Elevating Equity Through Small Business Preservation
2.24.2020
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LISC StoriesEconomic Development
As the wealth and income inequality continues to spread in the U.S, more and more Americans are feeling the ripple effect with the rising cost of living and low wages. That’s why LISC LA has come up with a plan to elevate equity by helping small businesses stay in business.
Small businesses are the backbone of the economy and in California they make up to 99.8% of the businesses and employ 48.8% of the workforce (Source). In LA County, there are over 250,000 small businesses according to 2017 Los Angeles QuickFacts from the US Census Bureau. While much has been done to strengthen resources for business startups, there has been little attention paid to the preservation of existing businesses.
According to the Small Business Administration (SBA), mature local businesses offer more reliable economic impact than startups and retain 37% more income within communities than national chains. Also, the U.S Bureau of Statistics show that baby boomers on the cusp of retirement own 2.34 million small businesses in the United States, employing more than 25 million people. In California, baby boomers own 290,000 such businesses and provide jobs to 3 million people. This equates to 3 million families in California depending on these baby boomers for their livelihood. However, a recent survey by Wilmington Trust shows that more than half of these business owners lack succession plans. This means that when they close, the 3 million families around California would lose their source of livelihood, and the state would lose the tax revenue that they bring in.
So how then can we ensure that these small businesses remain standing even after the baby boomers retire? Converting well-established businesses to employee ownership is an innovative and effective way of retaining businesses, jobs, and wealth in local communities.
In service to our mission to promote equity and economic inclusion in underserved neighborhoods across the County, LISC LA in partnership with Project Equity is currently piloting a unique small business preservation program in Long Beach focused on employee ownership.
The key components of the program include analyzing and identifying businesses that are at risk of retention and could become owned by employees (EO), developing a pipeline of businesses for EO conversion and executing feasibility studies for interested companies so as to align assets like financial literacy and management training and access to capital, to support employee-owners and workers at converted businesses. We are also developing a toolbox of succession interventions aimed at the preservation of long-standing local businesses and keeping the jobs they provide rooted in their communities.
This project is a hybrid in that it offers both capacity building and technical assistance to the public sector and technical assistance and access to capital to small businesses. There are lots of other cities across the County facing the same challenge of finding solutions to preserve legacy businesses and create living-wage jobs. LISC LA seeks to build on our pilot and bring this initiative to other municipalities across the region.
With supporters like Federal Home Loan Bank of San Francisco and East West Bank, LISC LA can expand our efforts and outreach to cities across LA and Orange County.
