Business Continuity and Ownership Transition Options

[Music] hello everyone my name is somalid hogan with the massachusetts small business development center network i'm the regional director here in the springfield office we call the hampton hampshire and franklin county and we provide free and confidential business advisory services today's webinar we're so we're so excited because we have an amazing lineup of speakers for you today where i'm sure we're all going to learn something new today it doesn't matter how often you've heard this type of presentation before it is your first time there will be lots to take away we're going to talk about business continuity and ownership transition options i'm going to be introducing the speakers very shortly and then they're going to take turns sharing with us their their expertise about um the topic today and some real life examples some of our speakers today's have gone to business transition themselves and some of them are help others as well so we're very excited to have you here today i do want to thank all of the stakeholders that have made these webinars possible including the western mass beans business collaborative which includes score the center for one enterprise valley community development franklin county cdc um as well as the massachusetts small business development center with offices located in in umass amherst salem state in clark university and last but not least common capital uh is also one of our of the members of that group we want to thank the small business administration for their financial support and the state of massachusetts and so with that i want to go to the next slide before we get started just a few little um housekeeping things please rename yourself make sure that your first and last name are on the on on the screen there on the participants list um here's some steps on how to do that you click on the participants button then you find your name you either right click or click on rename on the little drop down menu you name yourself and then put in your your full name many of you i see have that already done so we're not going to worry too much about that today also for to respect our our speakers today please keep your microphones muted during the presentations during the speaking we will we will have time for q a so you just have to make sure there's a little red line right there and the same way once it's time for you when i call out your name for q a be sure to click that button before you speak so we can hear you we also want to encourage you to fill out our feedback form which will be emailed out to you later today directly to your email for those of you who register online for this webinar and our website is msbdc.org where you can find the office closest to you and again we provide that free confidential business advisory services with our certified business advisors and we can help in many aspects of your business and the first step is to fill out our request for counseling for me if you'd like to have an appointment with one of our business advisors and that form is available online so without further delay i want to introduce today's speakers first we'll have michael vann speak to us he's the president of the band group he has more than 20 years of strategic consulting and transactional advisory experience michael is a passionate is very passionate about second stage companies and focuses his efforts on helping owners obtain their value objectives by creating framework for continuity and scalability within their organizations his areas of expertise include strategic facilitation succession transition planning emergency and acquisitions he serves as a trusted advisor to the owners of companies who value his practical and personable approach and his ability to simplify complex business issues into an actionable plan after michael wolf here from brenda brenda krauss is senior online marketing specialist for bizbuysell.com this buy sell is the internet's largest and most heavily trafficked business for sale marketplace with more businesses for sale listings more unique users and more search activity than any other service biz buy sell currently has over 65 000 businesses for sale listings advertised in more than 36 million website visits annually biz by sell also has one of the largest databases of sale comparables for recently sold businesses in one of the industry's leading franchise directories after brenda will hear from red fred rose fred rose is co-founder of the wellspring cooperative corporation which is a community cooperative development organization with a mission to create a network of worker-owned companies in inner city springfield massachusetts and they provide on-the-job training employment and wealth creation opportunities for low-income and unemployed residents of the city after fred will hear uh from allison curtis she's senior social enterprise consultant for the ica group cooperative development team since 1977 the ica group has applied expert analysis results base planning and collaborative management approach to start and grow worker cooperatives democratic esops which we'll learn about today so if you know what s esops is what they call it and we'll learn about that today and other social purpose ventures i believe their offices are located in northampton massachusetts which is not in the bio but i wanted to add that because they're local so last but not least we're going to hear about john abrams and diedra today um john abrams is founder and ceo of south mountain company is a 46 year old integrated architecture engineering building and solar company committed to triple bottom line business practices and regional community engagement south mountain has been worker cooperative for 34 years it is a high scoring b corp and was one of the first beneficial corporations in massachusetts which i'm sure we'll learn about today as well what that means his writings include his book companies we keep i'm sorry i'm sorry his writing includes his book companies we keep employee ownership and the business of community in place which was published in 2008 he blocks and i'll put the link of the blog in the chat in a little bit and they did well bohan is also with um the south mountain company she's the ceo the chief operating officer and will transition to ceo when john retires in december 2022 avi zell is also joining us and she's the communications coordinator for south mountain company welcome everyone i know i know this is a lot to start with but i wanted to make sure you all knew who are the wonderful speakers we hear about today and pay lots of attention make sure you have a pen and paper and we'll get started with michael michael welcome can you tell us about what what are the options for business owners in terms of transition their business ownership what are the exit plans what are those options in general so there's realistically three options for for an owner to transition one is to sell it one is to retain it and the third is to liquidate it and within each one of those different different options there's a variety of paths that you can choose so on a sale you could certainly sell it internally or you can sell it externally you know and if you get into the retention side for your family and continuity there's a wide variety of estate planning pieces that you can put into place to to affect that continuity from generation to generation and then with a liquidation it's really a question of are you liquidating today or are specific dates are in or event certain uh time right and so which one of those transition options would you say is the easiest let's start with that i don't know if well liquidation at some levels is probably the easiest because you're just making a decision to wind down but that has complexities as well i think you know depending on the circumstances of the company they all have their their unique challenges um that you have to deal with like a sale which is what i think a lot of business owners start with that concept that i'm gonna take this asset that i've built and and sell it um would seem really straightforward just go out to the market and you find a buyer and hope that they you know they match but the reality is that selling a lot of businesses is very challenging um to do because you're really kind of looking for that needle in the haystack that one person or organization that's looking to buy your the type of company that you have was in has the resource to do it and is generally within the geographic footprint of what you're looking for so that has some unique challenges and then an internal sale has a whole host of other challenges if you're looking at just a pure traditional sale to you know an employee or a couple of employees who are going to you know buy it versus a nisop or a cooperative that type of overall employee ownership model for folks who are looking to plan for uh for the future in terms of selling their company what are some of the things they should be doing now or continue to do