1) The city of Allegan, Michigan used some of its community development block grant funds to provide technical assistance to locally owned businesses to help with succession planning so owners could transfer their businesses to family members or sell to new owners. 2) This included confidentiality agreements and mentoring groups to discuss private business matters. It also involved matching potential buyers and sellers, securing financing, and providing support during business transitions. 3) One example described how the city loaned funds along with a bank and business seller to help an employee purchase and expand a shoe store, keeping it locally owned and downtown. The program showed how governments can play a role in business retention.

1. Vol. 56, No. 8 April 15, 2009
Business Recruitment & Retention ment Block Grant funds to help a
handful of family-owned business-
How downtown, city, and banks can work together es on the main commercial street,
to retain locally owned and operated businesses where “the principal owners, the
mom and dad, wanted means to
Few downtowns invest the development at Purdue North Cen- involve the son and daughter, or to
effort and resources in business tral Graduate School of Business, sell out the business completely,”
retention that they do in their was retained to serve as the com- he says.
recruitment efforts. munity and economic development “We tried to do succession
In particular, a lack of succes- coordinator by the City of Allegan, planning, as you would with a
sion planning on the part of small MI (pop. 4,840). farmer who wishes to transfer his
businesses has always been a The city decided to spend farm to the sons and daughters.
problem that little to nothing is some of its Community Develop- We tried to engage in some of that
done about. Too often, the small,
“mom and pop” businesses that
make downtowns special sell out Confidentiality agreements can ease tension in talking
or shut down because the propri-
Confidentiality issues can be a significant concern for small businesses
etors don’t have children who
that downtown would like to help with succession planning, so the City of
want to take over.
Allegan, MI, implemented a confidentiality statement as part of its program.
Consultants frequently cite
this problem as a particularly wor- “Once we formed a mentoring group, we had a confidentiality statement
risome one to the smallest down- signed by everyone in the group. What that did was it assured both the busi-
towns, where the loss of even one ness seller and the buyer that the advisors wouldn’t disclose this informa-
great small business with a loyal tion throughout the community,” says Charles Eckenstahler, adjunct
customer base can have an unfor- professor of economic development at Purdue North Central Graduate
tunate impact on everything from School of Business, and former community and economic development
intangibles like character and coordinator for the city.
ambience to the measurable things There was only one city council member in the mentoring group, and the
such as foot traffic and spillover
city agreed that that would be the only person in city government that would
business. But how can downtown
be privy to the private information being shared in the technical assistance
organizations address this issue?
program.
Take action to prevent the
reactive role. While working as a “You’ve got to have good personalities and a very high degree of trust in
municipal planning consultant in order to make a mentorship program work with a minimum amount of hic-
the 1990s, Charles Eckenstahler, cups,” Eckenstahler says.
adjunct professor of economic
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2. type of thinking with the business
owners. And we found that that Why matching business buyers and sellers is not easy
was something that wasn’t really Selling a small business is quite different from selling a commercial prop-
on their radar screen at all.” erty, in that, “you’re trying to sell an income stream, based on a market and
Though unusual and challeng- that individual’s ability to extract sales from that market,” says Charles Ecken-
ing, the initiative was fruitful. In stahler, adjunct professor of economic development at Purdue North Central
one example, creative financing
Graduate School of Business
and input from downtown stake-
holders helped keep the locally “The biggest question that you always run into in that situation is, ‘Does
owned and operated shoe store the purchaser of the business have the skill sets necessary to replicate the
downtown. success that the prior owner had in the market?’” he says.
Unfortunately, there’s no Multiple Listing Service for small businesses
How assistance can work
we’re aware of to make matchmaking buyers and sellers any easier.
Dennis Sturgis operated
McClelland’s shoe store full-time “In West Michigan, most of the time when a small businessperson
for over six years. He also served decides to sell his or her business, it’s listed with one of the local commercial
on the board of the Allegan Down- realtors. There are five or six that over the last 10 years have begun to spe-
town Development Authority. By cialize in the brokerage of small-town, commercial businesses. I think those
1993, he decided to adjust his people are filling a hole in the marketplace. They seem to have as part of their
lifestyle in part by spending less larger real estate brokerage operations an affinity for small-town businesses,
time in the business, and so hired a and have filled the void that we were exploring about 10 years ago,” in trying
full-time manager for the store. to work with the state associations of retailers and realtors on a MLS-type
As a downtown advocate, service for businesses.
