The American dream has hit an ownership speed bump… The small business owner who built his company over 30+ years wants to retire, but employees are not able to raise the capital to buy the business. Too often, this ends in businesses closing, workers losing jobs and communities losing both.
This process has accelerated during COVID-19 as business owners are retiring earlier. About 40 percent of the country’s small businesses are owned by people age 55 and over, but only 20 percent of commercial business listings actually sell, according to a recent Cincinnati Business Courier article.
The new Business Legacy Fund is working to change all that, by enabling employees to come together as a group to buy a business. It’s called an employee stock ownership plan (ESOP) and it’s something that Intrust IT knows a lot about.
The Road To Employee Ownership
CEO Tim Rettig helped Intrust IT employees buy the company through an employee stock ownership plan in 2019. His father did the same thing with a software company that he owned, so Tim has been a lifelong believer in ESOPs. So much so that he’s been trying to acquire other companies to do the same thing—transition them to being employee-owned. The first acquisition was Staffanation, a leading staffing agency in Cincinnati with 140 employees. But the process is far from easy.
“I had to go to banks. I had to go to business brokers to try to buy companies,” said Rettig, adding that many were confused by his idea.
Employee stock ownership plans allow employees to gradually earn their ownership. Unlike a law firm, where the partners are the only owners, every employee can share in the wealth.
“They’re earning the company through their wages or their work. It helps with income inequality. You don’t have the haves and haves not,” Rettig added.
How The Business Legacy Fund Will Help
The goal is simple: to make it easier for employees to raise the money needed to create an ESOP. One local and one national cooperative group recently announced a $3 million fund to do just that.
The fund helps employees acquire the companies they work for as those firms’ owners look toward retirement. Co-op Cincy and Seed Commons, a national cooperative group, a 501(c)(3) community development financial institution, have provided the first $3 million for the Business Legacy Fund, which will help employees finance worker ownership of businesses.
“We’re facing an extraordinary crisis,” said Brendan Martin, co-director of Seed Commons national cooperative. “This is one of the greatest challenges of our generation. If we rise to it, there’s opportunities. We can rebuild with new energy and new possibilities.”
The $3 million is expected to leverage additional money and investment. A portion of it will be used to help employees acquire their company, along with equity they provide, traditional debt and seller debt.
Apply Soon: Initial Deadline November 14
The initial deadline to apply is Nov. 14. Employee groups can get about $20,000 of technical assistance initially to assess the value of the companies and other help. The program is not looking for companies in any specific industry, but is intended to help local businesses continue growing roots in this region. How many employee groups will be helped depends on the size of the companies.
There are 30 similar loan funds with various groups across the United States.
For more information or to apply, visit BecomeWorkerOwned.org.