in anticipation of being able to put their business for sale so there's a pretty you know we utilize a pretty comprehensive planning process that starts with even a pre-planning stage which is just to start to think about what is it that you want to accomplish why do you want a transition plan understanding when that might be you know we always say an outcome of a successful transition plan is knowing who you're going to sell to when it's going to occur and the approximate value that you're going to achieve from it and so having the some clarity as to what you want for that outcome is a good starting point to deal with the the planning process and there's obviously other whole host of other issues that you need to think through such as what am i going to do once i exit or are there family issues that i that we're going to need to deal with that i want to start to think through on this process the financial side do i have enough money you know if i exit the ownership of the company to find retirement or the next um next stage of my life right and and so um how about if for folks who are looking to sell to a potential key employee what are some of the things that they need to plan ahead in advance um there's a lot of complexities to an internal transition you know one of the one of the challenges is do they actually have enough capital to affect the uh affected deal um and a lot of times that's the number one stumbling block that we face so as a as a seller who's contemplating a sale to one or two employees you need to think about what's the level of risk that you're prepared to take with that transaction how much of the financing do you want to take on what steps are you prepared to do early on to help them build value in equity so that they can in fact affect the transaction at a period of time and then critical to that is are they actually in a position to operate the company are they prepared as a successor you know there's a statistic that came out years ago that like 50 of business owners felt that their successor wasn't prepared to take on ownership of the company so are you developing them as leaders and giving them a rounded you know skill set to be able to run the company after after you exit excellent thank you michael during the um during the introductions i may i mentioned esops can you tell us what those are and when when would someone use them yeah esops are definitely not my my strongest uh area of point um but they're basically uh you know a method where employees are acquiring the stock uh of the company through uh a trust and so they're you know fred probably knows a lot more about them than i do as to the methods to how they're done you know we've historically seen them utilize with some larger companies because of the cost and complexity structure to it um but they're definitely a growing um growing path for for companies that are interested in transitioning ownership to their employees right can you give us examples i know you work with a lot of family-owned businesses here in the valley we have and we know we have a lot of family owned business says can you give us an example a story of a business transition that went very well and one that was a bit more challenging what was what was the challenging part what was the you know that kind of held things up people can learn from sure i think when when they've been successful when we've seen good transitions is when there's been a clear understanding of parties on their objectives and that they're aligned as to what they're they're willing to do you know so we always say there's no such thing as a win-win a good deal is when everyone walks away just a little bit unhappy and that's a usually a good sign of a transaction internally because you know if it's an employee or family members you know they might overpay a little bit on a on a transaction um but you know mom and dad are taking a little bit more more risk so we see that time where we see where they have a lot more challenges when there's there's not necessarily that alignment as to what it's going to take to to do the transaction but also where maybe the relationship isn't as um you know as cordial as one would think you know particularly in family-owned businesses you're dealing with a lot of you know baggage that comes from outside of the business that you have to deal with that um you may not expect particularly family businesses there might be siblings who aren't in the business who are looking for their share or their siblings in the business who you know maybe aren't contributing at the same level and think they should have the same level of ownership um so you're dealing with a lot more of those complexities and if you know mom and dad are unprepared to address those factors head-on it's going to make the that much harder to transition that company internally so how do you help businesses transition here so one of the one of the things that we do a lot is we help you know owners work through those particular issues that that they're having so help identify those objectives that they have in those expectations working with you know the key team members whether they're you know the family family members or key employees are going to be involved in this transition and get everybody online help understand what a seller's expectations are lay out for them what the options are available to them and what how those might work and then develop that plan that they can execute you know from the legal documents all the way down right and i know you yourself are um well i actually don't know this um in terms of of calculating the value of a company for the transaction how do you guys approach that we look at it from the kind of the most basic basic way is if you're looking at an internal transaction is what can we afford for cash flow in debt service on this deal based on the available cash flow what can it afford to to to pay for because ultimately most of the companies we're talking about are going to go get some level of bank financing so it needs to make sense from that standpoint there's also i guess you know you look at the working capital ratios on that type stuff the market multiples and things that may factor or influence that valuation but you know the the m a market has a lot of consistency into the value range and brenda can probably tell you this biz by cell runs you know publishes their studies all the time and show you know where those average multiples are for most businesses and they're a good indicator because they're actual transactions of what things are are trading for so those are valuable to you when valuing a company great thank you very much michael we're gonna go up next to um brenda uh brenda has a few slides she wants to share with you go ahead brenda go and meet yourself and take it away hi everyone um i want to tell you how biz by cell can help you with your business transition this morning um biz by sell is connects buyers sellers and brokers and the largest most active business for sale marketplace this buy sell has about 36 million websites visits annually we have about 65 000 listings advertised annually on our website uh 120 000 sold and for sale business comps that you can access and hundreds of thousands of businesses have been successfully sold on biz by sell where the biz by cell network includes biz buy cell biz quest and our and loop net and our partnership network which our business for sale listings appear on wall street journal usa today network um all business small business trends and several other partnership sites and our parent companies the co-star group we also have one of the largest online broker directories you can access our broker directory it's a great place to find a business broker who can help you you can browse by state county or city you can look at their credentials and look at their whether they have uh whether they're belong to the ibba association um their real estate license you can look at their experience what type of business they specialize in and if they have sold listings appearing or if they have any active listings appearing it's also a great place where you can list your own business for sale like i was mentioning earlier we have one of the largest business for sale networks where you can reach one of the largest audiences when you list your business for sale you can you have the flexibility to add multiple photos you can add a video you can add attachments you can include a map you can also list it confidentially if you like because many prefer to do that you don't have to mention the name you don't have to mention the location you can keep that private you can use a stock photo instead of a picture of your business you can also go in whenever you like and track the performance of your ad and make any adjustments you might find necessary or you can improve the performance by upgrading it to get more exposure as well we also have lots of educational tools we have evaluation tool i think michael mentioned earlier that it's a place where we