The “silver tsunami” of Baby Boomers, born from 1946-1964 and now in or near retirement, has created economic concerns as experienced workers leave the workforce. But what happens when it’s not employees but business owners who are on the retirement track? What happens to the company they’ve created, and what happens to their workers?
One option is to make it an employee-owned enterprise, giving employees an incentive to ensure the business succeeds, and providing owners with the option to step away with some assurance that their success will be sustained.
According to the Georgia Center for Employee Ownership (GACEO), a nonprofit touting employee ownership, the “silver tsunami” is acute in Athens-Clarke County.
Data gathered by GACEO through the nonprofit Project Equity shows 48 percent of Athens-Clarke County businesses are owned by people 55 or older. Other data show an estimated 1,032 owners in the community’s vibrant small-business sector are over 50.
There are a handful of ways to make the transition to employee ownership. The most common is an employee stock ownership plan (ESOP), which more than 6,500 companies in the U. S. and more than 14 million employee-owners participate in.
In and around Athens, at least eight companies are fully or partially owned by their employees. Those companies are JOMA Construction, Home Outlet, Terracon, Augusta Industrial, AMBAC International, Georgia Spa, Love is Love Co-op Farm, and Peachy Green Clean Co-op. Publix is the most famous employee-owned company.
Basically, ESOPs are retirement plans in which employee-invested dollars purchase shares of company stock. According to GACEO, numerous studies have found employee ownership helps improve business performance in both good and bad economies. And there’s a broader benefit: employee ownership as an alternative to shutting down or selling – particularly to an out-of-town owner – can help ensure local economic stability.
Making the case
Matthew Epperson is GACEO’s outreach coordinator in Athens. Currently funded through the Athens-Clarke County government, he has been making the case for employee ownership to business and community leaders from bankers to attorneys to estate planners.
“Once upon a time, home ownership was sort of the gateway to the American dream,” Epperson said. “I now like the idea that employee ownership can be the gateway to the American dream. There’s nothing like it in terms of your ability to build wealth, because you’re actually contributing to the wealth that you’re building every single day.”
“Unfortunately,” Epperson said, “employee ownership has frequently been considered the ‘buyer of last resort’ for businesses in transition. GACEO is working to change that, making the case that ‘The best buyer is actually the one under your nose’,” Epperson said.
How it works at JOMA
At JOMA Construction, a 20-year-old residential remodeling firm owned by John Newland and his wife, Mariel, an ESOP has been in place for about two years.
The company has more than two dozen employees. More than half have been there for six years, and nearly a quarter have been there for a decade, according to Mackenzie Gallagher, the company’s chief marketing officer.
Gallagher said it was about eight years ago, as the company moved out of its last home-based office, that John Newland started thinking about next steps. Family-focused succession plans were once the norm among contractors and builders. But today, far fewer companies are passed to the next generation – or even to trusted managers. Newland’s two sons had worked at the company but had no interest in making it their future.
After several years of considering various alternatives and researching other companies that had gone the ESOP route, Newland decided employee ownership was the way to go. In 2023, the change was implemented. Since then, the company has seen a 45 percent increase in consultations, according to Gallagher.
“While balances in ESOP accounts are at present ‘not very earth-shattering,’ employees understand that growing the company will help accelerate the value of those accounts,” Gallagher said.
More employee engagement
John Newland remains active at JOMA Construction. “He’s still our visionary, still the leader,” Gallagher said.
From his perspective, Newland said, employees were very open and receptive to the transition. “It was probably more of, ‘If John thinks this is a good idea, then maybe we should do it’,” he said. In turn, Newland has seen more engagement among the company’s work force.
“There’s just an overall feeling and vibe that we’re in this together, we’re working toward the same goals,” Newland said. “It’s also an attraction for new employees,” he added.
Another important consideration is that the new structure will allow what he and his wife built to continue, with a culture they instilled in it, and an ability to reward the employees who have contributed to its growth.
Newland says his job hasn’t changed much.
“My intention was not to walk away or stop,” he explained. “I’ve been continuing to do the things that I do and continuing to enjoy it.”
Jim Thompson is a freelance writer living in Athens. His work has appeared in the Athens Banner-Herald and the Atlanta Journal-Constitution.
GACEO in Athens
According to GACEO, studies show employee ownership “helps improve corporate performance in good times and bad” and “tends to result in higher sales, productivity, and employment growth than at comparable companies.”
“Frustratingly,” Epperson said, “that news may be a potential roadblock to employee ownership because it creates the preconception that it can’t be as advertised.”
“When I start talking about a tax-advantaged sale that’s going to cost your employees nothing, and is going to give you a fair selling price, and is going to keep those jobs in the community for decades, that just sounds too good to be true for a lot of folks,” he said.
As part of the Athens GACEO campaign, Epperson has joined business and civic groups and sought help from the business community in approaching business owners about employee ownership.
GACEO also hosts free virtual Employee Ownership Ambassador programs, for which interested people can register at athens.gaceo.org. The programs are tailored to business owners, economic developers, legal and financial advisors, and others interested in boosting employee ownership.
“We want to activate people’s knowledge … (so) they could have a smart conversation if they happen to come across either a client, or a friend, who’s a business owner,” Epperson said.
At the same time, GACEO is looking for new local support to keep going once its local government support ends next year.
What to expect
Business owners looking toward employee ownership should expect a two-year process, Epperson said, although that can vary.
“What timeline we project will have a lot to do with what the business is, how large, how sophisticated, how ready the team already is in terms of managerial preparation to take over,” he explained.
There are significant financial considerations in transitioning to an ESOP. Guidance suggests an interested business should have at least $750,000 in EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), and, ideally, at least 40 employees. Setting up an ESOP also carries a price tag, which Epperson ballparked at $250,000 for all the professional services required.
Should GACEO become part of an employee-ownership transition, an intake survey with the business owner will be a first step.
“What I’m trying to do with that first real deep dive with the business owner is to figure out their goals and their timeline,” Epperson said, “because I want to use both of those as driving factors for what we ultimately recommend. Is it going to be more of a phased managerial exit, or is it going to be more cold turkey?”
Business owners, with their expertise and their contacts, are a valuable part of any transition.
“(We) need them to be probably managerially involved for about two years,” Epperson said. “Beyond that,” he said, “the question becomes how much the business owner wants to stay involved.”
One interesting phenomenon of the switch to employee ownership, Epperson said, is that “employee-owners become a little bit more conservative than the previous owner, and so they’re a little bit more guarded about their appetite for new ideas. They’re more risk averse.”
That may not necessarily be a bad thing, though.
“You should think like an owner,” Epperson said. “Because you are.”
