There is a vacant storefront up Main Street from our office in downtown Elkin. The retail store was a staple on Main Street for many years. It closed when the owner retired. We’re hearing this same scenario played out in communities across our market area whether a Main Street business or locally owned manufacturing company. With 10,000 baby boomers retiring every day, businesses are vulnerable to closure and acquisition. In rural communities, it could take years to replace a closed business. Even if the business doesn’t close, it could be sold to out-of-area owners who may not maintain a strong community partnership. Incorporating succession planning into your BRE program could help keep a local business open.
Add to your BRE list of questions: What is your succession plan? If it is apparent that owner’s kids are not in line to run the family business, put the company on your “at-risk” list. During the BRE visit, be prepared to offer resources to help locally owned businesses with succession planning. It could take years to prepare a business for a smooth transition. The time it consumes, and not knowing where to start, is what often keeps owners from planning. Some resources in NC (similar ones are in VA and SC):
- NC State University Industry Expansion Solutions (the Manufacturing Extension Partnership in NC) provides succession planning services such as customized planning to deal with impacts on external resources, asset protection, successor selection, governance issues, family issues and planning.
- Small Business Centers and the Small Business and Technology Development Center in NC can make connections to succession planning consultants and agencies. The Small Business Development Centers in VA and SC provide similar assistance.
Recently, Patrick McHugh from the NC Justice Center gave a compelling presentation at the NCEDA Annual Conference about ESOPs – employee stock ownership plans. This is a great way to transfer ownership locally in a business. Employees build wealth in a trust account based on value of the company and paid out upon exit from the company. There are roughly 6,700 ESOPs in US. He also talked about worker cooperatives and perpetual trusts. These options keep wealth local and provide better benefits to employees. Some examples of employee owned companies are: Mast General Store and New Belgium Brewing.
- Overview Resources
- Down Home Capital: Research on the potential for creating new employee owned companies in North Carolina.
- Homegrown Legacies: Resources on employee ownership focused on North Carolina
- Becoming Employee Owned: Clearinghouse of news, case studies, and guidance on evaluating companies’ fit for an employee buyout.
- Employee Ownership and Economic Wellbeing: Research on the wealth, wage, and employment benefits of employee ownership.
- Types of Employee Ownership: Side-by-side comparison of employee ownership structures, with considerations about which structure fits different types of companies
- Selected ESOP Resources
- National Center for Employee Ownership: Leading provider of educational resources on the nitty-gritty of establishing and operating ESOPs
- How an ESOP Works: Brief overview of the ESOP structure, tax benefits, and considerations for setting them up.
- Steps to Setting up an ESOP: Overview of the process for establishing an ESOP.
- Selected Worker Cooperative Resources
- What is a Worker Owned Cooperative: Brief history and definition of worker cooperatives in the United States.
- Industrial Commons: Non-profit in Western North Carolina providing guidance and technical assistance for companies looking to become worker cooperatives.
- Cooperative Home Care Associates: Largest worker cooperative in the United States.
Some other ideas to support succession planning as a BRE tool:
- Business owners are sometimes wary of hiring consultants to help them sell their business. You could keep a list of businesses that will be for sale upon owner retirement and pass along the opportunities to people that come into the Small Business Center who say they want to start a business but need an idea.
- Connect business owners interested in selling to their employees with the North Carolina Small Business Technology Center network (or similar in SC and VA). The network already possesses many of the technical skills needed to assist companies considering an employee buyout and is actively expanding its capacity to support these transactions. Companies in Western North Carolina that are considering conversion to a worker cooperative should connect with The Industrial Commons (link above).
- We’ve had the idea of match-making millennials who want to own a business with retiring baby boomers. The millennial can “apprentice” to learn the business, become more bankable with the experience, and eventually buy out the baby boomer. We’d love to see a statewide database of businesses for sale and young people who want to be entrepreneurs.
- Another idea is to maintain a list of local serial entrepreneurs who are interested in buying businesses from retiring boomers. They could be the financial backer to an active manager and offer innovations to take the business to a higher level.
A traditional BRE strategy is to monitor “at risk” companies. Typically, we think of at-risk as expiring leases, land-locked, and out-of-date technologies. Add ‘no succession’ plan to your list of risks. Develop a set of support programs that your EDO can offer owners who plan to retire but have no retirement plan. The silver tsunami will not only affect the workforce, it will affect business ownership in your community.
If you have ideas on how to help existing businesses with succession planning, let us know. We’re building a list of ideas and resources. Click here to email us.