There are many businesses in Maine, employing tens of thousands of workers, where the owner wanted to retire in the next few years. Now, the uncertainty and upheaval caused by the current economic and public health crises is causing them to rethink whether they want to keep going at all.
Within 10 years, 79 percent of business owners want to retire and 33 percent want to retire in less than three years. Yet fewer than 1 in 5 have a plan for how to do that. Assuming the kids will take over or someone else will buy your business is a risky proposition, since only 15 percent of businesses successfully transition to the next generation in the family, and only 20 percent of commercial listings actually sell. As a result, too often the default option ends up being liquidation and closure, and the smaller and more rural the business, the greater the likelihood of that outcome.
This is what Maine was facing in “normal times,” but the coronavirus has made the situation much worse. Many businesses may not survive. A U.S. Chamber of Commerce survey shows 43 percent of small-business owners say they have less than six months before a permanent closure is unavoidable. Business bankruptcies jumped 18 percent in March, 26 percent in April, and 48 percent in May. Older business owners, already thinking about how to retire, are the least likely to be willing to take on debt and work required to rebuild and the most likely to “throw in the towel” and close.
The long-term cost will likely only be known later in the fall, as necessary public health measures and lack of consumer confidence throttle the tourism season that generates the family, business and state tax income needed to make it through the year.
Whether for those that were spared the worst or those on the edge of survival, the most plausible option for saving businesses and jobs is often an employee buyout. Ideally, a larger group of workers could form a cooperative to buy the business, but it may be one or two entrepreneurial employees willing to take over. The point is, the workers whose jobs are at stake are also the best positioned to “keep the lights on.”
To make the best of a bad situation, we need to act quickly, aligning new and existing policies and resources to save small businesses and jobs.
Maine already has the makings of this response. With funding from the federal Workforce Innovation and Opportunity Act, “rapid response” teams can act quickly when a business closes to assist dislocated workers access training and support. By being proactive in identifying and reaching business owners and providing support for employee buyouts, we can keep the businesses from closing and the workers from being dislocated in the first place. This strategy, which was piloted in Washington County and funded by the Gorman Foundation, is now being expanded throughout eastern Maine through a partnership of the Northeast Workforce Development Board and the Cooperative Development Institute and could quickly be taken to scale statewide.
Small Business Development Centers could coordinate with this strategy, providing business and financial training for workers attempting an employee buyout, as they are now mandated to do by the federal Main Street Employee Ownership Act.
Numerous states are, or are considering, offering tax incentives for selling a business to the workers, and establishing Employee Ownership Centers to provide education, training and technical assistance for businesses considering employee buyouts. In Maine, LD 1520, which was passed unanimously by the Legislature’s Taxation Committee, House of Representatives and Senate, would do both of these things. LD 1520 is only awaiting the Appropriations Committee and governor to approve the funding.
This coordinated strategy could save many businesses in the short term, and offer those workers an opportunity to improve incomes and build wealth through ownership over the longer term. One recent study showed that worker-owned firms were much more successful at attracting and retaining young workers and greatly improved their incomes, household wealth and job tenure. Another study showed that lower-income workers (particularly workers nearing retirement) in worker-owned firms had dramatically higher household wealth, and employee ownership significantly narrowed the gender and racial wealth gap.
Throughout Maine, there are grocery stores, cafes, coffee roasters, construction companies, renewable energy companies, farm businesses and insurance agencies that are owned by the workers. They are a model for how an economy, even in the face of unprecedented threats, can be made to work for working people and their communities.
Rob Brown is the director of Business Ownership Solutions at the Cooperative Development Institute. This commentary is drawn from a white paper for the Governor’s Economic Recovery Committee that contains more detailed research, data and policy recommendations.