Selling to an ESOP Saves Local Jobs and Strengthens the Local Community
Every small business owner will face a time when they will need to sell their company. When a small business is put up for sale to a third party, particularly in rural areas, local jobs and the other benefits are at risk. Since an acquiring business may not have any ties to the local community, they could liquidate the assets of the company or relocate the company operations to a different location. This obviously has negative consequences for the employees and the community as a whole.
Selling to an ESOP significantly increases the likelihood that a company will remain locally owned, jobs will remain in the local community, and the legacy of the company will continue. This is because the company will remain locally owned, not only while the Business Owner still Retains Control of the Company after Selling to an ESOP, but also after the business owner retires and transitions control of the company to the next generation of leadership.
In addition to protecting jobs and the direct and indirect impact of the dollars spent in the local community, small businesses provide stability and many other financial and social benefits:
Stacy Mitchell, of the Institute for Local Self-Reliance, explains, "One of the primary reasons that a dollar at a locally owned business goes so much further is that local businesses tend to rely on other local businesses for the goods and services they need. They bank at the local banks, hire a local accountant, a local web designer, and they advertise more in local newspapers and radio stations. They tend to be enmeshed in a web of economic connections."
Smaller, neighborhood-based businesses are even good for the environment, according to Mitchell. Big-box stores consume acres of real estate, usually on sites that were former farmland or wild, and they serve a larger area than the mom-and-pop stores. Because of the rise of large chain stores, she says, the number of miles logged per household for shopping has grown more than 300 percent, while household driving overall has expanded 75 percent.
In addition to hard dollars, local businesses also tend to be the charitable mainstays of a community. Indie businesses frequently act as ad hoc community centers, says Meg Smith, membership and marketing officer for the American Booksellers Association (ABA). She points to the way book stores are including cafes and hosting not only readings but also other types of events.
Business-saving idea when owner retires: Give keys to employees shares a great example:
76, Cliff Wilson was ready to sell Ritchie Industries, the Conrad, Ia., livestock equipment business that his father had purchased in 1943 and that they had grown together.
“I would have loved to buy the business myself, but I didn’t have the finances,” said Wilson’s son-in-law Leon Yantis.
The buyers who had money were interested only in the assets and would have closed the manufacturing plant in Conrad, a town of about 1,110 residents north of Marshalltown. “All the employees would have been out of work,” Yantis said.
That’s when Yantis and the company’s other employees decided to buy the company, using an employee stock ownership plan, or ESOP. Eight years later, the fully employee-owned company is now thriving with about 65 workers.
It’s a story that’s playing out across Iowa, said Debi Durham, the state’s economic development director. Owners nearing retirement are forced to look for buyers outside Iowa, an option that could result in the shutdown of vibrant companies. Such losses are particularly hard on small towns, dependent on a handful of businesses to provide jobs and serve as partners in community projects like building baseball fields.
This is why Iowa Governor Terry Branstad has made Selling to an ESOP one of his main initiatives (Iowa's Employee Stock Ownership Plan (ESOP) Initiative).
Please stay tuned as we continue to examine the many reasons to consider Selling to an ESOP.
Our series on Selling to an ESOP explores many of the benefits of selling to an ESOP: