Sign North Dakota Banking Business Plan Template Fast

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welcome everyone uh today we're gonna start out with talking about who and what is the small business development center uh there are people who get a little confused as to what we are but who who is the small business development center and i think the best place to actually start is who we are not a lot of people will confuse us with the small business administration or the sba um that is who we are not uh they are or we are a resource partner of them um but they're a government government organization we're a national nonprofit organization and we fall under the americas sbdc and and you'll find in every state that's where they originate from is under the national organization now if you're in nebraska you actually are called the nbdc nebraska business development center for a number of reasons but the main reason is because you're actually falling under the nebraska state government we actually are a fall under the university of south dakota in vermillion and so we're through the education system [Music] now one thing about the south dakota small business development center is that we're unique in the nation in that we have a whole host of other organizations under our umbrella in most if not all the states these organizations are their own entity uh but here in south dakota they're all under the sbdc umbrella now first would be the procurement technical assistance center or often referred to as ptac what they do is they can help you get started in doing federal government contracting if if you're ever in need of a sam number that's s-a-m don't ask me what it stands for something awards management but if you want to get paid by the federal government you have to have a sam number they can help you get that sam number but also help you get started in doing federal government contract work next is the manufacturing and technology solutions mts uh now it says manufacturing but you don't have to be a manufacturer take advantage of their their their services they their two main services is in lean if you're familiar with lean that is typically associated with manufacturing but it could be associated with really any business so if you want to get more information about what lean is how it can be used in your business or become lean certified that's the organization that can help you as far as a manufacturing specifically if you want to get iso certified they can help you get that as well as perform some iso audits on your organization next is the south dakota international trade center if you're interested in exporting this is the organization you want to talk to they can help you navigate those waters because it's not just as simple as i'm going to ship it to england there's a lot of customs and exchange information that you need to be aware of and they can help you out with that and then the the other one is the enterprise institute which if you've ever heard the term angel investor that's what that organization is it has several different angel investing groups across the state now where are these all located they're not all located in rapid uh these these three the sbdc ptac and mts there's an office right in rapid but there's also an office in sioux falls the ptac is also located in yankton and there's an office in pier peer enterprise institute is located in brookings and the international trade center is located in sioux falls as well and they have a whole host of services available to you now one that i don't have up here is what's called the sbir small business innovation research well i'm sorry i do have it here i can't even read my own writing folks this is them here and they're located in sioux falls but gary he's in rapid a lot of times i know there's several people from the school of mines that have called on him to get some help on finding funding for their projects and so that really concludes the family of sbdc here in south dakota so what can the small business development center help you with specifically well there's a number of services but by far and for foremost is we can help you with your projections whether you're wanting to do a startup or you maybe already have a business but you'd like to do an expansion we can help you do those projections whether it's a lender who's requiring those or maybe it's something that you want for yourself next is guiding you through writing that business plan now we we don't necessarily write the plan for you but if you'd like we can provide you with a template to get you started once you get that plan written we can review it and give you some feedback on what changes uh and additions you might include in that plan and keep in mind when we look at it we look at it through the eyes of a lender because we have an insight as to what they're looking for in your business plan third is industry research we have a number of resources for to get you national and regional research uh our access to local research really is limited uh unfortunately because we are in south dakota there's not a lot of publicized research for the individual industries out there but what we can do on the local level is get you like revenue data sales tax data but the best source is really contacting people you know in that industry the industry benchmarks and financial analysis that that's can be one or two separate services we have a number of pieces of software that we can use for that whether it's the same software we use for projections or else we do have a separate uh software called uh profit sense that we can really compare you to the industry and give you feedback as to where is your business lacking and possibly ways to improve that or where is your business excelling and the ideas of how you can take advantage of those areas that you really do shine in and then of course