CINCINNATI — The coronavirus pandemic has made financial survival more difficult than ever for many Tri-State business owners nearing retirement.
But a new multimillion-dollar fund aims to save businesses -- and jobs -- by helping employees purchase companies from their owners.
The Business Legacy Fund is designed to help retiring business owners preserve their legacies and secure their retirement, said Ellen Vera, the director of co-op organizing for Co-op Cincy and project manager for the Business Legacy Fund locally.
“The goal of this fund is to help business owners have another option in terms of succession,” Vera said. “That is, being able to consider potentially selling to their workers. Who’s more invested in this business staying around long-term, right? The folks whose livelihoods depend on it.”
Co-op Cincy partnered with the Seed Commons national financial cooperative to create the fund for small to mid-sized businesses. Business owners that take part will get up to $20,000 worth of technical assistance from Co-op Cincy to determine the value of their companies and help them decide whether worker ownership is the right fit for them, she said.
Business owners that get that help could also get the opportunity to have the sale of their companies financed by the fund to transition ownership to their workers, she said. Cincy Co-op has access to $3 million in capital during the first round of the fund.
“The purpose of this fund is to really help solidify and strengthen our existing businesses,” Vera said. “We estimated around 5,500 businesses are at risk for closure right now in the Greater Cincinnati area – and this was a pre-pandemic number.”
That estimate is based on the number of local businesses owned by Baby Boomers who are nearing retirement age, she said, adding that fewer than half of small business owners pass their company to the next generation.
“Many times, owners of small businesses actually have a hard time selling their business if they don’t have a son or daughter or partner or someone interested in taking over,” Vera said. “Oftentimes, it’s really hard to find an outside buyer. This can just be a really good option when there’s not a lot of other potential buyers out there.”
And it’s an alternative to selling the business to a private equity firm or an investor group that wants to liquidate the company, eliminating jobs in the process, she said.
Business owners that decide employee ownership is right for them would have control over how long they stay with the business to help make the transition and how long the final payout for the business would take.
Employees that become owners would benefit by building equity and wealth and developing new skills, Vera said.
“It can really be a way for people to grow in a lot of different ways and really address some of the issues that we have around income inequality,” she said.
Co-op Cincy’s Sustainergy Cooperative already has been in talks with a local business owner about buying his company when he retires, said Sustainergy Cooperative CEO Flequer Vera, a Cincy Co-op co-founder and Vera’s husband.
Sustainergy currently works mainly on residential buildings, helping building owners review their energy costs and make their properties more energy efficient.
The cooperative is in negotiations to purchase an existing business specializing in electrical work to create a new division that would boost revenue for Sustainergy and wages for its employee-owners, Flequer Vera said.
“Being worker-owners, we have a different agenda,” he said. “Our workers, they earn between $15 to $19 an hour plus benefits.”
He estimated that adding the new division and additional skills that workers would learn could increase their hourly pay to as high as $24 or $25 an hour.
“If things go well the next month or month and a half,” he said, “we should be hiring the lead manager for the division.”
Co-op Cincy has begun taking applications for the fund. More information about Co-op Cincy and the Business Legacy Fund is available online. Interested business owners can apply online.
Lucy May writes about the people, places and issues that define our region – to celebrate what makes the Tri-State great and shine a spotlight on issues we need to address. To reach Lucy, email lucy.may@wcpo.com. Follow her on Twitter @LucyMayCincy.
