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Employee ownership can be a big win for retiring business owners, employees and communities. A new state program can help with the transition.
Millions of boomer business owners have reached retirement age yet have no business exit plan. This poses challenges on both a macro-economic and individual level. Boomer-owned businesses are a vital part of the economy, especially many local economies. Those who are 61 to 79 own 2.3 million businesses that collectively generate $5 billion in revenue and employ nearly 25 million people. And at some point, most of these businesses owners want to step away from the business and enjoy their golden years.
What options do owners have?
There are three primary off-ramps when business owners want to leave their business. First, sell to a third party—though less than one-third of businesses owners successfully sell their business. Second, sell assets and close up shop. The third common way to exit is to turn the business over to a successor. Traditionally, successors have been a family member or long-term employee. Often, however, there’s no clear successor.
Another alternative? Sell the company to employees.
Why sell a business to employees
According to a report from the Rutgers School of Management and Labor Relations, there are five reasons business owners sell their companies to employees:
- Tax advantages—the seller may be able to defer capital gains taxes
- Liquidity—sellers receive cash either all at once or over time
- They have an exit ramp but continue a leadership role
- It allows the company and culture to continue
- Selling affirms their legacy as a conscientious owner and employer
Michigan pilot program expands employee ownership opportunities
Retiring Michigan business owners now have support in transitioning to employee ownership through a pilot program launched by the Michigan Department of Labor and Economic Opportunity (LEO) in partnership with the Michigan Center for Employee Ownership (MICEO). The program aims to preserve local businesses, empower workers and strengthen Michigan’s economy.
80% of the pilot program’s funds go directly to support businesses transitioning to employee ownership—covering financial evaluations, legal services and technical assistance. To learn more about the program and apply for a grant, visit the MICEO website.
The benefits of employee ownership
Retiring and selling a business to employees can be a win-win-win:
- Owners access cash that helps fund retirement and other goals. Plus, they leave with the satisfaction that their business legacy continues.
- Employees win because those at employee-owned businesses earn 33% more in wages.
- Communities win because employee ownership reduces income inequality and racial wealth gaps. Among workers of color, those with employee-owned businesses earn 30% and have 79% higher household wealth than peers.
If you’re looking to retire from your business, selling to employees might be the best path forward for you, your employees and your community.
Consumers business loans
Do you have business banking questions? Contact our knowledgeable commercial loan officers.