cash flow that cash is the king prophetess prince you might have heard that before with this it's so important to know what your cash flow projection is so you can accurately or more reasonably plan for your expansion and just especially if you're a seasonal business to budget your money out so you don't have to go and borrow on a line of credit and just overall planning is involved here and then finally is helping you identify different funding sources uh and here what we have is just a thirty thousand foot view of different funding sources for the the startup business you you we say your pocket uh you might have heard of the 3s the three f's friends families and fools they say they can be one or they can be three separate entities uh that really is the beginning part of your funding sources when you're a startup and of course there's traditional lenders whether it's a bank or credit union i can tell you if you go to traditional lenders which happen to be our number one referral source is that they'll want you to have a projection and a business plan and if you come to ces first and then go to your lender that puts you in a whole different light because you'll come in already planned to answer their questions the loan funds now there's a lot of different loan funds out here and specifically to the west river area uh like elevate that would be an example of a loan fund another one is the west river revolving loan fund they have loans if you're based in rapid city and then they have a separate pool of money in the event that you're outside a rapid city in a rural area or the small towns and speaking of the small towns each one may have its own loan funds i happen to know that hot springs has one deadwood lead does spearfish sturgis i believe box elder does but if you don't know the best way to find out is call your local chamber office and they can tell you for sure and who the contact information is now if you're an established business there's obviously additional sources available to you as i mentioned the enterprise institute and angel investors that's kind of not quite the startup but maybe you've got a year or two under your belt and you're needing some money for an expansion and another one is a private equity groups uh with both of these i would just be careful as to who you literally get in bed with here because you need to have your values and your philosophies matched otherwise it won't make a good partnership and you'll both be wishing you can get out of it uh as i mentioned this is an overview uh there there it can go a lot deeper than this uh but we could talk about hours and really it depends on your business as to who your sources of funding are and that's why we didn't give more than just a d no more than an overview here now where where can you get get all this information well there's a couple ways you can do it here we've got our website sdbusinesshelp.com if you go out there you will see all of those organizations on the on our website and then if you click on that you can get your contact information and for example if you went out there and you wanted the sbdc you'll scroll down you'll see all the consultants at our seven locations so our locations are rapid city here yankton sioux falls aberdeen and watertown and brookings i almost forgot one there but they're all out there as well as mts ptac sbir international trade and enterprise institute now if you're in the west river business area where and you this includes parts of wyoming is simply call our west river business service center and sally who would be the one who answers the phone she'll get you to the person that you need to talk to with that i'm going to [Music] turn it over to belinda she's going to talk about exiting a business again this is an in-depth topic uh so we're only touching scratching the surface here belinda thanks man everybody hear me am i am i admitted yes okay yes hello i'm i'm belinda engelhardt and i'm really happy to be with you today to talk with you a few minutes about a topic that is a challenge to even the very best and most organized business owner slide matt please one oh okay there we go what is succession planning succession planning is a strategy for passing on leadership roles often the ownership of a company to an employee or group of employees known as replacement planning it ensures that the businesses continue to run smoothly after a company's most important people move on to new opportunities retire or pass away and i include that definition and the clarification that i'm going to talk about exit or transitioning as well as pure succession planning and if if i've missed the mark with any of you just contact me afterwards and and we can talk about it it's a very broad broad subject next slide matt the international business brokers association the ibba reports that 80 of businesses are not ready to exit and i see that regularly i find that in my office i work more with buyers than with sellers and i think that's because of this this eighty percent um um finding that people just are not ready or they don't position themselves to sell they say that owners will choose to leave their businesses a third of them hoping to sell their business a third of them want a family member to assume control and a third plan to just sell down their inventories let their staff go and close the doors and i think we see in the small business development center we've seen a combination of of all of those next slide matt most owners are not ready and don't really understand what it will mean to leave their business how to do it successfully or who can help next slide matt business advisors agree the best time to sell a business is when it's doing well but if you think about human nature that's exactly the time that we really would hesitate to leave the business when it's doing well next slide matt there are many many decisions