Written by: Illa Burbank, North Carolina Employee Ownership Center (NCEOC); Gene Holland, Small Business and Technology Development Center (SBTDC)
This is part 2 of our 4-part Employee Ownership Journey series, where we explore the path from founder-led to employee-owned.
In part 1 of our Employee Ownership Journey series, we talked about all of the options business owners face for the future of their business. Perhaps you are thinking about retiring, exiting your business for other opportunities, or want to diversify your assets. In part 1, we explored why employee ownership is a great option to preserve your legacy, sell only a portion or all of your business and reward your employees.
To succeed, you must be conversion ready. This means moving your business from a state of “owner-dependence” to “operational independence.” Here is your roadmap to getting there.
- Transferring the “Brain Trust”: Business owners often hold decades of institutional knowledge in their heads. To scale or exit, you must externalize that data:
- External Ties: Relationships with suppliers, customers, vendors, etc.
- The “Why” Behind Decisions: Help your team understand the industry landscape and competitive pressures you navigate to make your decision.
- Competition and partner overview: Who are your competitors, and how do you pay attention to what they do? Conversely, who are your partners, and how do you help each other?
- Big Picture Alignment
- Mission and values: what drives the company and what customer problem led you to start in the first place? How do you focus on solving customer problems?
- Long-term planning: enhanced by financial and operational transparency
- Human Resources and culture: A conversion is only as good as the people taking the reins.
- Leadership Pipeline: Next generation of leadership is in place and ready (or a road map is in place).
- Accountability: Regular feedback and accountability are in place
- Loyalty and sense of belonging: Do you have strong employee retention, and would they say that the company “has their back”?
- Empowerment culture: Do employees feel empowered to make decisions within their power without always having to check with the boss?
- Financials: For a smooth valuation and sale, your books must be in good order.
- Oversight: Someone other than the owner understands and evaluates financials–perhaps a Controller/CFO?
- Clean the Books: Remove personal expenses (like that company-paid car) to show the true profitability of the business.
- Optimize Capital: Focus on minimizing debt to make the business a more attractive buy and provide debt capacity to take on loans for the sale.
- Operations
- Documented Processes: Processes are documented, understood and available.
- Access: Someone other than the owner has access to software, websites and outside portals.
- The “Open Book” approach: Operations should run smoothly, regardless of who is at the helm.
- Employee buy-in: While this can be implemented after the sale for EOTs and ESOPs, it is ideally introduced beforehand. For Cooperatives, employees must understand and buy-in to the concept ahead of the conversion.
- Goals: whether they are daily, weekly or monthly, goals are communicated to all levels of employees, and they understand what they can personally do to help achieve these goals.
- Owner mindset: Sharing information shifts from employee to owner mindset.
- Personal Decisions
- Your Timeline: Do you want a clean break, or do you want to stay on?
- The Payout: Determine your liquidity needs. Are you looking for immediate cash, or are you willing to finance the transaction with a seller note to earn interest over time?
Maybe it’s time to take a test run. Could you take a 4-week vacation without taking daily calls from work?
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