TOWER- Bois Forte leaders are asking Band members to weigh in with their opinions on investing approximately $4 million in a new business venture without telling them what the business is, using …
TOWER- Bois Forte leaders are asking Band members to weigh in with their opinions on investing approximately $4 million in a new business venture without telling them what the business is, using financial information that appears to have left out approximately $130,000 in payroll expenses.
At a public meeting at Fortune Bay and on Zoom on Monday, tribal chairwoman Cathy Chavers deflected direct questions about what the business actually entails because of a nondisclosure agreement between the tribal council and the seller.
“We can’t really give you the business details on that due to the confidentiality agreement,” Chavers said. “What you have in front of you is what you need to make the decision based on. It’s the data. That’s something we had that the owner strictly adhered to that we can’t discuss that.”
But numerous attendees pushed back, saying that it would be hard to provide an opinion without knowing what the business actually is.
“it’s going to be hard to decide without really knowing the full extent of what the product is, and the volatility or lack of it,” one member said. “I think we need some more information about the possibilities of the way things go with this.”
“It’s pretty hard to give you guys our point of view with such little detail,” another said. “You’re asking us to invest our future, invest our money, $4 million dollars is a lot of money. And with such little detail about the business it’s going to be hard for us to give you our standpoint on it. We can’t research it, we can’t look it up. Is this a gamble? Especially with the pandemic that we just went through here, COVID, we’ve seen a lot of small businesses in this area closed down.”
The data Chavers referred to was a packet containing an executive summary of the proposed business purchase with 28 months of projected revenues, five years of an amortization schedule for an estimated $4,075,000 20-year loan, and detailed financial reports for income, monthly balances, cash flow, and break-even analysis. Fortune Bay General Manager Jenna Lehti worked with the Small Business Development Center to develop the financials and created the executive summary.
Together with additional details provided in answers to questions, the following profile emerged:
• The business, valued between $3.8 and $5.8 million, has multiple locations in northeast Minnesota, but the exact number and cities where they are based were not disclosed.
• Five buildings would be included in the acquisition, although they were not described as business locations.
• The business employs six full-time and six part-time workers. Chavers indicated that management staff would stay on for up to five years or longer and did not know how long current part-time staff would stay. Jobs could be available for interested Band members, although Chavers said she was unaware of any current members with management qualification for this particular kind of business. She said the band would look to provide the necessary training for promising candidates, facilitated by the continuing staff.
• Products sold by the business are “something that everybody needs at some point,” Chavers said. The business has a favorable potential market index of 107, and there will be ongoing demand for its products and services.
• The business has competitors, including larger competitors in larger cities, but none close to it, Chavers said.
The owners are selling the business because they wish to retire, Chavers said, and they approached the Band with the idea of buying the business.
“The business approached the tribe,” Chavers said. “They wanted to offer it to the tribe first before opening it up to other members, because they see the tribe spending a lot of money in other areas where they could invest it in themselves if they purchase this business.”
Chavers and Lenti both reinforced that the Bois Forte tribal government buys almost $200,000 of this business’s products annually.
“If we purchase this business, if and that’s up to the Band membership, all Bois Forte reservation tribal programs and businesses would have to utilize these businesses,” Chavers said. “So, basically what we’re doing is we’re paying ourselves for our goods.”
If the Band took over the business in September, projected net income before taxes for the final four months of the year is $78,651, according to the executive summary. Net income in the first full year of operation, called Year 2, would be $275,885. For Year 3, the executive summary reported calendar year net income of $448,278, a 62-percent increase over Year 2.
Those Year 3 projections, however, may be overly optimistic. A review of the business plan by the Timberjay, obtained from the Band’s website on Tuesday, indicated that payroll costs of approximately $120,000 may have inadvertently been omitted from the expense portion of the plan. That also reduced projected payroll taxes by nearly $15,000. Combined, the omissions may have padded the Year 3 profitability by approximately $135,000.
The Timberjay sent an email to Chavers inquiring about the possible oversight and inviting her to respond. The Timberjay did not hear back prior to presstime.
Who will decide?
Throughout the early part of the meeting, Chavers repeatedly said the purchase decision would rest with Band members.
“We’re not making the decision, it’s up to the Band membership,” Chavers said.
However, when asked later on what sort of response she hoped to get to the proposal, Chavers noted the traditionally low turnout for tribal elections and gave a qualified response as to how low feedback would affect her decision.
“This is just me talking, I’m not talking for the rest of the (tribal council), but if there’s not enough, like say, if 20 people respond, that’s not appropriate,” she said. “It would have to be a larger number for me.”
In response to a question about how other tribal council members viewed the proposal, Shane Drift was the first to respond, acknowledging the difficulty of Band members making a decision based on limited information.
“I’m kind of for it, and I’m kind of against it,” Drift said. “If Band members tell me to vote no, I’ll vote no.”
Council member Travis Morrison said he liked the idea of the business but would respond to the feedback from Band members.
“I’m willing to walk away from it,” Morrison said. “I’m on the bubble. I’m leaving it in your guys’s hands.”
Council member Peter Boney said he was in favor of the purchase.
“I truly believe in my heart that for us to move ahead as a Band we need assets, we need businesses,” Boney said. “I think it’s a win/win. I think it’s a good deal. I think we’re going to benefit quite a bit from this, not only financially, but we’re going to benefit by being neighborly.”
Council member David Morrison also spoke favorably about the proposal.
“I’m really looking forward to moving ahead with this business,” he said. “I know it’s a hard decision for you to give us because we can’t divulge what kind of business (it is). But again, you know, we have to keep trying, we can’t sit back and let the world go by us. I see some little ones in here – that’s who is going to benefit down the line. I’m in favor of this business venture.”
Band members have until 4 p.m. on Monday, Aug. 9 to submit their comments for consideration.
While tribal leaders stayed true to their nondisclosure agreement, their business plan’s executive summary may have provided a clue as to the nature of the business under consideration.
The summary includes the following statement: This “industry includes about 21,000 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $190 billion.”
A Google search by the Timberjay quickly revealed that the quoted text appears to have been taken verbatim from a Dun and Bradstreet profile page for the home center and hardware industry. Several other industries had similar numbers of establishments, but the home center and hardware store industry is the only one that also included $190 billion in revenues.