related to leaving a business maybe it's age or maybe there's a desire to do something different maybe there are several reasons why owners are actually forced to exit their business maybe there's some financial or personal distress maybe there's a disability a physical disability maybe there's a divorce in the family there are dynamics that change whether it's in the markets or technology is changing maybe there are disputes between partners or maybe there's the death of a principal owner all of these can happen at any i mean they're all one or another is is almost inevitable and the business owner really really really needs to be prepared next slide man the transition can occur in a couple of different ways either standing up or lying down and for this presentation i think we will focus on the standing up version small business owners work hard to earn a living and support their families and their employees too often they are working in their business and not on their business and they wear several hats they're often my optic about conditions of the market the industry or the geography and and so it leaves them to spend a lot of time in but not on the business next slide map too often many small business owners hurt their opportunities to successfully attract buyers and transition at maximum value because of their own business practices small business owners often on the advice of professionals operate their business for two reasons and you might identify those first to maximize owner benefits and second to minimize taxes we see this every day in our offices they do it so much so that if if they pay any taxes they believe they've not accomplished their first goal so they go back and they do everything that they can to increase owner benefits expense them through the company and thereby decrease tax obligations in many situations showing a paper profit is not the primary concern as long as cash flow is sufficient to meet the company's financial obligations and their personal needs many small businesses under report their revenue through cash transactions through bartering relationships your selective accounting by maybe moving sales or expenses from one year to another to impact to have a greater impact or for tax reduction they may use company assets in inventory for personal purposes this increases cost of goods sold it also drives up other expenses they may keep ghost inventories which are old or use list inventories on their balance sheet so that it looks better and more profitable to the bank or or even to buyers a small business may have become static over the years the market is dynamic but their business isn't their marketing plan if they have one may be reactive and not proactive technology has not been embraced the business might be top heavy you know many of the buyers that come to my office talk about what they can do in the small business once they buy it because the seller has claimed to be tired tired of the business tired of doing what they do and and as such they have just not done everything that they can do to maximize the opportunity that they have to sell the business this is a very short-sighted strategy it's focused on now and it minimizes reported financial returns instead of maximizing opportunities and so on additionally this this method produces messed up back back back but that's okay additionally this this sort of management um creates messed up ratios and other performance measurements that are really needed when a financial transaction of selling a business occurs the business value is minimized at least on paper that the business operates with too high a level of expenses and too low of a profit level and oftentimes that that method of of uh keeping the books and operating the the business um doesn't even support one of the financial returns that a buyer should have from a business investment whether it's salary or return on equity or debt service one of the things that lenders calculate immediately is the debt service ratio they use when they do that they use the financial records and the tax returns of the existing company to to measure this demonstrated ability they don't look at the pro forma forecast many of those that we create for a client when the client comes in remember they said they're buying this tired business but with their excitement and enthusiasm and energy they can do more in the business well the lenders are looking at at historical financials that's the record of the business and so i encourage any of you who are business owners out there to make that paper trail and make it positiv a business that doesn't show a profit can't obtain financing for expansion or for a buyer also it can't support the blue sky or the goodwill that an owner wants because of the way the business has been reportedly or actually performs and i say this to my clients all the time the seller can't get their money twice on established goodwill they either take their money by maximizing their owner benefits to an extreme level or they get it as a premium when they sell the business just it's almost as simple as that but there is time to change most lenders want to see a three-year financial records and so planning is is really important and it's important to start perhaps three to five years out but let's just let's just settle on three because that's what the lenders are really looking for is three years of financials um new slide map okay so if an owner wants to sell the business they need to focus their time and energy on profitability a competitive edge looking for sustainability and scalability and their corporate culture because if it's it's very important that that the business is able to hold on to good people as well and then on a side note most efforts to transition a business fail because the business is too owner dependent and some of that's a little bit of ego we don't