Nearly half of all small business owners are nearing or at retirement age, but only 15% have succession plans for their companies. The Baby Boomers own 2.34 million businesses that employ 24.7 million people, and have combined annual sales of $5.14 trillion, according to Project Equity, a San Francisco-based nonprofit.
“While it’s wonderful to think that family members will take over the business — this doesn’t always happen,” said Representative Nydia M. Velázquez (D-NY). “It is anticipated that many of these businesses will be bought by a rival, while others will be forced to close altogether, leaving empty Main Streets and hard-hit local economies.”
The U.S. House of Representatives recently passed the bipartisan Main Street Employee Ownership Act of 2018, which makes it easier for small business owners to hand over the keys to employees. The legislation now has been referred to the U.S. Senate Committee on Small Business and Entrepreneurship.
Senator Kirsten Gillibrand (D-NY) is cosponsoring the bill along with several Republican senators. She said it would “improve access to capital and technical assistance to transition small businesses to employee ownership and save thousands of small companies and jobs.” If enacted, the Small Business Administration would help facilitate employee ownership through new lending guidelines and expertise.
The most common structure for employees to own a business is the employee stock ownership plan (ESOP). “… it is a trust set up by a company that can borrow money to buy worker ownership; the company pays back the loan and pledges the company as collateral for the loan,” said Joseph Blasi, a professor at Rutgers University in New Brunswick, N.J. “The workers are then able to get employee ownership by using credit and not using their wages or savings.”
Currently, there are 6,669 ESOP-owned companies with more than 10.8 million employee-owners and total assets of nearly $1.3 trillion, according to the National Center on Employee Ownership, a nonprofit located in Oakland, Calif.
Owner Eric Henry of TS Designs in Burlington, N.C., wants to convert his screen-printing business to employee-owned before he retires. “We’re not a publicly traded company; we’re a small business,” said Henry. “Those businesses that are tough to sell, you shut the power button off.”
Entrepreneurs interested in exploring selling their small business to the employees don’t need to wait to see if the Senate passes the Main Street Employer Ownership Act. Both Project Equity and National Center on Employee Ownership offer resources including webinars, articles, videos, and even free consultations to help owners learn more.