1. BROKERS CAN HELP
VET POTENTIAL BUYERS
AND BUSINESSES.
DOWN PAYMENT: Expect
topayasmuchas50%
ofcostforabusiness
worth$400,000.
VARIETYOFBUSINESSES
HAVE BEEN BOUGHT IN
ROCHESTER AREA.
REPEAT
BUSINESS:
Finda
businessthat
fostersrepeat
customers
BUYING A BUSINESS:It
cansavetime,moneyand
increasechancesforsuccess
overstartingfromscratch.
POTENTIAL:
Canyoutakean
existingbusiness
tothenextlevel,
orisitsgrowth
tappedout?
VALLEY OF
DEATH: About
80%ofnew
businessesshut
downwithin3-4
years.
MATT MCDERMOTT HAD A
BACKGROUND IN EMPLOYEE
BENEFITS BEFORE
PURCHASING TUX SHOP.
TIMELINE:
Dependingonthe
size,expectitto
takeaweekorup
tosixmonthsto
finalizeadeal.
RECORDKEEPING:
BUYERS TYPICALLY
WANT TO SEE3-5
YEARS OF FINANCIAL
RECORDS.
BE CAREFUL:
Lookinto
signinganon-
competeclause.
IT’S ABOUT
LOCATION: Perhaps
thegreatestvalueliesinthe
addressofasmallbusiness.
Chooselocationwisely.
MANY
BUSINESSES
FOR SALE ARE
MARKETED ON
THE INTERNET.
Democrat and Chronicle Sunday, February 2, 2014
Len LaCara Business Editor (585) 258-2416
llacara@democratandchronicle.com
Len LaCara
A promise made is a debt unpaid.
— Robert W. Service
The city of Rochester has published
its 2013 Comprehensive Annual Finan-
cial Report (CAFR). Monroe County will
publish its 2013 CAFR in the first half of
this year. The city’s report covers cer-
tain obligations due to City School Dis-
trict employees and retirees.
In light of the highly public Detroit
bankruptcy and its impact on pensions
and retiree health care, I took a deep
dive into the current city and 2012 coun-
ty CAFR to analyze the financial risk
that, in part, bought Detroit to file for
bankruptcy.
On a current basis, it appears Roch-
ester and Monroe County have done a
reasonably good job at balancing the
books, while maintaining some reserves,
through a difficult time. As you delve
deeper into the numbers, you see some
potential storm clouds that, if unad-
dressed, could have a crippling impact.
Specifically, the unfunded obligation to
provide health care and other post-
employment benefits to retirees.
Right now, the city is projecting it
needs $1.04 billion to cover the retiree
health care costs of current and retired
workers (the county’s tab is $629 mil-
lion). The current unfunded liability of
$482 million has grown every year since
2008, and by more than 10 percent in
each of the last two years.
To fully cover the $1.04 billion obliga-
tion, the city would need to contribute
17.8 percent of payroll vs. the current
6.7 percent on a pay-as-you-go basis.
Regrettably, the city and county are not
legally allowed to establish a fund for
these obligations.
As Kodak retirees learned, and a
federal judge in the Detroit bankruptcy
confirmed, these benefits are not guar-
anteed. They can be reduced or elim-
inated if the sponsor experiences fi-
nancial distress. In light of this, it seems
the city and county should develop and
communicate strategies to ensure these
obligations are fulfilled and don’t be-
come a millstone around the neck of
regional economic growth.
I’ll provide some guidance on where
to begin. There are only two ways to
address this obligation, and a blend of
each will likely be necessary.
First is to approach the state to pass
legislation that allows for funding of
these obligations, similar to New York
state pensions. Today, the city and coun-
ty are allowed to pay only yearly premi-
ums and can’t set aside what they have
identified as future costs. For the cur-
rent approach to work, tax and fee reve-
nue would have to increase annually at a
rate greater than health care costs. The
city is assuming a 9 percent increase in
health care this year, eventually de-
creasing and leveling off at 5 percent.
Pay-as-you-go won’t work for long.
The second strategy is to work with
covered employees and negotiate ways
to mitigate future costs.
A combination of each strategy —
funding and negotiating — is the most
practical. It will take people working
together through what could be thorny
issues.
So let’s get to work.
Unfunded retiree benefits represent storm clouds
PCBURKE61@gmail.com
Patrick
Burke
OUTSIDE INSIGHTS
ROCHESTERNEXT.COM
W
ant to be your own boss, but you
worry about the uncertainty? Not
exactly sure what to offer, how
you’ll turn a profit or where to
locate? Perhaps it’s time to consider buying
an existing business instead of starting from
scratch.
“We think that if you can buy a good business it’s
better than starting a business,” said John Cline, co-
owner of AMD Business Brokers in Rochester. “The
failure rate of buying a business and continuing that
is much less than it is with a startup. With startup
businesses, 80 percent of them are out of business af-
ter three or four years.”
Looknofurtherthanlocalretail,restaurants,bars,
businessservicesfirmsandmanufacturersthathave
been bought in recent years, according to a survey by
BizBuySell.com out earlier this week.
Some deals included:
» Buffalo-based Orville’s Home Appliances buy-
ing Netzman’s Appliance in Webster.
» Garber Automotive Group out of Michigan and
theWestHerrAutomotiveGroupofBuffalopurchas-
ing the local branches of the Holtz dealership. Also,
Bob Johnson Chevrolet recently bought two dealer-
ships owned by the Ideal Auto Group.
Acquiring an existing
shop a safer bet than
beginning from scratch
KEYTO BUYING
A BUSINESS
Changing of
hands
Some of the more notable
business transactions in
the Rochester area in
recent years.
» PAETEC Holding Corp.
was sold to Windstream
Corp. for $2.3 billion in
2011.
» Bausch + Lomb Inc. was
sold in May to Valeant
Pharmaceuticals Interna-
tional Inc. for $8.7 billion.
» Private equity firm Car-
lyle Group has a tentative
$4.15 billion deal with
Johnson & Johnson to
purchase Ortho-Clinical
Diagnostics. The company,
based in Raritan, N.J.,
employs close to 1,100 in
the Rochester area. The
sale could be finalized in
mid-2014.
» Grano Retail Holdings
closed its purchase of
Hickey Freeman in Octo-
ber. The price was not
disclosed.
» In 2009, KPS Capital
Partners forms North
American Breweries and
acquires the Genesee
Brewing Co., along with
Labatt USA and a license
for Seagram’s Escapes.
Bennett J. Loudon
Staff writer
GANNETT ILLUSTRATION BY JOANNE COUGHLIN WALSH
See KEYWORD, Page 5E
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