want to let go and we don't share all the information that we should with with employees so what happens to the business if we're not there but but i digress let's go to the next slide now so now is the time so like i said three let's say three years out the studies recommend that a business puts together a team a team to work on that exit plan with you the business owner so look at an attorney an accountant your lender your insurance agent your financial advisor and all of these people can be should be well versed in business transactions and planning and and wealth maximization i have an example to share i have a client a young man who worked for a business for several years and he was given the opportunity to purchase the business because the owner was aging and it took some time to get the financing put together which is often the case for many of my my small business buyers but as the business was the transaction was being completed the seller discovered the amount of tax that he would be obligated to pay and the deal was off it was just off he was not going to pay that tax so about a year later my client the buyer is actually was actually able to purchase the business and i believe it was the inclusion of the financial planner and the tax advisor who were brought into the process a little bit late that made the difference but that deal got done because and and it certainly helped the the seller to minimize his tax tax obligation which was very important to him now that planning process that i was talking about with that team that the team can help you the business owner with a range of minor tweaks to your financial record keeping uh minor tweaks to your legal structure or very significant changes to the businesses operation to ensure that that as this as an owner your your value is maximized and then as we go forward two years before selling you just keep reviewing that plan let's say every quarter you just go into it you look okay are we on track to complete the goals that we had set create a create an annual report for for you as well as for those advisors that you have in place but keep working on that exit plan until you get to a year out and one of the very important questions that as a seller you should be able to ask it's the question i ask every one of my buyers who come in why is that person selling the business because it makes a lot of difference on the the buyers negotiating powers you know what's the seller's motivation to sell that's always a big a big question to me and it's one that every owner should be prepared to um to answer as well as the owner should have some idea about how much money he or she wants for that business and that's a tough one always a tough one i think we need the next slide matt yeah eighty percent of owners overestimate the value of their business compared to 25 percent who undervalue their business to a buyer it's really a tough one that decision is often made very emotionally the seller might determine a price based on the time and energy that it took him or her to grow that business or the perception of how good that business is or someone might have told them how good the business is or they might have come across a one or more rules of thump thumb that helped them determine what is that value of business i had one um seller who had made some really really really bad decisions uh in in her business and so she wanted to sell and get out of it and the purchase price was all of that debt that she had incurred in very wrong but that wasn't the buyer's problem her debt her mismanagement wasn't the buyer's problem in a real world valuation is based on quantifiable criteria not the owner's personal estimation of worth and if nothing else the lenders will make that distinction they will or will not make a loan you know based on that and a number of other criteria would have discovered there's a threshold at which a business should pay for evaluation a business valuation those are very comprehensive they can be very they can be very costly and so for our smaller businesses most of the time a business valuation a formal business valuation is not something that um that we recommend when i'm working with a buyer um we oftentimes just look at what is the value of the debt service what what kind of debt service can that can that business support along with salaries and and other expenses so that's where that's where that's at um and why you can certainly take questions as we go as we go forward if you have any uh next next slide matt okay we're talking now about um buying and and selling again next slide matt there is an author who provides nine different uh ways to exit a business that are suggested and that level of value much of it is based on the likelihood of of the opportunities for negotiation or the fact that there will be little to no negotiation in this in the sale so very briefly we'll just talk about about that list a strategic buyer is or a strategic transaction is one where um it's a sale to a competitor perhaps someone in the same industry who's looking for synergistic benefits uh perhaps there's really not much negotiation there at all it's oftentimes a cash sale it and oftentimes that purchaser doesn't care to have any additional interaction with the seller and so the seller just takes their money and and goes on the next level of um of exit is with the key employee group and it said that this is the most underutilized method of transition and one of the reasons for that is that most owners don't believe that they pay their employees enough to be able to afford to buy the business and that's probably true but many times it is something that can that can and should be worked out one of the ways um just talk briefly about what we call the multi-phase transitional model and it's a way for the seller to actually over time it's it's a timely process but over time