Sturgis did not want to close the
business district’s only shoe store.
But to meet his retirement sched- business and expansion of invento- team to help through a two-year
ule, he would have to either con- ry and product lines. transition period.
duct a closeout sale after the 1994 The buyer and seller met with
back-to-school and holiday shop- a local bank, which offered the A good risk for towns to take on
ping period, or sell the business to buyer $30,000 in financing, sub- The succession planning assis-
his trusted store manager, his pre- ject to the participation of the tance “worked pretty well in that
ferred strategy. city’s revolving loan fund in the application. And I think the princi-
amount of $20,000, and a match- pals that were established then are
City loan makes the numbers add ing $20,000 loan from the busi- probably even more apropos today
up for a bank loan ness seller. than they were 15 years ago,” Eck-
Through the sale of the busi- “The participation of the enstahler says.
ness to his employee, Sturgis could city was necessary to assist Old Among the biggest lessons
keep the store building, lease it to Kent Bank in feeling comfortable learned: “that it was okay for us in
a tenant he knew, and contribute to with the loan,” Sturgis said at the the government sector to take an
the success and growth of down- time. aggressive initiative to go out and
town. After months of discussion Local businessmen volun- find those opportunities. It was a
and planning, Sturgis and the store teered their time to help work legitimate role of the downtown
manager, Michael Triemstra, through the succession plan development authority’s processes
approached the city to help finalize and help implement it. The city and procedures, and it was a prop-
a financial structure allowing the directed the store manager and er thing to use government money
latter to purchase the business and buyer to an attorney, tax accoun- to help that transition,” he says.
inventory. The business plan called tant, insurance agent, and a “We recognized that it was
for an $80,000 purchase of the banker, who became his mentoring obviously risk money,” he says,
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3. but if taking risk in providing gov- encouragement, and use of techni- the business in the same fashion?’
ernment incentives to new busi- cal assistance, was as important to That’s what any good small busi-
ness ventures was an accepted us as trying to find a new occu- ness succession planning should
standard operating procedure for pant for the vacant store and help address.
economic development, why set up the business.” “I think that’s even more
shouldn’t taking risk be accept- Should more downtowns have important today, because there’s
able for helping a downtown’s succession planning as an action more complexity and competition.
established and proven business- item on their annual work plans? And the downturn in the econo-
es? “I think they should,” Eckenstahler my’s not making it any easier. It’s
“It was okay to do that to keep says. “If I were a business district really challenging all of the skills
an existing business from closing or DDA manager, and concerned that somebody has gained through
its doors. Because the only alterna- particularly today with what the the years of operating that busi-
tive that most likely would have future looks like, I would be, on an ness. So there’s a heightened need
occurred is that the business would annual basis, doing a retention to make sure that, if we are faced
have been put up for sale. And visit to each business.” with the potential closure of a
then it probably would have Key questions he would ask business, that we have a succession
decreased in sales to the point include: What are your plans for plan first within that business, to
where if somebody didn’t buy it in the future and succession? When retain that business on our main
relatively short order, the owner do you anticipate getting out of the street. And then also a plan B, in
would just do a going-out-of-busi- business? Are your kids interested case that business can no longer be
ness sale and close it up at the in it? Do you have somebody operated by its current owner, that
time that the lease on the building inside the current business opera- we facilitate hopefully a transac-
ended.” tion that would take it over? tion that keeps that business in
“What we found was that as “Then also ask the questions, operation under new management.”
part of a business retention, the particularly as people get older, Contact: Charles Eckenstahler, Purdue
use of some type of government ‘What happens if you get ill, and University-North Central, (219) 879-
subsidy and the provision, you’re no longer able to manage 1012, pctecken@comcast.net. DIX
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