Long Beach Anchors Local Businesses Against Silver Tsunami and COVID-19 Crisis
6.09.2020
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LISC StoriesEconomic Development
A tsunami is coming to the Long Beach business community and its impact on long-time businesses and thousands of their workers threatens job security, households’ economic stability, the business community’s diversity, and city revenues.
This tidal wave or demographic shift is the so-called “Silver Tsunami” – a term for retiring Baby Boomers who are now turning 65 at a rate of 10,000 a day through 2030 – a shift that will change city workers’ economic resiliency and the business landscape as aging boomers sell off their enterprises. Complicating the coming demographic shift is the COVID-19 crisis. Many business owners have had to shutter their enterprises temporarily because of the state’s stay-at-home order. Some businesses are still open, what the state calls “essential businesses” (healthcare, public safety, food, agriculture and media).
Long Beach is prepared on both fronts. The city has put in place an innovative plan to help protect and retain small businesses and their workers if aging owners decide to sell to outside owners or corporations, or close down altogether. And the city also has adopted a comprehensive and progressive COVID-19 Economic Relief Package for businesses, their employees and renters in need of housing protections.
“This COVID-19 package expands sick leave to thousands of Long Beach workers, offers housing security for renters, recall and retention protections for hospitality and janitorial employees, micro loans of up to $10,000 for small businesses, and actions that will expand protections for grocery workers while accommodating to the needs of monolingual residents during this crisis,” said Rex Richardson, the Long Beach City councilmember who proposed the progressive measure that was adopted on April 14. “These actions in total will make a meaningful difference in the lives of thousands of working families.”
Prior to the COVID-19 crisis, the city created a small business retention plan that is a third-party funded, financial transaction that can help aging business owners, who want to retire. The small business retention plan was created to help aging business owners explore the option of selling to the people who helped build their business - their employees.
Selling to employees at a market-rate price on terms and a timeline articulated by the owner keeps the business rooted in the community, continues to serve customers as a longtime local business, and rewards loyal employees with ownership and job security. Business owners who sell to employees also receive tax advantages. Long Beach is believed to be the first municipality in southern California to promote small business retention and employee ownership in a cohesive city business plan.
The city and its partners hope the strategy – despite the economic stresses caused by the COVID-19 crisis – will become a model for other municipalities grappling with waves of aging business owners and the challenges of retaining small businesses and the workers they employ.
“The option of employee ownership lessens the impact of the Silver Tsunami by empowering employees to become owners of these companies through employee stock ownership plans (ESOPs) or worker cooperatives”
“We are proud to support innovative solutions like employee ownership, which can help keep legacy business rooted in Long Beach and expand opportunities to create wealth and equity for their workers,” said councilmember Richardson, chair of the Economic Development Committee, which prioritized retaining small businesses in a 10-year Blueprint for Economic Development. “The city of Long Beach is committed to economic inclusion.”
The city initiated the small business preservation effort because economic studies revealed that retiring business owners selling or closing businesses in operation for 20 years or more would inflict significant financial blows to the business community, uproot vital local investments and threaten worker and city economic stability. Loss of longtime businesses would also eliminate crucial jobs of employees of low- to mid-level incomes, workers who tend to be disproportionately people of color, deepening inequity among the city’s workforce.
Focusing on employee ownership as a possible solution to the aging business sell off or closure crisis, the city of Long Beach – with support of Citi Community Development and LISC LA – partnered with Project Equity, an Oakland-based nonprofit organization that supports transitions to employee ownership. Project Equity conducted an analysis of the city’s privately owned businesses, profiling enterprises that are 20 years old or older – an indication owners may intend to sell.
Of the 14,000 small businesses in Long Beach, 2,500 businesses are 20 years old or older (18%); generate $12.3 billion in city revenue (63%) and employ a third of the city’s workforce, or 46,700 individuals. Most business owners, about 85% nationwide, have no succession plan, an exit strategy for what to do with their business upon retirement, according to Project Equity. Only about 15% of small businesses are passed on to the next generation, many of whom are uninterested or ill-equipped to run them, and about 20% of those listed for sale, actually sell, Project Equity found. Helping Silver Tsunami business owners create a succession plan is an opening to introduce the option of selling to employees.
The city of Long Beach Economic Development staff, Project Equity and partners developed an outreach strategy, contacting boomer-owned businesses at risk of being sold to outside owners or closing, a starting point to explain how they could transition to employee ownership or a worker co-op. To date, the outreach team has conducted six consultations and one financial feasibility intake with small business owners interested in exploring succession planning. The outreach team has hosted several informational events aimed at longtime business owners and reached close to 500 businesses.
Business owners who are interested in succession planning are offered a formal evaluation to determine the financial feasibility of transitioning to employee ownership. If employee ownership is viable, then business owners who want to sell to employees are guided through the process.
“The option of employee ownership lessens the impact of the Silver Tsunami by empowering employees to become owners of these companies through employee stock ownership plans (ESOPs) or worker cooperatives,” said Evan Edwards, director of strategic partnerships and business engagements at Project Equity. “These strategies can reinvigorate the American dream with a new chapter of expanding ownership. By selling to employees, we can get business owners a fair market value on the spot.”
Business owners are walked through every phase of the transition to employee ownership, including orchestration of a well-managed exit strategy, technical assistance including training to prepare a new general manager to run and lead the business, and development of an ownership culture among prospective employee owners.
Financing the transition is part of what Project Equity and its partners offer in assistance. Last fall, the partners launched a collaborative initiative called Accelerate Employee Ownership (AEO) to help Silver Tsunami business owners finance the sale of their businesses to their employees. AEO matches flexible, small business financing from Shared Capital, a financial lending partner, with support and advising services provided.
Project Equity’s work has a proven track record in Northern California where several retiring business owners successfully sold to their employees. Many business owners are now fighting for the survival of their small businesses during this unprecedented economic landscape caused by the COVID-19 crisis. Project Equity’s team – skilled at working remotely to help business owners navigate a succession strategy ¬– is available via phone, video conference and email to support business owners interested in exploring employee ownership. Prior to the COVID-19 crisis, only one out of five businesses listed on the major marketplace, BizBuySell, ever sold. Project Equity and its partners can help business owners understand whether or not employee ownership is a good fit. For business owners worried that shutting doors, the Project Equity team can help by examining liquidity and their exit goals to assess how employee ownership could advance those goals.
Retiring Silver Tsunami business owners are inevitable. But the decisions aging business owners make to sell or close are not. Those decisions will ripple through Long Beach’s workforce and business community for the next 10 years or longer. The city’s innovative plan helps retiring business owners pause, and consider selling to their employees, an option that roots businesses in the community, preserves jobs and builds equity and economic strength among workers.
