Andy Kocemba has his finger on the pulse of Minnesota’s small-business community.
In 2011, he and his father, Wally, bought Calhoun Cos. — a business brokerage firm founded in 1908. The younger Kocemba, now the president, has been working there since 2003, helping people buy and sell small businesses.
Before the recession, the firm — which has 25 employees — brokered about 100 deals per year. Now it’s doing about 70 annually, mostly businesses with annual revenue between $500,000 and $15 million. The typical sale price is between $300,000 and $10 million.
He spoke at the firm’s offices in Edina.
Q: What are the last five businesses Calhoun has sold?
A: A precision manufacturing company, a home personal care business, a real estate-owned construction company. We sold a printing company, a restaurant and then a promotions and marketing company. Some of them were a little smaller, some of them were good-sized deals. I guess that’s six.
Q: What’s a hot type of business right now?
A: Home health care. It’s a huge need out there, and it will continue to be. Another area would be manufacturing. Buyers always like the idea of hard assets — they’re buying something, they’re buying a patented product, machines, stuff. That’s always attractive. And then there would be service-related businesses. It’s the other end of the spectrum. We always do well with those. There’s low overhead expense. You’re just going out with your tools and doing something. Very high profit margins. The numbers look good for those types of businesses. They typically sell for more, relative to revenue.
Q: What’s the demographic of people who are likely to sell a business right now?
A: The typical seller would be a baby boomer, primarily looking to retire. It’s most often the type of person who grew the business, built it themselves, they’re the owner-operator and they’ve gotten it to the point where it’s maxed out their level. They’re the wrench-turner and all of the sudden they’re managing a large organization. It’s not what they’re cut out for. A lot of business owners, essentially this is their one basket full of all their eggs, so they need to make it pay off, just from their own retirement point of view. Interesting fact is baby boomers are also the largest buyer group. We’re really excited about the baby boomers. In the next five to 10 years, we’re going to see a lot of good businesses come to market.
Q: If someone owns a business where much of the value of the company resides in the owner’s relationships, how valuable is that company to someone else?
A: It’s something we like to get people thinking about as early as they can. There’s the idea of bringing in an employee to help take on some of those relationships so at least there’s some connection there. For smaller businesses, where it’s primarily just the owner, every deal we put together has a transition period negotiated into it, wherein the owner will stay on for X amount of months or a year to help transfer those relationships. It’s all negotiable.
Q: Do buyer and seller have to hit it off?
A: Not necessarily, but it always helps. It is a personal relationship, much different than buying a house these days where they keep you apart as long as they can. From the beginning of the process, we’re bringing people together. It doesn’t mean they have to be best friends, but there needs to be trust there.
Q: What are the financing options for people looking to buy a business?
A: Most commonly it’s a combination of cash down payment from the buyer, and then the seller will carry a portion on a note that’s paid over time. Another option would be bank financing, which is done through the Small Business Administration. It’s a government program where they will guarantee a portion of these loans, designed to encourage banks to lend on business acquisitions based on blue sky — goodwill, the cash flow stream — not hard assets. In that situation, the bank will bring 70 percent of the deal, buyer will bring 20 percent, and seller will carry 10 percent. So the seller’s walking away with 90 percent of their cash.
Q: Do you ever have to talk people out of buying a business?
A: It’s a long process. A person has to be pretty determined to get to the finish line, and that weeds out a lot of people who aren’t cut out for it. There are stops along the road for the gut check. That’s one way that you prevent the catastrophe. Another way we do that is we really focus on listing businesses that are profitable, that are good businesses. We’re not setting anybody up to buy a lemon. And we always advise people to bring in their own attorneys, their own CPAs. We want to make sure these people are doing all their background work to make sure it’s all good for everybody involved.
Q: What are some red flags?
A: If it’s losing money. It’s a hard situation, because a business maybe had been making money in the past. A seller will come in and say we’ve had a tough few years but I know it can be something. But the hard fact is, buyers will come in and look at it and say, I’m not going to pay for that. Our emphasis is really on profitable companies. Other issues are old or declining technology, dated practices, or an industry that’s hit hard or becoming obsolete.