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Baby Boomer Retirement Means Now’s the Time for Worker-Owned Businesses

While conversations and early work on converting more existing businesses into worker-owned companies are picking up in cities around the country, one group in Detroit has decided it doesn’t have time to wait around for everyone to figure out everything about how to do that work. They’re embarking on a strategy to simply acquire companies now, and work with employees later to convert.

As Sherri Welch reports for Crain’s Detroit, that city’s chapter of Goodwill Industries will next year start acquiring companies outright, in order to expand job opportunities within its existing workforce development programs, while also putting at least some of of those businesses on the path to becoming worker-owned.

“Folks in our community who are making a low wage, a minimum wage, one way to tackle that is to give those folks a share of the business,” Goodwill Detroit CEO Dan Varner told Crain’s Detroit. “There are plenty of opportunities for low-wage workers to actually earn a share of the profit as well as their wage and to have an asset on their personal balance sheet that they can take loans against to buy a house or buy a car.”

Goodwill Industries of Greater Detroit already runs three existing businesses of its own: the trademark Goodwill thrift stores, an industrial recycling firm, and an automotive parts supplier firm. In addition, it also serves around 10,000 workers a year across 900 other businesses, Crain’s Detroit reports. Some of those businesses could be targets for acquisition by Goodwill, which would then convert them into worker-owned businesses.

“Many owners are interested in … sell(ing) to their employees but choose not to, ultimately, because the process can be long and complicated,” Varner told Crain’s Detroit, adding that Goodwill can serve as an intermediary owner of the business until employees are trained to be owner operators.

Conversions can be challenging, from choosing a structure (employee-stock ownership plans versus worker-cooperatives, for example), to financing the buyout of existing owners (who may decide to accept a higher bid from a corporate buyer rather than a bid from their workers), to teaching workers how to govern a business democratically. With public support from cities, groups like The Working World, a nonprofit loan fund, have been making progress understanding how to tackle some of these questions like the financing and worker education piece.

One reason for more urgency: aging small business owners. Baby boomers, many of whom are beyond or nearing retirement age, own 2.34 million businesses in the United States, employing nearly 25 million people who earn nearly a trillion dollars from those jobs, according to Project Equity, a nonprofit consultancy that supports businesses converting to worker-ownership.

Project Equity recently conducted a metro-level analysis for Detroit, in partnership with the Center for Community-Based Enterprise, which found that baby boomers owned an estimated 35,170 businesses in the seven-country Detro region, employing some 400,000 workers who earned more than $16 billion at those jobs.

Meanwhile, in NYC, city officials recently estimated that converting small businesses into worker-owned companies instead of closing due to owner retirement could save 2,220 jobs a year —​ prompting a proposal to provide city financing to buy out those owners and keep those businesses alive through worker ownership. Elsewhere, Santa Ana and Austin recently passed city ordinances directing resources to develop a strategy for increasing worker ownership of businesses. Similar ordinances passed in Oakland in 2015 and Berkeley in 2016.

At the federal level, the U.S. Employee Ownership Bank Act (which Next City covered previously), would create a so-named bank that would have authorization to provide $500 million in low-interest loans and other financial assistance to help workers purchase businesses through an employee stock ownership program (ESOP) or a worker-owned cooperative.

Converting small businesses to worker-ownership may also have some potential to help close the racial wealth gap. The Democracy at Work Institute just released an impact report detailing the first year of its Workers-to-Owners Initiative, intended to support more existing businesses to convert to worker-ownership. Working through a core group of 10 partners including employee ownership centers, consulting groups and CDFIs (community development financial institutions), the initiative explored 217 conversions of existing businesses into worker-ownership, completing 21 such conversions. Within those conversions, 215 workers became shared owners of their businesses, transferring $8.3 million in business assets from retiring owners to employees.

(Credit: Democracy at Work Institute)

Crucially, while data on workers and owners is somewhat limited across all those transactions, for those where demographic information was available, the Workers-to-Owners Initiative was able to show that converted businesses are transferring from mostly-white retiring owners to much more diverse employee-ownership.