The Twin Crises Facing MN Businesses
New Data Reveals Twin Crises from Silver Tsunami and COVID-19
In a study released by our partners, the Minnesota Center for Employee Ownership (MNCEO) and Project Equity, new data reveals that approximately 50% of all job-creating businesses in Minnesota (53,000) are owned by baby boomers. It is estimated that 60% of these businesses plan to transfer ownership in the next decade and COVID-19 has accelerated this timeline for many. The study results, detailed below, are affecting approximately 600,000 Minnesota employees and puts nearly $124 billion in generated revenue at stake.
CRISIS #1: The devastating impact of COVID-19 on our local economies
Employee ownership can support business continuity, preserve good jobs and rebuild our local economies.
Many local businesses are shutting down or are forced to severely curtail operations. Others need to shift operations and invest in retooling in order to operate in our changed, socially distanced environment. As Minnesota experiences some of the highest level of job losses since the Great Depression, leading economists fear that many of these businesses will not survive.
Employee ownership increases engagement, dedication and ingenuity, which is key to business success, and even more critical during this challenging time.
The Census Small Business Pulse captures business owners’ responses to key questions about the outlook for their business, including the effects of COVID-19 and their sense of how long it will take for the business to return to normal.
CRISIS #2: The Silver Tsunami of retiring business owners
As baby boomer business owners retire, our local business landscape is going through a dramatic shift.
We must support retirement-age business owners to avoid simply closing up shop. Faced with the challenges of bridging this crisis, many business owners may feel that the best route is to close down; the investment of energy and capital may not feel worth it at the end of a long career as a small business owner. Since for most small business owners, the business is their retirement nest egg, they are faced with devastating choices.
We have the opportunity to keep many of these businesses locally-owned for the long term and to deepen their positive impact on our local economy.
How? By helping them transition to broad-based employee ownership.
With almost half of all privately-held businesses with employees having owners over age 55 in the Minnesota, we will see a massive ownership changeover of locally-held businesses as the ‘Silver Tsunami’ of retirements marches forward. The vast majority (over 85%) of business owners do not have a succession plan in place, and increasingly, many are finding it hard to find a buyer when they are ready to sell. As a result, some of these companies will quietly close down, a very small percent will be passed on to family members, others will sell to another local owner, and some will be sold to a larger company or out of area buyer. Those in this last category will likely lay off employees and will further concentrate ownership and wealth.
Small businesses are the lifeblood of our economy, making up over 99% of all firms and providing around half of private sector jobs. Locally owned businesses circulate three times more money back into the local economy than absentee-owned firms or corporate chains. And local businesses are based on local relationships, fostering trust and civic engagement.
Employee ownership offers business owners a way to increase employee engagement now, and a path to a sale and to preserving their legacy, while at the same time deepening the impact of small businesses in our community.
Broad-based employee ownership has tremendous benefits for workers, for businesses, and for communities. When successful businesses become employee-owned, they create high quality jobs, increase worker voice, and facilitate asset building for employee-owners—all while boosting business survival rates and keeping local economies strong. For more detail, see The Case for Employee Ownership from Project Equity.
Investing in employee ownership as part of our recovery agenda creates more resilient local economies with stronger small businesses and higher quality jobs.
We can all play a role in supporting local businesses and promoting employee ownership.
Raise awareness of the problem
There is low awareness of the impact of the Silver Tsunami of aging business owner retirements on local business ownership and how it compounds the COVID-19 small business crisis. Please share this information with your city government and others who can help.
- Local governments can measure the impact on their tax base by using business license data to track how many businesses are over 15, 20 or 25 years old.
- City and regional planners can convene local officials, business networks, lenders and others to determine how they are assessing and addressing this issue.
Engage businesses about employee ownership transitions
The benefits of broad-based employee ownership are clear, but most business owners do not know that selling their business to their employees is a great way to increase employee engagement and preserve the business’ legacy.
- Business service providers can add succession planning to their service offerings and include employee ownership as an option
- Cities can add succession planning into their economic development goals and partner with organizations that provide education and expertise on employee ownership
- Regional planners can integrate the stabilization of local business ownership into their goals
Join us in advancing a two-pronged small business recovery agenda that supports business continuity and incorporates employee ownership. With our partners, we are accelerating our efforts and working across Minnesota to help business owners who are considering closing their businesses for good.
We must rebuild with more resiliency and equity for workers, businesses and communities.
About Nexus and our partners
Nexus Community Partners, based in the Twin Cities, works to build a more inclusive economy for communities of color. The Nexus Worker Ownership Initiative (WOI) helps business owners with succession planning and specializes in exploring the benefits of incorporating employee-ownership into transition plans. The WOI team offers a full suite of consulting services to support businesses throughout their succession process.
As a national organization, Project Equity advocates for and raises awareness of broad-based, democratic employee ownership, and we support businesses in transitioning to this highly beneficial business model. Through amazing local partners like the Minnesota Center for Employee Ownership and Nexus Community Partners, we support this work in regions across the country.
The Minnesota Center for Employee Ownership serves the entire state of Minnesota as the central hub for unbiased information on employee-ownership. Its primary mission is to educate business owners and their advisors on the benefits of employee ownership. MNCEO provides resources, case studies and articles, and a list of service providers who can assist with employee ownership transitions.