Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
HOW TO TURN AROUND YOUR DISTRESSED COMPANY
01 :: Structure your company correctly.
by Andrew Tellijohn
WHILE ENTREPRENEURS have dreams of success, they also must take into account what happens if things go awry. The best way to make sure one?s personal assets won?t be at risk in a turnaround is to plan for exit options before opening your doors.
Write a complete business plan. Create a group of advisers that includes an accountant, a lawyer, a banker and maybe potential vendors from the industry. Work with them to determine whether the business should be a sole proprietorship, a corporation or some other entity.
Sole proprietorships allow for faster tax preparation and have lower start-up costs, but they also make it harder to raise capital, they leave business owners personally liable and they have a much looser structure for financial controls. According to www.bizstats.com, more than 70 percent of businesses are structured in this way, leaving business owners exposed to a great deal of risk.
Often business owners will start their companies as sole proprietorships but convert them to corporations as they grow. The corporate structures often allow businesses to pay lower tax rates, they provide individuals? personal property with protection and they make it easier to raise money or sell the business. That doesn?t solve every potential problem for the individual. Banks often require business owners to sign personal guarantees, which would expose personal assets to collection upon defaulted loans.
It?s more costly and can be time-consuming, but for a growing business, experts still recommend incorporating as soon as possible. If you are making the conversion while your business is struggling, however, you should consult with an accountant to set up strict financial controls and an attorney with experience in turnaround businesses.
It?s important to remember that changing corporate status due to insolvency can create legal problems down the line. For example, liabilities incurred while operating as a sole proprietor likely will remain the responsibility of the business owner. Taking assets and placing them in the corporate structure doesn?t mean you won?t be responsible for the debts.
One frequent mistake business owners make is that as businesses start to struggle they begin to ignore ?corporate formality? by making loans back and forth between personal and company funds. Even if businesses are structured to protect personal assets, such mistakes can put the individual?s possessions at risk.
Another misstep is not having the discipline to separate personal and business spending. Businesses should keep separate financial records, accounting records, filing systems, bank accounts and often file separate tax returns if the business isn?t a sole proprietorship. Failure to maintain proper separation could put an individual?s assets at risk. Plus, as the business grows and the number of transactions increases, it becomes more difficult to untangle the records.
If problems arise, always remember to go back to the bankers, accountants and lawyers you have relationships with. They want to see businesses succeed and might see solutions entrepreneurs are missing because they are too close to the situation or have seen similar situations in the past.
CHECKLIST
? Have an attorney and a CPA help establish books, bank accounts, accounting records and other financial records ahead of time.
? As soon as you start having employees and have someone else handling your cash, set up controls to protect yourself and prevent employees from cheating the business.
? Maintain the separation between personal and business records.
If you choose to change business structure amidst financial struggles, consult with an accountant and an attorney experienced in dealing with turnaround situations.
? When banks make you sign personal guarantees to procure financing, your personal assets could still be collectible upon a defaulted loan.
As the name suggests, Owatonna-based Kamp Automation looks for customers with a process they’d like to automate. It could be a small, inconvenient, tiny part that people can’t assemble. It could be a high-volume product so needed that the customer can’t find enough labor to produce it in the necessary quantities. “We’ll work anywhere from medical device companies to the seed industry for corn and soybeans,” says Kent Patterson, co-founder, president and CEO. “We just jump all over wherever there is custom automation.” The company started in his garage. Patterson and his partners built a machine. The company started to grow to the point where now it has 48 employees — and had a bunch of people and stuff in different locations. “We went from a garage to a shop to a shop and just kept moving to new places and signing leases,” he says. “We got to a point where it’s like, OK, this is getting big enough and sustainable — we felt that we wanted to look for our own space.’”
