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Business conversion readiness factors
In general, factors that contribute to the good health of a business also help a company be successful in the transition to broad-based democratic employee ownership.
Don’t worry if you can’t check off all of these for your business. Together, we can help build out the areas that need it.
Prerequisites
These have got to be in place.
Financial health
Successful and stable business at time of sale to the employees, with a positive financial forecast that ensures the ability to cover the cost of buy-out capital even in a downturn.
Commitment
Commitment by both the selling owner and a key number of employees to transitioning to broad-based democratic employee ownership.
Factors to develop
These can be developed along the way.
Participatory culture
A culture of transparency and participation.
Training and support
Ongoing training and hands-on support for employees and owners. This can include outside advisors, organizational development consultants, lawyers, CPAs and financial experts.
Effective financing
Raising the right amount of capital at terms the business can afford to pay. Sources can include seller financing, loans and equity investments.
Additional factors
These aren’t always critical, but are definitely important.
3rd party valuation
A third-party financial valuation of the existing business is completed before the buyer and seller agree on a price. This is required in a Democratic ESOP transition, and highly recommended in a worker coop conversion.
Engaged owner
Owner is willing and able to gradually withdraw from the business operations (unless staying on as a worker-owner), and stays actively and appropriately involved to ensure effective transition of leadership, responsibilities and relationships.
Phased buy-out
If the owner can afford it financially and is willing, a phased buyout that enables the financial transaction to take place in stages can lower risk and decrease the cost of external capital.
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Our latest study across the United States indicates millions of businesses are at risk of closing and point to employee ownership as a solution.
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