track business for sale transactions biz by cell um works with participating brokers and we collect data on the closed transactions and we have what are called sales comparables or comps and if you purchase a valuation report you can go in there and you can look at what's going on in the market you can see how much businesses are that have recently sold have been selling for in certain parts of the country and in certain industries you can also access our biz with bisworth tool which is a very you know handy little fast and friendly calculator type of thing where you can just enter in your industry and your financials in your part of the country and get a ballpark figure you can also access our learning center and our learning center is really nice because it has lots of tips and advice on exit planning how to plan your exit how to improve the value of your business we also have a covet 19 learning center where you can access resources for small businesses it's also a great place because we have links to where you can download our free guides on how to sell a business it's about 100 pages and it kind of is a very general overview of the business for sale process it just kind of gives you a step-by-step you know snapshot of how the whole process works and we also have a free guide on buying a business you can just download pdf for free and just takes a second and if you want to reach us you can just contact us at our email at ask at bizbycell.com or contact us by calling us at 888 888-777-9893 thank you great thank you so much brenda we did have a quick question even though it's not q a time yet but would love to can you tell us what the acronym ibb i'm sorry i just missed it i think ibba what does it stand for that's international business brokers association and um maybe michael knows is familiar with it too i'm i'm assuming and a lot of brokers belong to it um it's kind of where they go to get certified they take classes they learn about how to become a better business broker and it's kind of like the i think it's the largest association in the united states for business brokers to belong to i think michael wanted throughout that yeah i'm a member of it so it's are you okay good i wasn't sure you could probably add no i mean you nailed it pretty well one of the things they do is in conjunction with uh m a source and pepperdine is run uh an annual or quarterly market survey of what's going on in transactions and it's it's pretty comprehensive um detail information not just here's what's sold but you know about leverage multiples and time to market and all those types of things so it's a great yeah it's pretty sophisticated group to belong to yeah all right so brenda what can someone expect someone that's signing up for your service what is the process if they want to list a business for sale well yes what would you recommend that they have prepared before they go out and say oh i want to sell my business okay well as michael mentioned earlier there's a lot of pre-planning involved in exit strategy um they would probably want to think about what their outcome is what their expectations are it also depends on whether they're trying to sell an existing business or an asset sale um i think one of the things that i would want to do i would want to get my fan financials in order make sure you you know you might want to work with your accountant or your attorney make sure you have you know because when you when you have to think about how do you want to attract buyers and what's a buyer going to ask you they're going to want to they want to know what your business is is worth to them and they're going to want to look at your um your performance your revenue your cash flow that sort of thing you're also going to need that type of information for yourself when you're preparing to see how much your business is probably worth it's going to be a lot of businesses are based on their financial performance and if you get an idea of what it's what it's looking at right now there's different things you can do to increase the value of your business if you think you'd want to get more money for you might want to do something to bring your sales up there's a lot of different things we have some great articles on how to increase the value of your business and how to improve it so you can get a better price for it on the market great thank you very much thank you very much brenda next up we're going to hear from fred fred rose would you mind muting yourself and tell us about wellspring cooperative corporation what is it how did it get started what do you guys do um yeah thanks um yeah so wellspring is a community-based organization in springfield our mission is to create a network of worker-owned co-ops in the city that will provide job opportunities and job training and also wealth creation opportunities because of workers as owners of companies sharing the company profits and really building wealth is a key a key part of moving ahead economically as business owners know and really trying to spread that wealth more wildly as a way to um try to bring up so the broader community economically so that's our broad mission and why we see co-ops as kind of a key strategy for community development is what does it really mean to be worker owned i mean you know what does it really mean so all the workers own a portion of the business like a percentage of it um yeah i mean the principle of worker ownership is a sort of one worker one vote and i guess we were gonna i guess we're talking some about um esop's employee stock ownership plans which are different right where where um workers you know buy into a share of a business through a trust and then you know can get asset that's more like a community benefits plan where our workers are not necessarily involved in managing a company whereas in a cooperative um the company is actually sold to the workers and the workers are both owners of the company and also management company on a kind of one person you know one vote basis so so that's the um we're focused on worker co-ops and esops are another alternative for businesses who are thinking about selling to their workers i was just going to ask that how do if all the workers own the company in the worker owned model how do decisions get made yeah there's a whole range of structures and um south mountain you know we'll speak about how they've structured theirs i mean um co-ops can be can have traditional management structures where they're you know where employees are part of the board and decision making but they also hire a manager to run the company so it doesn't mean that you're losing structure and yet some and some can be very flat where everybody's making decisions together so there's a lot of flexibility to creating a company that meets the needs of the company and and the interests of people working there yeah there's not sort of one formula very flexible right and can every business become a worker-owned business um yeah i think uh i think there are lots of considerations and and just stepping back a little to say um you know the possibility of selling a company to workers either through this employee stock ownership plan or just out of the workers um in a co-op is um you know makes sense for some businesses that and and possibly not for everyone and there's some things that make a business a good fit possibly for selling to their workers certainly having a stable workforce is key especially a workforce that may be long term where people have experience working in a business so if you're a business that has a transient workforce if you're a restaurant where people have moved in and out quickly that's a that's a difficult situation um so uh yes i think uh long-term workforce is pretty critical um you know building trust where there's some trust between the owner and workers is is key right i think they're uh you know it's a complicated process where uh both the um owner i think and the workers have a stake in the outcome where i just taken the continuity of the company and if people have that in mind you know it's sort of a shared sense of mission and also a shared sense of you know mutual interest right that both the owner wants to get their assets out but it needs to be a viable company moving forward so and i think uh critical that people get technical assistance and support through all the same things that any business goes through in terms of value doing evaluation of the company and uh you know deciding how to finance it those are the same things any business thinks about and then there's the added piece of it do the workers want to buy it right is it something that they want to take on um so that's a big other question do they want to do it and then i think then there's their whole process of building themselves as an ownership group right that start to think of themselves as owners rather than employees and so um yes i think there is a number of factors that need to be in place to make it a good fit for selling to workers right so it's not a matter