Controlling Traffic: Long-Term Employee Becomes the New Business Owner

jrk flaggersJudith Brown founded JRK Enterprises, Inc., in 1993. The company, a certified Women’s Business Enterprise/Disadvantaged Business Enterprise (WBE/DBE) firm, offered construction flagging services throughout central Pennsylvania. Ms. Brown built a robust company with a history of stable revenues and positive net income. There was little turnover in her staff of almost 100 employees due to very competitive wages and a respectful work environment. By early 2015, Ms. Brown decided she wanted to sell the business and retire.
Ms. Brown wanted to find the right buyer. The management team—some of whom had been with the company since shortly after its founding—needed a strong leader. After hiring a specialist to perform a valuation of the company, Ms. Brown presented Shannon Snare with the opportunity to purchase the business. Shannon, an 18-year employee, had worked in the office and in the field, and posssessed the skills and experience needed to successfully manage the business.

This project presented some challenges for a lender. The business has seasonal revenues tied to road construction, which starts in March and ends in early November. Further, it could take upwards of 60 to 90 days before receiving payment for services provided. In addition to the term loan needed to purchase the business, Shannon would need a significant working capital line of credit.

Shannon was referred to the Penn State SBDC in February 2015 by a lender. The SBDC assisted with editing and refining her business plan, and preparing financial projections for the project. After careful consideration, that lender denied the loan request. With Shannon’s permission, her SBDC business consultant reached out to a commercial lender to discuss the project. The business consultant knew this lender would not be able to fund the project, considering the size of the loan and her institution’s lending limits, but could offer guidance on how to structure the deal and identify which banks would be most likely to fund the project.

Shannon met with two banks suggested by the lender. Over the next year, the SBDC business consultant helped her work through several revisions of her business plan, as well as updated the financial projections for the project. Finally, in May 2016 one of the lenders approved a term loan with an SBA guarantee as well as a working capital line of credit, which would allow Shannon to purchase all assets of the company, including equipment, real estate, and intangibles, and have sufficient working capital. To align with the seasonality of revenues, transfer of ownership occurred on March 3, 2017. With her WBE/DBE certification, Shannon will build on the company’s long-standing tradition of growth, strong profits, quality and reliable service, and high employee satisfaction and corresponding low turnover.