actually perhaps receive full fair market value as opposed to a negotiated value because these people are not in a position to negotiate but over time they can accumulate enough equity to actually purchase that business and carry on and use the um the commitment and the experience that they have in the in the business the multi-phase transitional model is actually a model where over time of a small a longer period of time the employee buys a small portion of the business a small small percentage and then at the end of the year shares in the profit or the loss of that business the profit then is reinvested for more um more more shares of equity and over a period of time then that employee has accumulated enough equity that he or she is then able to take out the rest of the debt and over time the the seller will likely stay in the business and if not take a salary at least get a uh consulting fee it's i'm really breaking this down if we've got a number of steps that i'd be happy to share with anyone who is who is interested in following up on a multi-phase transitional model i have an example of a client who i think would have worked very well with that we did from we did talk with the um with the buyer about it but he did ultimately make his his deal work this guy i've worked with for nine years nine years he really wanted to purchase a particular business and the seller wanted to sell however he was reluctant to give up control the price of that business was high but the business was profitable and on paper it would show that it could support the debt service now it was a high price and the buyer the young man who wanted to buy the business uh couldn't get the funding he also didn't have a lot of experience in the industry and he had some existing personal debt so he quit his day job and went to work for this business now he's getting experience he sold his home and moved his family to a rental closer to this business now that reduced eliminated his personal debt and over the years he would follow up with me and he'd follow up with the lenders the seller actually went south every winter leaving my client in charge and ultimately the deal was completed the seller did some carry back um but this was a this was a piece that would have really worked well for multi-phase transitional model and actually i think you could turn this into a key employee because this guy actually made himself a key employee and was ultimately able to purchase that business another level is an unidentified third party where someone sees the business for whatever sees the business for whatever reason and chooses to buy it whether it's in an industry that that he or she is looking for or in a location or the kind of service or so on but this is one where the um the buyer actually approaches the seller so it leaves the seller with more opportunity for um or less opportunity it leaves a buyer with less opportunity for negotiation because the the the seller is in more control there the next level is a shareholder or partner level of value that's pretty straightforward it can be very complex in practice but the idea is that you have a partner who can buy out one or the other and one of the keys there is to have a good strong buy sell agreement an identified third party is just the opposite of the unidentified third party that is where the seller approaches a friend or a family member or or someone else and asks if he or she would like to purchase the building that gives the seller less negotiating power if all of those levels fail there are always business brokers and it's really good to understand the broker the kind of business that he or she runs the licensor that they have the way they charge fees and and so on i don't have many i don't have anyone in my portfolio right now that's using a business broker the another level a very public level a shotgun approach is the realtor sale and that is one a sale that's not confidential at all it's it's very most public um it's another that's another concern that i guess i haven't talked about in this presentation but it's the confidentiality it's a question i don't think there's a right or wrong answer about who you tell about the business for sale um but it when it goes to a realtor there is not a lot of confidentiality it's generally marketed very publicly um i have an example this example will tell you how everything can seem right uh but in this complex process uh process of trying to transition out of the business sometimes it takes very much longer than than one anticipates um about a year i think a year ago last august i have a call from a buyer from out of state who was looking to buy a business in my town his wife is from south dakota and she wanted to return now the business in question is a very successful one and i really don't know if that seller had positioned himself to sell but the reality of it is i think he just runs a very very clean business and and his financials um supported the debt service that would be required the bank the buyer is bankable he had some funds to go into the business and he understands the industry so there are a number of barriers to that sale and it's the high price of the business the fact that it's a very unique business and an inexperienced person couldn't or shouldn't buy it everything seemed right and the realtor was calling me every week to determine where was that sale how is it going the um the buyer however um i think this date i think the deal is still on but it but my point is everything seemed right about that sale the business was good the paper trail was excellent the buyer was good and i think he'll come back because remember the wife wants to move back to south dakota but it's taking far longer than the real realtor expected it to take and that the seller expected it to take one of the um the latest wrinkle is the the buyer's opportunity for a buy