of the industry or the business type is more about the factors that you talked about the workforce what is stable or transient you know what are some of the outcomes that you're looking for and um getting the right technical assistance and help to make sure that you have as much of a transition as possible with that can you give us a few examples of some worker-owned businesses here that i know you work with right there's a couple of you that you yourself have been involved with um yeah well we've um been involved in some pieces but actually we've partnered and and the ica group and allison will speak to this too you know i think uh you know the um there's multiple pieces to the puzzle and one is really doing the sort of financial planning and evaluation and all that and ica is really um extremely skilled at that and i think we've been more involved with um supporting a workforce rather than making building changing the culture of the company so that people uh you know make that shift to thinking themselves as owners and thinking through what are the bylaws how do you want to govern yourself those kinds of pieces so um we've been involved in that that kind of piece of it so i think we've you know looked at some companies and we've had some partnerships with ica and that kind of kind of way yeah can you tell us specifically i know wellspring harvest is one of the co-ops that you've been involved with can you tell us about them so wellspring harvest is a greenhouse that we did the business plan and started from scratch a little different than sort of a conversion by the company that um you know i think it's helpful in the community to have you examples um i did uh uh you know i think i had a recent conversation with downtown sounds which is a company in northampton that recently transitioned to being a cooperative their music store that's been around since 1976 and the owner was retiring and in 2019 they became cooperative and you know i think they have some their stories a bit about some of the challenges and some of the real uh benefits of making this transition um you know they were the owner wanted to leave fairly quickly they had to make decisions pretty fast you know the workers had to did a capital campaign to raise the money that they needed for the company and so building the financing was pretty important um you know they were musicians who had never you know done financial planning before so they had to learn the whole financial side and all that and uh how to run meetings and then but i think when they tell about the story it's been um you know really transformational for them because they have sort of a joint sense of ownership they sort of built you know what they say is kind of a collaborative culture they feel like people come into the music store and they understand that now it's kind of a shared community culture there and even through kovid they've um been able to keep the business profitable so i think the the joint ownership has made the company more resilient we're able to manage the ups and downs of you know changes in the economy and and they've you know kept the company pretty profitable which is it's been impressive so i think that you know it's a success story with lots of you know challenges along the way along the way um great thank you thank you thank you thank you i'm sorry go ahead friend i didn't want to say one of the reasons that companies are looking at um selling to their workers is really some of the challenges of finding buyers right and the you know the statistics are that maybe 20 of companies find um you know someone to buy their company which makes it um which means that there are many companies who don't find buyers out there and for many owners uh three quarters of their of owners see selling their company as a key way for them to pay for their retirement so pretty important so so i think there's a lot of motivation especially given the huge pool the sort of baby boomer generation that's now retiring um really two-thirds of companies in the economy are owned by this generation that's leaving uh going to be selling their business in the next two 10 15 years and so uh that big pool means that there's lots of people trying to sell and and not not so many people looking to buy and so um selling to workers is really one strategy that companies are looking to and lots of technical support out there and and the state has even put money into and ica manages this fund for business retention given the risk of this sort of generation this transitional generation and possibly losing lots of companies so worker buyouts or selling to workers is kind of one viable alternative for some companies to try to sell given the challenges of selling in the open market so great great point thank you fred thanks um very important point to me because we've today we heard about different things you can buy you can sell your business to one buyer you can sell your business to your workers you can sell your business to a key employee it could go to a family member there's many different options and but there's also considerations for each of them and ways to prepare for each of them things that you'll need to do and it sounds like it's something that you shouldn't correct me if i'm wrong i'm hearing you all say from business owner considering you know how i'm going to uh you know doing some session planning how i'm going to eventually get out of the way of my business and continue and see it to continue to grow um and go on after me um i can't do this alone i really should be reaching out to folks who are professionals who've been working with this and who can advise me on what i need to do in order to all the different things that i should consider as i go through this process so with that i'm going to find invite allison to join us alison thank you for joining us today yeah thanks for having me great so allison from the ica group so tell us about so i did a quick little intro on the mayo but tell us more about again remind us what your group does and how you help folks who are looking to transition ownership of their business absolutely yes so the ica group is a non-profit consultancy group we're based out of western massachusetts but we work with companies all across the country so our primary offices are in northampton so that's where i'm located and we provide consulting services primarily to business owners who are considering uh selling their businesses to their employees uh the primary models that we work with and that we help these owners kind of navigate and better understand our esops and worker co-ops uh so yeah we we do a lot of work um with business owners not only understanding whether or not their goals will be met through those types of transitions personal and financial goals and business goals but also doing a lot of feasibility analysis and understanding how um uh you know how how a business could transition into a worker cooperative or an esop into an employee-owned model um both you know financially and operationally um so yeah we we've had uh the luck of of you know interacting with many different types of businesses across industries and across geographies um but we you know of note we have uh funding right now through the state as as fred mentioned we are the administrators of one of the administrators of the massachusetts center for employee ownership also known as the mass ceo and we through that state funding are able to provide free business services to um business owners who are considering these options we do some kind of pro bono feasibility work with with businesses to see if this option could work to help meet their goals um so yeah and so what does that look like why would and what would you ask the business owner to bring to that that session that meeting with you yeah that's a great question um i think you know the first step in our work is always better understanding a business owner's goals as they kind of figure out what's next um that that term goals is pretty vague in general but i think it means different things for different owners we talk with owners about what their preferred timeline is to transition out of their business how much control they want to have in the business in different phases of ownership and as they they kind of like step out of their current role um what they'd like that to look like uh we talk with them about what their financial needs are yeah as fred mentioned um for so many of the owners that we work with their business is their greatest asset right so it's a huge part of how they're envisioning their retirement is understanding what happens next with their business so we talk through kind of all of the things that might be going on in the mind of a business owner as they're trying to figure out what's next we also end up talking a lot with business owners about what their values are and what they value about their business right so we hear from owners a lot who really want to make sure that their employees are well taken care of after they leave who