Keeping Rural Businesses Open

May 17, 2019  | 6 min  | Ep4439

Whether it is a Fortune 500 company or an office employing five people – succession planning to the next operator is key to the business surviving the transition.

A program in the Heartland is aimed at matching owners seeking an end and those looking for an opportunity to hang out their shingle.  

Peter Tubbs reports in our Cover Story.

Fifty pound bags of pig feed are filled at Valley Feed and Supply in Bonner Springs, Kansas. The business had been owned by the Stubbs family for 90 years but was sold in 2018. New owner Matt Laipple wanted to his farming and engineering experience in an agricultural business, but wanted to avoid the risks of starting a business from scratch.
 
Matt Laipple, Owner, Valley Feed and Supply: “The good thing about that is, you know, if it's a successful business, you're not reinventing the wheel. It's already there. You just have to do to continue to keep that wheel turning.”
The transaction was assisted by RedTire, a project managed by the Business School at the University of Kansas. 
 
Wally Meyer, Director of Entrepreneurship Programs, University of Kansas: ”RedTire is the link between retiring business owners or those who want to exit their business and those who are qualified and capable of taking over the business with a benefit to the community of retaining the essential services of the community, which is key to retaining quality of life in that community.”
 
The loss of businesses like medical practices, ag related businesses, and light manufacturing, can be debilitating to the viability of rural towns.
RedTire facilitates the purchase of companies by a new owner, often an experienced professional looking to be their own boss and control their economic future. One challenge for businesses looking to sell is arriving at a fair valuation of their business. 
 
Denton Zeeman, RedTire Program Manager, University of Kansas: “we can build out a range of value for our valuations. And we, because we're working with both buyer and seller, we don't like to produce a valuation that is called the conclusion of value or a price point valuation. Instead we give a range of value to help with negotiation between buyer and seller basically.” 
The negotiation also includes a transition period where the seller works with the buyer for a designated period of time to transfer the knowledge of how the business works. This transition period dramatically improves the odds of success for the new owner. 
 
Wally Meyer, Director of Entrepreneurship Programs, University of Kansas: Businesses fail during a transition, most commonly because customers get forgotten or the process gets manipulated in a way that is not appropriate for the business. And so it's the handoff period between the seller exiting the
business and the buyer taking over the business, where businesses tend to fail.” 
 
RedTire has completed 60 transfers since its start in 2012. All 60 are still in operation.
Dr. Deedra Truschinger bought a dental practice in Auburn, Kansas in 2017. The retiring dentist spent more than a year on staff introducing her to patients and teaching how the practice operated. Now on her own, Dr. Truschinger has seen her patient list increase enough to require the remodeling of a century- old bank building as a new, larger office. But the financial side of her business was the intimidating part of the purchase.
 
Dr. Deedra Truschinger, DDS, owner, Auburn Dental Clinic: “I did not do a whole lot of research and I think that's a testament to how awesome RedTire is because they did so much research for me and provided so much data, I didn't feel the need to go outside and get five different appraisals on what this practice was worth. They were working both sides very honestly and just trying to make a good, a realistic picture of what the value of the practice was.” 
 
Wally Meyer, Director of Entrepreneurship Programs, University of Kansas: “For many of our participating companies, 175 of them,  they need to get themselves to the psychological and emotional point that they're able to walk away from the business and something that they have devoted a 20 or 25 or 30 years of their life to, now all of a sudden they're going to turn over a or the relationships with their customers and of course the machinations of running their own business to somebody else. So having that emotional security to be able to do that, being at the right time of life, to be able to make that transition, that’s really important.”
 
For Neal Stubbs, finding a buyer with the financial ability to buy the feed mill was only half of the equation. An understanding of the work was an even bigger hurdle.
 
Neal Stubbs, former owner, Valley Feed and Supply: “He seemed to know, he definitely has an interest in agriculture. He seemed to to understand, um, the type of work we do here better than a lot of people do. And uh, being a farmer himself, you know, he's familiar with heavy equipment, which is kind of what our mill out here is.”
 
The business at Valley Feed & Supply has evolved over the last 20 years. Situated in the corridor between Kansas City and Topeka, the demand for hog and cattle feed has declined as sales of horse and chicken feed has risen. 
It is also the type of business that is well suited for the RedTire program: a sole proprietorship with good cash flow and a track record of turning a profit. RedTire estimates there a 10,000 businesses of this size in Kansas and Missouri alone whose owners are nearing retirement and lack a succession plan.
Much of the work of finding the valuation range of the businesses looking for new owners is done by students in the Business program at KU. Their salaries are paid by a grant from the U.S. Economic Development Administration, and allows RedTire to be a free service to both buyer and seller. RedTire also provides a level of transparency for the buyer that is uncommon in a typical broker-driven transaction. 
That transparency helps smooth the sale from one owner to the next, keeping a rural business going that otherwise would have closed.
 
Neal Stubbs, former owner, Valley Feed and Supply: “It was in our family for 95 years, so it was not the time I wanted to drop the ball. We did everything we could, you know, to make sure everything went smoothly. I think it did.”
 
For Market to Market, I’m Peter Tubbs.

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