Saving Businesses in the Wood River Valley
Big Wood Landscaping's Mike Dommert
STORY AND PHOTOS BY KAREN BOSSICK
Attracting new businesses to the Wood River Valley has long been a central purpose of the Sun Valley Economic Development.
But just as important is retaining already existing businesses, including the Mom and Pop-type businesses that valley residents have taken for granted all these years.
"Our main mission is to attract and retain businesses and help them grow. Some have closed without notice or without even thinking about what they could do to keep the business going," said SVED Director Harry Griffith.
CPA Peter Becker
That's why the SVED recently held a panel discussion featuring panelists like State Farm Insurance agent Kimberly Shurtleff to discuss ways business owners can create a succession plan to ensure their businesses keep on after they retire.
It could mean selling their business to a co-owner or passing it on to him or her or selling to key employees.
"Many of our current business owners moved here in the 1970s or '80s and they're getting ready to retire," said Harry Griffith. "We have a new generation seeking opportunities in a ski town. They want to live here but they don't want to be service worker the rest of their lives."
One of those is Mike Dommert, who is in the process of taking over Big Wood Landscaping.
Attorney John Seiller
Dommert moved to the Wood River Valley in 2016 and started the process of becoming the owner of the landscaping company with the understanding that the owner wanted to go out in five years. He putt earnest money down six months ago following an evaluation by a commercial brokerage firm that helped himself and the current owner to arrive at a fair sales figure.
"I couldn't just come in and plop down the money needed to buy the business right away," he said. "And the owner wanted to make sure we had something in the bank."
Dommert said the two-plus years he spent raising the earnest money gave him the chance to work at Big Wood and learn the ropes. It gave him an opportunity to figure out a schedule to pay the owner off in the next 2.5 years. It gave him the opportunity to see that the equipment was being maintained so he wouldn't have to spring for brand new equipment as soon as he took over. And it gave him the opportunity to earn the trust of employees so they would be less likely to leave to start their own businesses or jump to other employers when he takes over.
"I've got to make sure my employees are as happy as they can be so they don't take my business elsewhere," he said.
Securing non-compete clauses can be very helpful for new owners stepping into an older business, said Peter Becker, a certified public accountant with Becker, Cambers & Co.
"I'm not worried about the seller—he's ready to retire," added Becker. "But will the No. 2 guy take part of the business? You can get agreements from employees and hold them to it."
One issue that hinders transitioning is that the owner doesn't want to give up control, said Becker.
"You have to give people some rope—enough rope that they may hang themselves," he said.
"Others run businesses like it's their personal checkbook. It's hard to figure out the value of business in those cases. You've got to keep your personal life out of business to put it in the best light."
There are a lot of ways to finance purchasing an existing business. Including Idaho Housing's collateral support program, noted David Patrie, of SVED.
Retiring business owners should have their financial records in good order so their buyer can take them to the bank for a loan, said Alex Stoll of Idaho Independent Bank, a family bank that just sold to First Interstate Bank.
Often, business owners bank on their location in a mountain resort town being worth a lot. But blue skies and pretty mountains aren't tangible, she said. "What is tangible is being able to show profits. If a business owner is paying himself a nice salary, from a banker's point of view there's no need for blue sky."
Stoll added that she gets a lot of calls from people who don't have the means and think the bank will provide.
"We get a lot of dreamers who think they can just come in and have banks fund them 100 percent. You need to have 25 to 50 percent of cash to supplement what you borrow from the bank. If you don't know your finances, do you have a good accountant? It's eye opening when you talk to people who don't have an idea what financial statements are."
What would make a business unsaleable?
People who don't have the means to replace the money they're making from their business to sustain their lifestyle, said Attorney John Seiller. Also: Past or present unresolved liability, such as unpaid sales tax. A failure to report income or a history of taking cash. Too much debt due to improvements, acquisitions or payroll. A price that's too high.
Often, business owners put so much into their business they don't have retirement accounts—they say their sale will be retirement. "But I say: Open an IRA, said Stoll.
Owners often have a number in their head concerning what they think their business is worth, and it's usually less than what that number is.
"Bottom line: If you're preparing to sell, have your financial house in order," said Becker. "Make sure you can live on the check you get from your buyer every month."
SVED'S FAVORITE TAKEAWAYS:
"You have to be willing to give up control to get value."
"Banks cannot finance 'blue sky' or 'good will' value."
"Buyers need to demonstrate they have 'the means' with earnest money."
"Pay yourself first; save for retirement."
"Cash discounts can reduce your business' value."