have concerns about selling to third-party buyers and having the the business that they've created and that is their legacy be changed or dismantled in whatever way um and so we talk through kind of those concerns as well with people and um that's that's kind of the first meeting uh the second portion of our work is is this feasibility work where we dig into what a potential value of the business could be we're not professional evaluators but we provide kind of estimations of value based on our expertise around an employee ownership transition and so we do kind of an initial assessment of the financial feasibility of a a transfer of ownership to a group of employees um and kind of what that could look like and what what type of debt the business could hold in a type of transaction transaction like that what kind of financing needs it might have how it might operate as an employee-owned business right like fred spoke to the kind of key differences between a worker co-op and an esop so we helped do some assessment and feasibility uh testing around kind of what model makes the most sense for a business owner and for a business um the the two models are very different they have some similarities but they're very different in kind of what it costs to administer them and what the kind of regulations are around them so we help owners understand those different options as much as possible as well great so i'm glad you brought up um the cost question too you know can you can you share with us a little bit more like it's a range you know i guess it's two things how long does it typically take to go through the whole process i mean there's also just the planning phase versus the implementation phase and what are the costs associated with those faces in general if you can or if you can be somewhat specific that'd be great too as well yeah i'll do my best but it's hard not knowing the specific business that i'm talking to and you're totally right that like every business is a little bit different but i can i can kind of speak broadly and try to get as specific as possible um you know i think any exit planner worth their weight and salt will tell you the sooner the better right like get get planning as soon as possible even if your retirement goals are five ten years out start thinking about it now because you're only going to set yourself up for success um the the more you plan now um you know we work with companies um i think the shortest we've ever completed a transition to employee ownership as maybe six months or so start to finish very beginning of the of the um conversations to the end but i think on average it usually takes around a year to for a transition like this to take place of course there are differences in companies and in industries and how big the company is how how many employees all that stuff um yeah in terms of cost uh i think that that that's where one of the big differences is between a worker co-op model and an esop model i think more people are familiar with an esop model um it's it's just kind of more commonly used form of employee ownership um and so i think like this gets brought up a lot oh but i've heard it cost so much right like how do i make this happen if it's so expensive um there are definitely costs associated with esops um the idea is that uh yeah thank you employee stock ownership plan is the acronym that i'm using um esops yeah they do they do involve some administrative costs as well as some startup costs um around the actual transition but the idea is that the the tax savings that companies can potentially receive through that model help to offset those costs so part of what we do is to determine whether or not the tax benefits associated with a specific company are going to outweigh the cost of administering the ethop um you'll if you know if you look online and you look up things like you know uh how much money do i have to make in order to justify an esop transition or something along those lines you'll get a lot of different numbers i think the kind of rule of thumb is that um you want to have uh that the initial startup cost of an esop can be anywhere between 50 and 250 000 kind of depending on the structure of the company on um uh yeah the the trustee that you use the different you have to kind of use a specific type of um of um a service provider to help you set up an ethop um and then after that it can cost anywhere between fifteen to eighty thousand dollars to administer the esop so you have to hire a trustee you have to have a firm kind of pay attention to and help you run an esop over time um so again there there are some tax benefits to it to an esop that we kind of help to help that companies to navigate to see if that that will be worth it um co-ops on the other hand do not require any of those administrative fees they are not um a qualified like insurance plan or i'm sorry um a retirement plan like um ethops are and so they don't have the same irs oversight and don't require the same type of administration they're pretty much free to run they're very similar to a um a typical business structure it definitely you know can cost money to set them up if you uh are looking to utilize a service provider um you know the first couple of steps of our work with massachusetts businesses is free right now which is really exciting through this massachusetts uh state funding um but yeah it again kind of depends on the company but it's a much lower price to uh complete a transition from a worker co-op or to a worker co-op than it is to an esop and doesn't have any of the ongoing costs um we typically say you know between five and ten thousand dollars uh maybe five and fifteen thousand dollars to complete a co-op transition and are business owners paying this these uh fees to help them with this transposition out of their own pocket or does it come from the cash flow of the business how do they typically finance these types of transitions yeah that's a great question um service provider i think different service providers have different ways of of doing this um some charge is successful some charge um you know some sort of uh base fee for for their services um again we do a portion of our work for free through this date so that helps bring down the cost a lot um but it's often something that um yeah it kind of depends it can be kind of a combination of um something that comes out of the business is cash flow versus the the owner but you know at at this point in the transition those two things are usually pretty closely intertwined uh because business owners um and their yeah the the cash flow of the business is pretty closely tied to that of the business owner right and i know you mentioned that you yourselves like your organization doesn't do a lot of business value not like official business valuations i know there are certified business valuation consultants out there you know what what would be the ballpark like an average cost to get a business valuation done do you happen to know oh that's a great question um i feel like michael might be able to answer that question better than maybe or brandeis yeah i'm sure there's uh in that range but yeah i think because it was brought up i figured i would bring it up now i know we have q a coming up later on but michael um do you have an answer for us like about the average for business valuation business valuation can run i mean anywhere from a basic letter of opinion from 2500 you can spend upwards to 15 or 20 000 though as well so it really depends on what the purpose of the valuation is and who's and who's doing it great thank you so much thank you michael thank you allison awesome we're going to move on now to um we want to hear well before i move on let me see alison is was there anything else you want to share with us any any um examples or stories that you want to share with us that you think would be helpful for the folks on the call today i think john abrams is going to do a really fantastic job of sharing uh south mountain company's story um a few like local businesses that we can point to in the area that have transitioned successfully through help from ica group that i can just kind of point out are paragus it out in hadley um ewing controls which is out in greenfield they're an engineering firm um there's uh you know we're all over the country so there's some in new york some in rhode island there's a lot of examples and you can find more information on our website which is just the ica group.org um yeah great thank you if you don't want to take a quick moment you can copy paste that link on the chat that will be great so next up we have john abrams which is founder ceo of south mountain company and uh john welcome thank you for joining us going to make sure you are muted i'm looking over here uh go ahead you should have a button that helps you unmute yourself so you can join us so nice to be here thanks for having us thank you thank you welcome so tell us so you have a pretty uh uh you are a living example of a company the transition into being