Employee Ownership Conversion
Is my business ready for employee ownership conversion?
Transitioning to an employee-owned business is a significant decision that requires careful planning. Below are the essential factors to evaluate before moving forward, from financial preparedness to leadership succession.
Business & Leadership Transition Readiness
- What motivates your interest in transitioning to employee ownership?
- Are you planning immediate retirement, or do you wish to remain involved post-transition? If so, for what duration?
- Who is prepared to assume leadership roles after your departure?
- How would you describe your company's current cultural environment?
Evaluating Financial Preparedness
- How many employees are expected to become initial owners?
- Are there existing financial obligations that need addressing?
- Will you provide financial assistance, such as loans or equity buy-in options, to employees interested in purchasing the company?
- What financial returns or benefits do you aim to secure upon selling your company?
Defining Governance Structure
- Which governance framework and legal model of employee ownership align best with your company's vision and operations?
The Benefits of Employee Ownership
Establishing a Lasting Legacy
Approximately 80% of business owners seeking to sell face challenges in finding a buyer
Transitioning to employee ownership offers an internal solution, ensuring business continuity and preserving jobs and organizational culture.
Enhancing Business Performance
Compared to traditional businesses, employee-owned enterprises experience:
- 5% higher growth in employment and sales.
- Employee Stock Ownership Plans (ESOPs) are 25% more likely to remain operational.
- 90% of worker cooperatives sustain operations beyond five years, whereas only 20% of traditional businesses achieve the same milestone.
Improving Employee Life
Employee-owners benefit from:
- Being four times less likely to face layoffs during economic downturns.
- Possessing 2.5 times greater household wealth compared to employees in conventional firms.
- Improved job quality, wealth accumulation, and strengthened ties to local communities through employee ownership.
The Conversion Process
The conversion process can vary depending on the structure and vision of the company. Here is the standard process of employee ownership conversion that RMEOC supports:
01. Exploration
- Initial consultation, including follow-up resources sent to owner/employees
- Owner interview & assessment to gather information
- One workshop with key concepts of EO & gauge interest
- Evaluation of fit with EO and determination about whether to advance to the feasibility phase
02. Feasibility Study
- The preliminary financial feasiblity analysis
- A full feasibility study, providing industry analysis, market analysis, organizational & technical analysis, and financial analysis
- Time period: 1-3 months
03. Coop Education
- The trend of employee ownership in the U.S.
- Legal Models & Governance
- Finance I
- Finance II (open book management)
- How to raise capital?
- How to build democratic workplace culture?
- How to resolve conflicts?
- Overview of the bylaws or operating agreement
- Time period: 1-3 months
04. Structuring
- Work in partnership with an EO knowledgeable attorney and CPA to finalize the new EO structure
- Implementation of the new EO structure
- New owners take the helm and begin operations
05. Completion & Thrive
MISSION ACCOMPLISHED
Ready to convert your company?
Converting to employee ownership offers both tangible and intangible benefits to everyone from the workers and selling owners to the company itself. Worker ownership is better for the environment, better for local communities, and a model for progress toward addressing social issues like racial and gender disparity in the workplace. RMEOC is devoted to advancing an economic agenda that works for everyone.
Interested in learning more about how employee ownership can benefit your business while creating a more inclusive economy?
Is your business located in rural Colorado?
Check out our Technical Assistance Funding for Rural Businesses!
