It’s no secret that the last few years have been hard on small businesses. In mid-April 2020, 30 percent of small businesses were forced to close. While many of those closures were temporary, owners are still navigating pandemic-related challenges, including depleted cash reserves, inflation, issues with hiring, and employee retention.
We know of one solution that can help owners rebound from the pandemic and emerge stronger than ever: employee ownership.
Employee ownership, or EO, is a powerful business model that functions as a worker-owned cooperative. Employee ownership unlocks countless opportunities to take your business, your employees, and your community to the next level. Businesses that have transitioned to EO grow faster than traditional businesses, have employees who are more satisfied, and help their communities retain local businesses. With an EO model, employees have an equity stake in the business. The employees are full or part owners of the business.
In the United States, nearly 7,000 businesses operate under some type of broad-based employee ownership. There are three broad-based models of EO: Employee Stock Ownership Plans (ESOPs), Worker-Owned Cooperatives, and Employee Ownership Trusts (EOTs). Each has a unique set of considerations and benefits so you can find a model that best fits your business’ needs. EO works particularly well for small businesses and is a great option for owners without a sibling or child to take over the business.
Take the story of Eileen Michaels, owner of the Massachusetts-based business, A Yard & A Half Landscaping. Over the course of 25 years, Eileen had grown her company into one of the top-performing landscaping design, build, and maintenance firms in the country. By 2013, A Yard & A Half was in the top 15% of American landscaping companies and the top 3% of all women-owned businesses in the country based on annual sales.
Many attributed A Yard & A Half’s success to Eileen’s management style. As an owner, Eileen invested in her workers, operating with open books, shared profits, and utilized joint decision-making.
So, when Eileen wanted to retire, selling A Yard & A Half to her employees seemed like the natural choice. Giving her employees a chance to buy the company provided Eileen with a triple-win: She got a return on the business she built, rewarded her employees for their commitment, and ensured that jobs and services remained in her Greater Boston community.
Employee ownership helps small businesses, whether or not the owner is retiring. Read on to learn what EO equals for your small business.
EO=Enterprise Optimization
EO helps lower employee turnover. In general, workers in employee-owned companies stick around more than 50% longer than their peers in traditional businesses, according to the National Center for Employee Ownership. Along with greater earnings and the ability to build wealth, the feeling of ownership and accountability is an incentive for employees to stay longer and perform better.
Plus, when employees have an ownership mindset and a stake in the company, they are more likely to look for efficiencies and ways to increase productivity and profit. Employee-owned businesses grow 2% more year-over-year than their traditional counterparts.
EO=Exit Opportunity
EO can facilitate a successful retirement. Nearly 75% of small business owners are relying on the sale of their business to fund their retirement security, but many have overly optimistic beliefs about the current value of their business. Plus, 80% of businesses never sell, and only a small percentage of businesses are passed down from generation to generation.
It’s no wonder that nearly three-quarters of former business owners regret selling their business, according to the Exit Planning Institute.
So, if retirement is on the horizon or you’re just ready for a new business venture, EO allows you to exit with the assurance of a fair value for you. Your customers and the community will also receive continued service, and your employees will have job security.
EO=Excellent Operations
EO encourages the ownership mindset. With EO, your employees will learn to act like owners, which will improve business operations along the way. Once an employee owns a share of the business, they’re not just focused on getting the job done today but take a long view of the company’s success. They tend to have an entrepreneurial point of view—continually looking for ways to contribute and improve. They take their commitments seriously and are accountable for their actions.
An ownership mindset instills pride, accountability, and responsibility, which all have a very real impact on your business’ bottom line. And transitioning to an employee-owned business means they will get the training and support they need to be successful in their new roles as owners.
EO=Enduring Organizations
EO can facilitate your growth plans. Transitioning to EO can give you the financial stability you need to introduce new products, expand your footprint, and grow your business. And, once you move on, you’ll be confident that your valued customers will still be able to rely on the service and products they trust.
“When we talked to [our customers] about how employee ownership ensures that Optimax will never be sold, many of our key accounts doubled down on their relationship with Optimax,” said Rick Plympton, CEO of the employee-owned company Optimax. “They gave us even more work, because they know that their super supply chain will never be compromised. They can invest in what we’re doing. They can help us build capabilities that will never be compromised.”
With EO, your employees will keep their jobs, and your community will continue to benefit from a thriving business.
EO=Equitable Outcomes
EO allows workers to build wealth. Employee ownership helps close wage and wealth gaps in the United States. According to the Harvard Business Review, the richest 10% of Americans own 90% of business wealth, while the bottom half owns only 0.25%.
Alongside homeownership and retirement plans, EO is another way to generate wealth. According to the National Center for Employee Ownership, workers in employee-owned companies have 33% higher median wages and 92% higher median household net wealth, compared to traditional businesses. Employee-owners are more likely to have savings to cover unexpected expenses and emergencies. Additional income also means more spending, which boosts local communities.
If you are a small business that hopes to retire someday, employee ownership is a great way to improve operations, maximize profit, and to ensure the sustainability of your business.