a worker owned so tell us about that well you know we've had two major transitions in our 46 year history and the first one happened 34 years ago the second one's in progress today and that first one was the transition from a sole proprietorship to a worker co-op the second is the current transition from our first generation leadership to second generation leadership and deirdre will tell you more about that but the originally um when we were a seat of the pants small company um very familial but hardly democratic the two of my long-time employees came to me and they said you know we don't want to start our own business which is the usual model go off we want to stay here for our careers but we need more of a stake we need um we can't just have an hourly wage forever so we started to think together about what to do and it would have been an easy matter to make them partners but we thought well if we're successful what we do this will come up over and over again over time and we started looking at other models the worker co-op was not widely known at all but ica was in existence and that they i think i think you started in 1977 something like that and um uh you weren't there allison but there was an attorney there named peter pitigoth and he helped us do this conversion and we used the mondragon cooperatives in the basque region of of spain as the model because there weren't many models in this country at that time so we did this transition there were 11 employees at the time there are 40 employees now we set this very long betting period to ownership of five years which is unusual in the co-op world it's usually one year two years three years but it's amazing it's really stood the test of time it's worked so well that the owners of south mountain have resisted attempts to reduce which have come up over time several times and now we've codified this path to ownership deirdre and abby our communication coordinator have worked really hard to make a path that takes new employees along this five years so that they experience every part of the business and how it works and how it functions as they get toward ownership so that um conversion to a co-op was a significant hinge point in the history of the company um it really changed everything i can't say we knew what we were doing but hindsight allows us to see that it really changed the company in dramatic ways and i would say has been responsible for whatever modest successes we've had so now we're deeply engaged in this transition to second generation leadership and at the end of the year of next year 2022 i will retire cease to be an owner deirdre will become ceo in a first among equals leadership team with our four department directors so she'll tell you about that and um i will do a brief wrap-up when she's done deirdre hi so as john mentioned i'm currently the ceo and i've been at south mountain for about 25 years i started in my late 20s i answered an ad in the newspaper i started as the bookkeeper i became the interior designer then ceo and transitioning to be the ceo at the end of next year so um as john mentioned we have this cooperative john has been the leader the founder for years it was kind of kind of inconceivable to all of us that he'll actually be leaving and so it was all very unreal until he kind of fixed on a retirement date range it wasn't a specific day necessarily it uh here's when i would like the cooperative to be ready for me to leave and that gave us the opportunity to start working in that direction and we had a real time frame some deadlines that we wanted to meet so it was a way to get us kind of kick-started on the second transition the first thing that he and i did was we interviewed several friends and colleagues of like-minded organizations that had undergone leadership transitions one of them that's familiar to everybody is king arthur flower also an employee-owned company they moved from a single founder leader to over time to co-ceos we also talked to gardner supply and to praxis consulting which is a good another good resource for employee ownership consulting and so we wrote up a lot of notes thought about it thought we'd go with the co-ceo model uh and then we sat on it for for maybe a year we didn't really wasn't cleared us but we then about two years ago we said okay when we return from christmas vacation we're gonna each think about it we're gonna come up with what we think the plan should be so i went away christmas vacation i thought about it and i had no plan how would co-ceos work so just a little bit of background and this goes back to kind of what fred was saying we have a traditional management structure but a worker-owned cooperative governance structure so we're a hierarchical organization in terms of management it's john it's me and then we have a level of department directors and there are four of them one of them runs our finance and admin one runs construction one does energy technology and one does architecture and engineering and so we knew that the department directors and i would be part of this team but we couldn't figure out how we would pick another person or two which is king arthur flower had more than two co-ceos and so it became clear to john over that time period that really what we would do is have a ceo and a leadership group a leadership team and that is me and the other department directors so that's what we proposed and that's what was accepted and ever since that date we've just been really working hard to make sure that that we're skill building internally and that the team that we've picked are really good together and working together and um can make complex decisions together i'd have to say so we're spending about two years on this we're one year into this transition we've got one more year to go we develop a lot of kind of checks and balances for ourselves we do capacity planning for the company capacity for the individuals on the leadership team what does each person need to do to build their skills to be confident leaders going forward we have a strategic plan and annual plans and we have tasks associated with those for the company to meet other goals and we meet regularly we meet about once a week we talk about staffing but a lot of that talking about staffing is also talking about capacities for ourselves and i have to say that this coveted time has been a great opportunity for this leadership team which is me john and the foreign department directors to really grow as a team because it's been a really complicated year there's been lots of hard decisions it's been really absorbing really consuming and we're finding that in a lot of things we know how to work together and that's been just a great coming out of covid that's a great relief we can see okay well we can we have a lot to learn but we can make this happen together and we also know that this model is going to serve us well in the future because john was a founding ceo i won't be around for that long and we're going to need another ceo in 10 to 15 years and because of our worker ownership model we're pretty sure that that next ceo and leadership team is already one of our co-owners and so we hire specifically for ownership potential ownership interest and then leadership so going back to john he can wrap it up for us all right he'll be right here you know i think the biggest lesson of all that we've learned is that and i think allison mentioned this that if for sole proprietorships and partnerships which see employee ownership as the path to long term stability in a democratic workplace and want to move in that direction or just as an exit strategy transition now it's just it's never too early and there are immense benefits that derive from early transitions so as founder and leader i was 38 years old when we transitioned in most companies the succession to eat to employ ownership it happens late in the career of the founder just like fred mentioned with downtown sounds um and so these companies are grappling with issues of both ownership and leadership at the same time in our case we begin our second generation planning with the ownership structure not only fully in place but it was tried and tested over time so we only needed to deal with leadership and that's what we're dealing with now and i gotta say that's enough to do we're grateful to be able to do this in the context of our solid ownership structure so um do it now and it's been a remarkable journey going through this second transition with this group of people that are so completely values aligned that work well with each other and um it feels to me like number one when i leave this company i think it's going to be in the best shape it's ever been in and ready to propel to greater places even but also it feels like it's a it's a very interesting time because many of the early people were my age and they've retired over the last 10 years i think six people have retired who collectively represent about 150 years of employment and ownership and they have been replaced by young dedicated