Passing on the keys: Careful planning puts the success in business succession
Put all those years of blood, sweat and tears into a neat package and apply a price tag. It's time to pass it on.
Millions of Baby Boomers across the country will be looking to sell their businesses over the next few years as they enter retirement. In the Northland, where the population skews older, the need to transition businesses will only be amplified.
"I think it's a steady stream that keeps growing," said Shawn Wellnitz, CEO of the Duluth-based Entrepreneur Fund, which supports small businesses in the region. "Boomers make up the majority of small business owners, especially up on the Iron Range."
Some owners find the right people at the right time. Some are able to keep the business in the family. Still others sell to employees.
It doesn't often happen without some hand-wringing, though, and it can't really happen at all without a plan.
"A lot of issues we see are not being ready to sell, having it where someone can come in and take over — maybe books are out of order, or they've lost passion," Wellnitz said.
Local business consultant and former Park State Bank owner Dale Lewis says the region is ripe for matchmaking so long as sellers are putting in the time to get things in order, find out the value of the business and make a graceful exit.
"There are dozens of these kinds of companies in town," she said. "It's just finding a willing buyer and a willing seller — the buyer being someone who has a unique sense of entrepreneurism and no shame in buying as opposed to starting new."
Rick and Jean Schwengler say they're "people people, not business people." Yet they could write the book on business succession.
They had two different appraisers tell them what their Budget Blinds franchise was worth. They set out a five-year timeline to carefully unload the business. They'll be staying on a while to make sure the new owner finds the same success they did.
More than anything, they're leaving on a high note.
"As long as business is doing good and we like doing it, it's a lot easier to sell it," said Rick Schwengler, 59.
With retirement age approaching, the couple started planning for what's next. It just worked out that what's next is happening now, and not later.
As of Oct. 1, Bobby Pearson will take over Budget Blinds in Duluth. While it has been a clean transition, it won't be a clean break from the Schwenglers' involvement.
"They've spent 13 years in this community building this business — Rick's name and face are very familiar to many customers, and the benefit of keeping that will be huge for us," Pearson said. "I get to work with Rick now and learn firsthand from him based on his experience."
Wellnitz at the Entrepreneur Fund says this is an ideal situation, since it helps preserve the brand — and thus customers and cash flow — that has been established. Not to mention the pride in that business.
"We don't want just anybody to buy this," Jean Schwendler recalled thinking. "What if they run it into the ground?"
The trick now is taking Budget Blinds to the next level — even window coverings, like so many other businesses, are moving toward digitization. Lewis said many owners nearing retirement have been hesitant to give the digital side of things their full attention.
"A lot of these businesses have not capitalized as much as they can on social media and the internet side of the business," she said. "That's one unique characteristic I've seen in each business I've talked to."
It wasn't a step the Schwenglers were going to take, but they see that Pearson, with a background in software and consulting, will.
"My goal would be to see us grow the business, maintain the customer service and build on that foundation," Pearson, 29, said. "We've talked already about providing additional products, taking some new things on and bringing what experience and perspective we have to it."
In the family
Paul Forti is a smooth talker when it comes to dough — but now he has to leave the bakery to make it.
"I have to start selling — I have to get out of baking, get out of my comfort zone, and go," he said.
That's because Forti and his wife, Hannah Casey Forti, became the fourth-generation owners of Sunrise Bakery in Hibbing earlier this year, and they plan to get their bread in more stores in the region and grow the profile of the shop's specialty, potica.
"There's a really good reputation and a lot of tradition to build on, and while all transitions are rocky, it's gone better than I thought it would," Casey Forti said.
It's hard enough to get a business to the second year, much less the second generation. Only about 8 percent of businesses make it to a second set of owners, be it family or otherwise, said Elaine Hansen, executive director of the Center for Economic Development at the University of Minnesota Duluth.
"Most businesses close," she said.
After 104 years in family hands, however, Sunrise Bakery seemed fated to continue. Though Ginny Forti sold the business a few months ago, she still has every desire to see it succeed.
"I miss seeing the people. We've had a good, long history," she said. "I'd like to be there, even as a PR person. Even though I'm 81, I'm not close to being able to retire."
Paul Forti, 48, has worked at the bakery for 25 years, but his specialty has been the bread, not the business.
"Nothing is as easy as you think," he said. "I'm just now trying to be a salesman. I'm going to hit the road and reach out to some new accounts."
Casey Forti said despite the new responsibilities, there's a definite benefit to having the business in your blood.
"You don't really realize what 100 years of experience means until you start working on something, and you realize that you really have this infrastructure there. The simple things you take for granted," she said to her husband, "I'm totally naive about."
Wellnitz says that's exactly why the business needs to operate smoothly on paper — if someone outside the family or even outside the business wants to take over, it helps to know how things work.
Still, Ginny Forti pointed out, there's no simple recipe for success in this business or any other.
"There's no two days alike," she said. "Everything is day to day to day."
As for a fifth generation of owners, 2-year-old Bruno and 5-year-old Rosa Poppi are for now content to jump around on the office furniture inside the former elementary school that serves as the bakery's production center. They could someday step up to the task — but only if they want it, their parents insist.
Same idea, new direction
Sarah Bjork and Ellie Just kept their eyes on their flowers, bathed in gray light pouring in through the windows, as their hands pulled together arrangements for a wedding the next day, one of four they were being paid to add some color to that weekend.
"It's a little bit of a dream come true, for both of us."
The two bought Bella Flora downtown just over a year ago and already have expanded back into the adjoining shop and landed more event business.
"I think ultimately we both would've liked to have some sort of business of our own some day," Bjork said. "But when the opportunity came across — this makes so much sense."
Not every business is sold at the end of someone's career — Angela Stocke wanted to do something else after running the business since 2000, so her employees offered to buy the corner flower shop.
Wellnitz said business owners can build some real peace of mind by grooming successors and knowing that "When it's time for me to leave, I know there are people who already are stepping in as I'm stepping out."
For young entrepreneurs like Just and Bjork, it's not starting the business that matters most, it's bringing it into the future — because it's all theirs now.
"Take a lot of advice with a grain of salt," Bjork said. "You have to make it work for you and your future plans and your business."
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What's it worth?
The first step to selling a business is often the hardest: Figuring out what it's worth.
"The common issues are valuation and how to finance it, and that's the huge part we play," said Shawn Wellnitz, CEO of the Entrepreneur Fund.
It's one thing to find agreement on a market value for property, inventory and machinery, but what about the brand, the customers, the reliable source of income? That's the "blue sky" amount that gets tacked on to the value of the physical assets.
Wellnitz says sellers often come looking for help finding the value, on top of figuring out what else needs to be done.
"Most have done some work — they've put some feelers out there for a while, looked inside their business," he said. "Some have gone as far as getting financials ready and trying to lessen their footprint inside the business."
A target price is one thing, but a sale price is one the buyer agrees to, often following some back-and-forth. Business consultant Dale Lewis said buyers often take on more risk versus starting new, though there are the obvious benefits.
"You have a going concern, a consistent cash flow, you're buying into an employment opportunity — it's yours to make or lose," she said "But if you come into it with good advisers, a good attorney, a good accountant, there's no reason you can't step in and take it to the next level."