34th Annual Ohio Employee Ownership Conference update

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What is Exit Planning?

 A monumental shift in the American economy is taking place. Baby boomers, born between 1946 and 1964, are retiring at the staggering rate of 10,000 a day. They own nearly half of all privately held businesses in the United States and employ 25 million people and account for over $5 trillion dollars in sales.

Small businesses are extremely important to the local communities they reside in, circulating a much larger percentage of revenue back into the local economy compared to national chains, they also account for half of all private employment in the U.S.

It is our contention that the failure to plan for business succession in small and middle-sized closely held businesses is the leading preventable cause of job loss in the U.S.
This article was published in the Summer 2020 edition of the Economic Development Journal, a publication available to members of the International Economic Development Council, and is being posted with its permission. To have access to IEDC's Journal articles and its many services, you can become a member by visiting https://www.iedconline.org

Roughly 80% of business owners do not have a detailed succession plan in place, meaning there is no plan for what to do after the current owner retires or exits the company. This lack of planning can often result in a shutdown or forced sale of the business, leading to negative results for the family, the employees and our communities. Fewer family businesses are passing on to the next generation of family ownership, and less than 50% will find an outside buyer. A report, by Capital Impact Partners and Citi Community Development found the ratio of business closures to business sales of companies with 25 years of operations and 20-100 employees is 9 to 1.

More recently, Chris Cooper and Michael Palmieri of the OEOC along with Pete Shuler of Crowe LLP co-authored an article "Succession Planning, Employee Ownership, and Baby Boomer Business Retirements" in the Economic Development Journal published by the International Economic Development Council. In it, we outline what we see as the two biggest economic challenges of our time: the impending wave of baby boomer business owner retirements and growing wealth inequality. We highlight how the sale of companies to employees is a powerful, yet often overlooked, succession planning option that meets these dual challenges head on. Moreover we explain how succession planning and employee-ownership can be combined to benefit selling owners, company employees, and the surrounding community.

What are your next steps?

The Succession Planning Program at Kent State University is designed to provide business owners with the information they need to get started with their business transition; and to provide Economic Development Professionals with the information and resources to help them retain businesses and jobs in their communities.

The Succession Planning Program is a service of the Ohio Employee Ownership Center, a non-profit based at Kent State University. The goal of the Succession Planning Program is to help small business owners in transferring the ownership of a business to the next generation, with a specialty on selling to the employees.

Resources

It used to be that family businesses were passed down in the family. But family size keeps dropping, and the average business owner’s children are far more likely to go to college and to become doctors and lawyers than in the past. While over half of business owners still want the business to stay in the family, data indicate that only 30 percent of family businesses will make it to the 2nd generation and only 15 percent to the 3rd. An Owner’s Guide to Business Succession Planning provides a basic road map to assist owners of small and medium-sized businesses as they begin to plan for ownership and management succession.

If you are a business owner looking for an exit strategy that can provide you with significant tax savings, flexibility in how and when you exit the business, and chance to reward employees that helped you build the business all while priming the company for future growth. Then selling part or all of your company to your employees using an Employee Stock Ownership Plan (ESOP) or worker-owned cooperative may be for you. Our manual Selling Your Business to Your Employees: Employee Stock Ownership Plans (ESOPs) & Worker-Owned Cooperatives  describes both strategies in non-technical, easy to understand language, and will help you to explore whether these two options are right for you.

Questions?

If you have additional questions about succession planning please contact the Succession Planning Program

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