CRISIS #1: The devastating impact of COVID-19 on our local economies
The impacts of COVID-19 on Washington small businesses have been far-reaching.
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 Washington state experiences some of the highest level of job losses since the Great Depression, leading economists fear that many of these businesses will not survive.
According to the Census Small Business Pulse, as of the end of August 2020, just over 2% of businesses in Washington have already closed operations permanently. Half of all business owners believe it will take more than six months to return to normal and almost one out of ten believe it will never return to normal.
One out of three business respondents are still experiencing a decrease in revenue and one out of four report that their operating capacity has decreased by half or more. 10% continue to reduce employment.
To make matters worse, one quarter of the businesses have one month or less of operating capital on hand. This may not be enough to survive the winter. Despite the emergency funding already made available, one quarter of these businesses will need to obtain additional financial assistance in the next six months. If nothing changes, nearly 6% expect to permanently close their doors.
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 baby boomers owning about half of all privately-held businesses in Washington State, 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.
Why does this matter?
Small businesses are the lifeblood of our economy, they make up over 99% of all firms and provide more than half of the private sector jobs in Washington state. 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 our publication, The Case for Employee Ownership.
Investing in employee ownership as part of Washington state’s recovery agenda creates more resilient local economies with stronger small businesses and higher quality jobs.
What we can do about it
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 baby boomer 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: Two-pronged small business recovery agenda
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 Washington state 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 Whatcom Community Foundation and Project Equity
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, we support this work in regions across the country.
Whatcom Community Foundation, our outreach partner in Washington State, is a nonprofit organization focused on amplifying the force of philanthropy by connecting people, ideas and resources so that communities across Whatcom County flourish. To accomplish their mission, they:
- Foster partnerships
- Put dollars to work through grant-making and impact investing
- Strengthen nonprofits
- Help donors make a difference
- Advocate for equity
Together, we are raising awareness about the Silver Tsunami of business owner retirements and how employee ownership works as a succession planning strategy. Read the other studies we’ve done in Washington including Bellingham and the small towns of Whatcom County. We are experienced in helping selling business owners assess the fit between their business goals and this approach, and, for those who move forward, working with the owner and employees to structure and operationalize a successful transition to employee ownership and an effective ownership culture.