passionate new people who are going to be the future leadership so it's a very exciting transition to see and to imagine as deirdre said the next transition and maybe even the one after that so um we are happy to answer any questions and thanks to all of you this has been great yes thank you john thank you to all the speakers today at this time i'd like to open it for for q a for those of you who are watching as participants there is a q a button at the bottom of your screen you can click on that and type in your question uh you could also type it right on the chat and or you can raise your hand and i can go ahead and give you a chance to unmute yourself to ask your questions so you have all those different choices and let's see here see i wanted this and thanks mia um so we have an employee ownership toolkit on our website that is a much more detailed version of our transition and advice for others and we will post on here how you find that great thank you john because and that's a good that's a good point because i was going to ask allison i believe allison and wellspring you guys have been putting together um more comprehensive programs educational programs right to to to educate people about the transition to being workaround yeah yeah we have all sorts of um resources online and we do presentations fairly regularly and are happy to meet with folks one-on-one um anytime so yeah excellent excellent and brenda mentioned brenda from biz by so she mentioned there's a couple of books that they have available on the website for free guide to selling a business guide to buying a business correct and so those are those are free resources there on this by cell and i do have a question for brenda um brenda what is the um so now i know we've been talking a lot of our work your own then the transition options and everything like that i did have a question from a um a client a business owner they were wondering what would be the cost of listing their business for sale and what are some of the fees that are associated for for that well it's supposed to listing for sale on biz by cell um it starts at 59.99 59.95 a month okay and if you sign up for listing it includes the valuation tool so you can run a valuation report so that's included of the price um if someone wants to do that they can do it for we have three month plans we have six month plans um we encourage people to get their learn about how to write a listing we have some resources on our learning center there's a nice little video on there um there's a few articles on preparing your listing if you think that you're at that point where you do want to list your business for sale um i encourage you to to learn about what you should include in your listing and how to write a really good listing and what will attract buyers types of photos you want to put types of descriptions types of attachments if you're worried about confidentiality we have a nice little article about that and how you can project the confidentiality of your business um yeah there's lots of great resources in the learning center to help you along the way if you want to build if you want to start building your ad right now we also have a really great customer success team who's right there that you can call our office anytime if you're having any kind of technical difficulties on building out your ad and you can publish it at any time you don't have to publish it immediately you can take your time as you build your ad if you see something that you want to change in your ad you can go in there and edit it at any time so it's you know we're right there for you if you need us great thank you thank you brenda and and just to make sure clarify that's that's mainly for business owners who are looking to just sell their business outright is not converting to worker owned that's different and so um i want to i have a question for michael uh so michael when you know when you help someone uh in terms of selling their business i believe you also do have done some educational programming as well right for groups but you also do this one-on-one consultations with people yes we just certainly have done some workshops and seminars on how uh you know how to buy a business or how to sell a business uh from that standpoint but we also um you know represent sellers of businesses and take them to market and you know do that on an exclusive confidential basis right and michael i have a very specific question for you um sometimes business owners just want to sell their business and be done with it but sometimes they they want to make sure it's okay like the business is gonna be going on so that i think this goes to the point that john was mentioning earlier you know if you're doing both the businesses business ownership transition and leadership transition at the same time you know they could think be things that go wrong in between them and i think for for a buyer if i'm buying a business there are things that i don't know about and i i want to get to know my team better and everything like that so the the seller how often does this seller usually stick around and what does that look like it varies we see it sometimes couple weeks to you know a year is a pretty typical time frame on an ownership transition remember when the business is being sold that unless it's being sold to private equity or someone like that that that buyer is buying the job they're buying out the position of the of the owner and taking on that role so they want them to stick around to be able to obtain some of that knowledge but usually they want them gone pretty quickly so they can make their own mark on the company and start to be in that position it can be challenging when an owner is a former owner is still there because the employees may still look to them and it can be an undermining experience i thank you for that alison i have a question for you so you spoke about businesses selling to employees what if your business does not have employees who would be able to buy it do you work with those type of businesses as well yeah that's a question we get very often and unfortunately um in order to be eligible to become a worker owner you have to have a worker cooperative you have to have at least three employee owners so we we work with small businesses but um only small businesses that have at least a handful of employees uh to to sell to so yeah i think your other options um for for selling might might need to come from uh michael's expertise rather than my own um but we're happy to make referrals to you know other providers of uh exit planning services for those who don't have employees to sell too another alternative to that i smell it go ahead um so we had this experience at wellspring we we have an upholstery shop um that we built inside of an existing upholstery shop so we partnered with an existing owner who didn't have many employees he didn't really have a succession plan but he um so we built kind of a co-op um within his workshop and he trained up our workers and then um as he retires we were gonna buy um the business from him so it kind of was building a co-op inside an existing company and something that we're you know we'd like to work with companies if you don't have workers but you have an existing company and possible this possibility of building sort of a transitional company within it's a it's another option and so how did that actually work those employees they how if i'm losing my connection here but ownership position i think i missed somehow my connection wasn't good can you hear me yeah yes i can hear you now um no problem i'll repeat the question so how how did how was that ownership transition funded with that particular example that you gave about upholstery who paid for the transition how do you help them out uh so my organization actually did the development of work so so uh it wasn't outside funding it was there we're a community development corporation so our mission is to create businesses and so we we created the business um you know ourselves and then it became a kind of a transition of a transitional business great thank you and um uh there's a question for ica here though sizia still make available copies of the book putting the democracy to work by frank adams like i said the question is for um for allison i i don't that's a good question i we had a few in our office before i left a year and a half ago but um i i can't tell you exactly if there are any left and where they might be but happy to lend them out to folks when we have access to our office again it's a great book i'm sure you can find it okay and and um i apologize so there's someone here named admin they did not have a chance to rename themselves apparently but um they have a question go ahead and ask your question they've had some good questions go ahead have to omit yourself in order to ask your question go ahead nope we're not hearing them so it doesn't look like the microphone is working there so we're going to um move on to another question here let's see um if if