The Wave of Potential Job Losses in Michigan that Doesn’t Need to Take Place!
Millions of jobs were lost in the past eighteen months as businesses and consumers across the United States and the world were unprepared to deal with the COVID 19 virus. Thousands of jobs were lost in Michigan and many of those sources of income will never return. There is another potential crisis that could result in thousands of companies and jobs being lost in Michigan. The pending crisis has often been referred to as the “Silver Tsunami.”
Baby boomers are marching towards retirement. Most of the ones who own businesses don’t have a plan for the ownership exit from their companies. National studies show that between 75 and 80% of these owners don’t have a business succession or exit plan https://blog.massmutual.com/post/business-owners-exit-readiness.
The absence of a real plan is likely a “plan for failure”. It should be no surprise that approximately 75% of businesses listed for sale don’t sell as many aren’t ready for sale.
What might the impact of the Silver Tsunami be in Michigan? The Michigan Center for Employee Ownership (“MICEO”), a recently formed nonprofit, commissioned a study of privately held businesses owned by individuals who are 55 years of age or older. The study completed by Project Equity, a nonprofit employment research firm, indicates that over 80,000 companies are owned by baby boomers and Gen Xers, employing ~ one million workers in the state. These companies produce annual revenues of $204 billion and payrolls of over $40 billion. Given that the majority of these businesses haven’t been prepared for the next owner(s), tens of thousands of companies and hundreds of thousands of jobs in Michigan could be lost in the next ten years. How will the local communities survive if these businesses and jobs are shuttered permanently?
Economic developers have historically focused on attracting new businesses to their local communities. Given the pending transition of so many privately held businesses, economic development professionals need to ramp up their emphasis on retaining businesses and jobs in their communities. The best way to retain businesses locally in a private sale transaction is to sell to an insider (family, partner, managers, or employees), someone who has a stake in keeping the business local Exit Strategies for Business Owners: Internal Sales - Suncrest Advisors.
There are common challenges in selling the business to family members (no longer involved), partners (often retiring in a similar timeframe), and managers (they don’t have enough money to buy the business, and investors with access to funding are more likely to sell their interest to an outside buyer should the company struggle. One exit option that is very well known is a sale to all or many employees. Employees are very interested in keeping their jobs and remaining locally based. There are many examples of successful sales or “transitions” to employee-owned companies. As a Michigan-based nonprofit, the MICEO serves as an independent source of resources available to economic development agencies and professionals to help inform local businesses of their “insider exit options” (especially a sale to the employees) as part of a retention strategy. Please visit the Michigan Center for Employee Ownership booth at the 2021 MEDA Annual Conference for more information.
Authored by Roy Messing, Acting Executive Director, Michigan Center for Employee Ownership