers.

“We were lucky in that there were a lot of people approaching me, but that also meant we had to find the right one,” Wilson says. “We did our homework to make sure that we found the best fit.”

For Wilson, that meant talking with corporate executives to learn more about the corporate culture and mission of potential buyers. There are other things a seller can do, including talking to analysts, clients and competitors to learn a little more about the company’s reputation.

Owners should also research the company’s past purchases and current financial situation. If the company is public, so is most of this information and it can be found in quarterly and yearly reports. If the potential buyer is private, it’s a little trickier. But experts say a buyer should be open about such information to a possible seller.

Setting a price
Pricing similar deals is another part of this homework phase. Check news reports and business guides for deals involving similar companies. Also, it is important to know the exact value of the company up for sale.

That requires working with an accountant to track the obvious and the not obvious, meaning knowing the value of everything from hard assets to intellectual property, client lists, technology, etc.

“There are a lot of firms that don’t realize the potential value of their own companies because they’re only looking at sales,” says Sean Kearney, an attorney and chair of the business group at Minneapolis-based Fredrikson & Byron. “There other considerations. And this is why it’s important to work with somebody rather than trying to broker these deals yourself. They can get complicated.”

Kearney lists a number of detailed issues that most small-business owners don’t even consider when looking to sell. While he says there are hundreds, he gives these as a few examples:

• Doing inside housecleaning, meaning that it is clearly spelled out who owns what and who gets what in case of a sale. Often a sale will happen and there can be in-fighting among owners who have set up verbal agreements.

• Spelling out who will own certain assets and intellectual property. This is an area that is probably most important to a firm’s or business owner’s future capital and yet is one that is often overlooked.

• Tax structuring of these deals. Mergers and acquisitions can be complicated when it comes to taxing and there is the potential to lose quite a bit of money here.

“You have to look at all of these things and not just focus on price,” says Alfred Marcus, a professor of strategic management and a small-business expert at the University of Minnesota’s Carlson School of Management. “And from there, don’t appear desperate to sell. Take your time with a sale and make sure you have that option that you don’t need to sell. That gives you a lot of power in a transaction.”

That power can open up some doors, especially if a company is eager to buy. That position sometimes allows a business owner to negotiate the more touchy subjects, like his or her future with the company as well as that of the existing employees.

“My role was critical in the sale in terms of where I was going to end up,” Wilson says. “I didn’t want to be rid of the company completely. Like most small-business owners, I had grown attached. I found out that my position was in fact something that we could discuss and negotiate.”

The same can’t always be said for employees, though experts encourage business owners to try.

“Negotiating the future of employees is tough because that really is going to be up to the new owners,” Kearney says. “And small-business owners should understand that. After all, you wouldn’t want somebody coming in telling you how to run your business. It’s tough to say, but employees can’t be a deal breaker.”

However, most potential buyers realize the importance of employees to a small business and they are often willing to at least try for an option.

That’s a final piece of advice experts and small-business owners have for potential sellers.

“Know what you want and don’t be afraid to ask for it,” Schneider says. “Remember, the worst they can say is no. Also, remember the company is still yours until you sign on that dotted line.”

[contact]
Bob Cardinal, Calhoun Cos.:
952.831.3300; bob@calhouncos.com. Sean Kearney, Fredrikson & Byron: 612.492.7000; skearney@fredlaw.com. Alfred Marcus, Carlson School of Management: 612.624.2812. Mike Ryan, Small Business Development Center: 651.962.4500; mpryan@stthomas.edu. Scott Schneider, Otto Bock Health Care: 800.328.4058; scott.schneider@ottobock.com. Claudia Wilson, Northwestern Incentive Services: 952.921.3060; cwilson@nwincentive.com