you wouldn't mind just typing your question then since we cannot hear you we still have a few uh like another 13 minutes here in the clock for the q a so um oh what was the title of the book that's the question that susan is asking i will find it out here in the q a it was um putting uh putting democracy to work by frank adams putting democracy to work by frank adams was the name of the book that was recommended any other books or any other resources you guys to the folks the panels that you would recommend for folks who are exploring you know they own their business or they're looking to grow it and eventually they want to retire what are some of the other resources you would recommend anyone can go on the panel oh i was just gonna say no i mean i i as i mentioned earlier you can download and download our free guide to selling your small business as i mentioned earlier just a reminder it's very easy just yeah it's just a couple clicks of a button okay and then i did post the blog for uh john you know john's blog i did post a link john's blog and he does have a book john reminds us what the name of your book is uh allison put it up there the company we keep and really the more recent version of that is companies we keep and i'll write it i'll write it okay excellent all right let's see if there's any other questions in the chat this is your opportunity we have all of these expertise all those speakers here um please don't be shy go ahead and type your questions um i know i have here um let's see it's anita you're still around here anita eliason she's from my office and nina you have a couple of clients and without mentioning any names who are i have been you know thinking about you know transitioning and what are their options any examples you can speak to us about yes can you hear me sam yeah and i'm sorry my my video's up for some reason um anyway yes and the biggest i think surprise to them has been how long it takes to prepare yourself to sell especially in the areas of financing where people are shoring up their books they're getting the records and we're trying to explain to them that it's kind of like um turning over a notebook right to the next owner to think about formalizing their business as though they're going to franchise it in a way so that someone has operational efficiencies in place as well and i learned a lot about this from michael as well when he did a seminar um at the cdc a while back and um and that's my question to michael if people come to you more prepared to sell is that a different um cost of engaging a business broker than if someone kind of comes and says can you do everything how does that work no because really the there's there's two aspects to an engagement one is a consulting engagement which is the preparing the company for work and that's definitely on an hourly rate structure then there is the success fee component about it once you take it to market and successfully get it sold so they're real separate engagements for most the most part okay got it great thank you nina great great questions great questions all around and so in the last few minutes uh we have left what i like to do is um uh what i like to do is maybe just go around one more time any final words that you'd like to share with the folks who are listening on us today or we'll be watching this in the future let's start with you michael what is a piece of advice one one word of one piece of advice that you give to folks listening today or in the future i think and it's been some of the common uh theme here today is start early you know it's never too early to think about your about your exit and the other thing i would say is always have a contingency plan you know because you can have a thought process on where an exit is going to go but you know that proverbial bus you know may come out of somewhere and change things drastically for you so having a contingency plan on how the business is going to operate uh before you get your transition done is really valuable great thank you how about you brenda um i would totally agree with what michael was saying um from from our perspective also somebody who thinks that they do want to have they they are at that point where they might want to list their business fairly soon think about it from a buyer's perspective and what um a buyer might want to ask you what they might want to know um what value you can offer a buyer they always want to know what the future potential of the business is um you know is something that they want to put their investment in and also think about if you are attracting a buyer a lot of buyers like to think about um you may you might find it easier to sell the business if you look at the different ways in which a a buyer can finance the purchase of the business there's a lot of really good incentives right now the cares act um from last year actually got extended for the sba debt relief program and you probably know a lot about that in your office i'm sure it's a great program for taking out an sba 7a loan and the pni is uh it's a forgivable uh plan right now i think it's six months of free pni but that program is going to expire pretty soon either be before the funding runs out or or by september i believe so those are those are good incentives to attract buyers so that's probably what i would want to add all right thank you and so um next fred any final words any words of advice for the folks listening yeah i would just say uh communities have a lot at stake in the health of businesses in their community and and can be real partners in this work you know we've we've done a number of things we've done um for creative financing we've done um public offerings to raise funds and capital uh for businesses and we've worked with community-based finance institutions in addition to traditional banks and in addition to the kind of resources that the state's providing but i think that uh seeing the community as a partner in your business transition it's a um you know i think where there's some real shared interest there so to encourage that um it's a broader sense of mission thank you how about you allison yeah i i reiterate everything everyone else has said um and just kind of add a little bit about thinking through your goals and and uh you know whether those be your financial goals and what you'll need for retirement whether um that has to do with the legacy of your business or the way that you uh your you know your you want you and your family to interact with your business moving forward um just spend some time reflecting and thinking about um what it is yeah that you what goals you'd like to meet uh and yeah i also just wanted to like quickly point out that fred brought up a really great aspect of this process that i think kind of we didn't get to because there's never enough time but um just that yeah there are financing opportunities for employee ownership um that are not necessarily available for other exit planning um options that that we are also happy to talk with folks about so i'll just add that in at the very end um so yeah right and we didn't talk about seller financing we didn't talk about any of that but we will we'll have to do a follow-up on specifically financing uh for for the ownership transitions and so nessa by john if you could share with us a few words i would say to anybody that's thinking about selling their business to their employees think hard about it from the perspective of your employees is this a business that you would want to buy so for making a business that really is um strong professional transparent that people can understand what they're getting and make it appealing to your employees make it something that you would want to own yourself okay thank you indeed anything would you like to do the owners of uh giving to the last one to send us off here sure i'm just follow up on i think some things that fred said and that john said i think hiring you know start even earlier when you're hiring think about if these are people that you want to share your business with and then sell to so uh think the law think about the long term when you're hiring and try and collect a group of people that are going to get along that are going to want to move the business forward together excellent well thank you very much everyone i certainly learned a lot today just from listening to you and validated a lot of information that i already knew but also i learned some new things i hope all of you who watch today or are watching this recorded webinar get something great out of it feel free to contact any of our speakers i'm sure they'll be more than happy to share with you some of their expertise and knowledge thank you for joining us today thank you to all of our speakers it's wonderful to have you here with us today thank you for offering your time it's very kind of you to spend this time with us this afternoon have a wonderful week and a great year and we'll see you again soon in the future have a great afternoon thank you thanks bye be well [Music] you