Passing torch to those who made your business work

Roger Ryberg, the 25-year president and owner of Windings Inc., a New Ulm, Minn.-based manufacturer, offers proof that you can make a buck and still do right by the employees.

Ryberg, 67, a 3M Co. plant-management veteran who was tired of moving, bought the electric motor component maker in 1983. It had only a few employees and less than $1 million in annual revenue. The company, which now employs about 100 people, has grown to about $20 million in annual sales.

And the employees, led by a management team that has been mentored by Ryberg, are in the process of becoming owners.

In 1998, Ryberg, whose kids have their own careers, started to think about selling the company and providing for a comfortable retirement.

"I also wanted to preserve the company in New Ulm and for our great employees who helped build it. And I wanted them to participate in the gains if they continue to grow it," Ryberg said.

Interested competitors and out-of-town outfits would have paid a prettier penny upfront. But they also might have consolidated the operations elsewhere or burdened the company with excess debt.

Ryberg opted instead to sell the company to the employees through an Employee Stock Ownership Plan (ESOP). The self-financed, 15-year buyout will take about five more years to complete.

"I'm a pay-as-you-go kind of guy, and I financed the ESOP with my wife, and it owns 72 percent of the company's shares today," Ryberg said. "The company earns money, shares profits with employees and the profits are used to purchase the stock.

"I wanted to be in on how things go here and to create a buyer through the ESOP and transfer the equity slowly. The ESOP allowed me to accomplish all of my goals," he explained.

"If I sold to 'ABC Company,' I may have gotten more faster. But I want, and the new owners want, this company to stay in New Ulm."

Ryberg wants his legacy to be the future success of the company. And he wants other small-business owners to consider ESOPs.

He's also speaking on behalf of a new program of the Northland Institute, a nonprofit dedicated to growing small businesses in rural Minnesota.

ESOPs have been around since 1974. They offer tax advantages but take time, consideration and goodwill to do right.

"You can't retire at 65 and say 'I want to do an ESOP by the end of the year,'" Northland CEO Scott Martin said. "It's fixed-rate, multiyear financing. We will come in behind and help the owner and bank understand how it works," he said. "We will make subordinate loans in participation with local lenders to finance the sale of owners' stock. You need time to plan and do these right. "

Martin said Northland has one active ESOP loan and many inquiries after conducting just a few seminars around the state.

The Minneapolis-based Community Reinvestment Fund, which pools community-development debt and sells it to institutional investors, has agreed to buy and sell the ESOP credit, which generates more capital.

"Many small- and medium-size businesses are unable to obtain all of the capital required to finance an ESOP through banks," said Paul Halverson, managing director of Chartwell Capital Solutions, a consulting firm.

Hundreds of Minnesota small businesses could qualify, according to graduate-student researchers at the Humphrey Institute of Public Affairs at the University of Minnesota. But most business owners aren't familiar with ESOPS, or their companies don't generate enough cash to finance a typical ESOP solely through commercial lenders. More information is at www.meof.org.