out with the industry in which he currently works and so it made better sense for him to stay where he's at and work out that buyout but everything seemed right in this one and and it it didn't necessarily work the way all was expecting although i think it still might liquidation is the lowest level of of value and it's the one where a business is not expected to continue obviously succession by by family members leaves a value of zero to one you realize that in some in some family situations the business is actually gifted to um another generation doesn't happen all the time but it does happen and or i've had examples of families where they i thought my goodness parents how can you charge your kids this amount of money for that business so one never knows it's it's more of a an art than an absolute science i have one more example that i'd like to share with you it's really it brings together a combination of all of these ways to exit many of these ways to exit my husband and a partner owned a farm equipment dealership and between our two families we had five sons and one daughter and while the kids were growing up they spent time working in the business but none had any interest in family succession into that business then there came the time when my husband was ready to leave his partner was not so they began the discussion of a partner buyout now they had a very strong and well-written buy sell agreement and i will encourage anyone of you who owns a business with a partner have a good buy sell agreement if you don't have one today get one written i really encourage that anyway before that could be concluded that transaction on one ic november morning the partner's vehicle slid through an intersection in front of a drop and he was killed instantly can anything be more up unsettling to a business than the death of principal the two partners my husband and his partner had key man insurance and this is another another bit of advice i would give to all of you if you own a business get yourself key man insurance you have a small business you have a large business have yourself insured this is an insurance policy a life insurance policy where the business is the beneficiary and i encourage every one of you for the peace of mind that it offers to your family to get key man insurance okay so remember my husband's intention was to leave the business so for the next year he methodically worked the succession plan for the business now after his partner died there were employees who believed that the business would close um actually a couple of the of the kids in our families believed that the business would close but my husband sent a year spent a year dissolving the corporation liquidating the business essentially paying all the obligations and payables and collecting all the receivables and getting rid of obsolete inventory through auction and then securing a strategic buyer to purchase the assets of the business and through that full year that it took to complete that that transition 20 employees 20 plus employees worked and drew their paychecks every week customers were served with no interruption and the dealership continues today but they had a foundation for succe sion it didn't work out quite the way that they anticipated but they were always planning and they had a foundation for succession and it helped to make that happen so i'm here to say it can be done it's generally not simple there is not one right way to exit a business they're not it's not always linear it doesn't always make sense there are very many variables and i repeat there's not one way out but what i would suggest if you take nothing away from this presentation today have a good paper trail because you can work as hard as you possibly can in your business but if you don't have the records to support that you you don't have a business to sell and we've seen it over and over again matt could we have another slide please okay this just talks about us and it just says that the sbdc provides professional confidential no cost business consulting services matt did a fine job of explaining early on what we did and how where and how we do it we do work with buyers or sellers but as i said before we work mostly with buyers because the sellers have not taken their time to make that good plan that they that they need to have in fact if i could just go back to one of my examples the guy who who i worked with for nine years to actually get him into the business i said to him because by now he's in his mid 40s i said you realize that someday you are going to want to buy sell this business and he just kind of smiled at me and i would i would bet that probably the exit is not top of his mind right now anyway um i think we have a thank you slide and then i am finished matt and we can certainly take any questions if any if anyone has some format or for me thank you and and i would certainly encourage you all if you don't have questions that you want to bring to us right now you've got matt's contact information and get mine through the website if you have questions or anything that we can help you with because that's what we're here for thank you both for this great presentation today i will send out your slideshow to the participants and then um don't forget to go to elevaterapidcity.com and sign up for any of the upcoming trainings we have we have a lot of great ones coming for november so please check that out and there will be a replay of this webinar available on elevate rapid city's youtube channel so if you missed part of it or perhaps want to go back and listen to something or maybe someone else you know would be interested in hearing it um you can go to the elevate rapid city youtube channel and share it but with that that concludes today's webinar and thank you belinda and matt and thank you for those who tuned in and i hope everyone has a great afternoon