How some Twin Cities entrepreneurs sold the businesses they built

When Michael and Stephanie Wright began to consider retirement and the process of handing over their 24-year-old business, Golden Thyme Coffee & Cafe on St. Paul’s Selby Avenue, his sale to a land trust was off the radar.

“I asked Michael to really consider and work with the Rondo Community Land Trust to not only preserve the legacy of the business, but to turn it into something that can be owned by the community at the same time,” said Micahia Griffin, executive director of Rondo Community Land Trust.

After a year and a half of talks, the parties agreed on a sale. The Rondo Community Land Trust — created 30 years ago to help preserve and create affordable housing in St. Paul — will buy the cafe and implement a cooperative ownership model with Wright called Golden Thyme Presents. It will act as an incubator for restaurateurs and food vendors who are black, indigenous or other people of color.

Whether through shared ownership, a competitor wanting more market share, or a larger company’s plan to grow through acquisition, there are many ways to sell your startup or small business. Twin Cities entrepreneurs who have sold their businesses said there’s a lot more to navigating a deal than shaking hands and signing your name on the dotted line. Here are their tips for taking your venture to its next phase:

When and who

Wright said he believes the sale of his cafe to the organization will lead to a resurgence of black-owned businesses on Selby Avenue.

“I feel this is a way to empower aspiring entrepreneurs who may not have the funds to be able to be part of the business owners [a chance]” he said. “I thought that was so intriguing. I would like to see all of our people have that opportunity.”

Whether it is a worker-owned cooperative, an employee ownership plan or an employee ownership trust, “in times of crisis, but also when economies are in periods of growth, shared ownership is a tested and proven model that can to take communities further together,” said Electra Skrzydlewski, Director of the Shared Ownership Program at the Metropolitan Consortium of Community Developers (MCCD). The program supports traditional sole proprietorships and partnership ownership structures with a shared ownership model in mind.

In Minnesota, not many business owners of retirement age have an exit strategy or succession plan. The state has 53,000 baby boomer-owned small businesses, of which 85 percent have no succession plan, according to research by the Minnesota Center for Employee Ownership and Project Equity. In addition to MCCD, University of Minnesota Extension conducts online business succession and transition courses.

For other owners who are nowhere near the natural stopping point of retirement, it’s just a matter of time.

Jackson Lefebvre started his commercial parking company as a university student five years ago, but the responsibilities became too much for a one-man operator as he grew ParkPoolr to 60 parking spaces in 20 states.

Lefebvre noticed a growing trend of consolidation taking place in the parking lot management industry and decided to look for a buyer. Using his connections with Parking Management Co. executives. ( PMC ) — a Nashville-based parking services provider — it initiated a seven-figure deal and sold its commercial parking startup in October.

He decided not to hire a broker to help him arrange the deal, especially since he was told it would cost $300,000 for the service. But he had a lawyer review the legal documents and letter of intent from PMC.

“I said to myself, ‘I can do this myself because I already know most of the people in the parking industry,'” said Lefebvre, who now works as a manager at PMC. “As long as you put in the time and effort, it was worth it to do it myself and start those conversations and gauge the interest.”

Starting negotiations to sell your business is difficult, experts said. Excessively signaling that it’s for sale can be a red flag to potential buyers. If an owner wants to test the waters with a few comments here and there, you should do it discreetly. Asking your banker to solicit offers or gauge market interest is also an option.

“If you can show your value and understand that you’re solving a problem for the acquirer and you’re able to articulate that, it’s good to have those conversations,” said Cale Johnston, who in 2021 sold his Minneapolis-based financial technology company ClickSwitch to Q2 Holdings Inc.

Agree to the terms

E. Koko, deputy director of the Rondo Community Land Trust, advocated for clarity on both sides of the negotiations so that everyone knows what each is getting from the sale.

With Golden Thyme, “there was a consensus about what the business should continue to do and provide in the community,” Coco said. “It’s not going to be the same for every business.”

For some businesses, it’s an all-cash deal or getting equity in the acquiring company. For others, the buyer pays a certain amount up front with an agreement for residual payments based on reaching financial milestones in subsequent years.

Founded in 2014, Johnston has developed technology that provides an easier way for banks to sign up new customers. Q2 Holdings previously offered to buy his company in 2016, but ClickSwitch wasn’t ready, Johnston said. Q2 then backed out of the deal, but revisited the idea in November 2020.

When Q2 Holdings offered a second time, the term sheet was half cash, half stock in Q2, Johnston said. He presented the deal to his board of directors and decided it should be a cash sale, and Q2 Holdings agreed.

A fundamental mistake owners make is overestimating future earnings or inflating the company’s value, said Twin Cities entrepreneur Andre L’Heureux, who has worked on eight acquisitions over the past two decades, including the sale of the companies from Twin Cities ProVation Medical and Carrot Health. Acquiring companies will keep owners on those projections, he said, especially if the deal is tied to residual payments to you.

If a company relies too heavily on a single customer or contract — or if the majority of contracts aren’t multi-year — even if earnings look promising, that business isn’t as valuable as someone would think a buyer would think, L’Heureux said.

“The market is worth what someone is willing to pay for it,” he said. “It’s not what you think it’s worth.”

Patience is a virtue

When he signed the second term sheet with Q2 Holdings, Johnston was under the impression that the deal would close soon after.

He was wrong.

“The deal almost fell apart six or seven times between signing the contract,” he said.

Not much experience can prepare owners for the amount of work required during the inspection period between the initial offer and closing. However, having some preparation can speed up the process.

Leading up to the sale, the owners must be able to provide detailed financial records and legal documentation for the incorporation of the business. They also need to make sure customer and client contracts are signed and up to date. The same goes for rent, lease or loan payments to landlords or banks, experts said.

When L’Heureux and his partners sold Carrot Health, because their filing system was in excellent shape, the vetting process was quick and easy, he said.

Owners should consider doing their own due diligence, L’Heureux said, to make sure the acquiring company is financially sound and will keep what you’ve spent years building.

While the process of selling a business brings validation, euphoria and sometimes even a little bitterness, owners can’t afford to take their foot off the gas “just because someone is interested in your company,” Johnston said.

“You still have a business to run,” he said. “If the deal falls apart, you still have a company.”

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