Succession planning is a critical process for any organization, yet one that is often overlooked. It involves identifying and preparing suitable employees to replace key players as they retire or leave the organization. Without proper succession planning, the future success of the business is left to chance.
Do any of these questions apply to you?
Are you considering retiring from your sole proprietorship, partnership, or corporation in the next three to five years?
Do you want to see your business continue to serve your community?
Do you have three or more employees?
Do you believe you have imparted your team with passion for the business’ future and its vision?
Are your employees proficient, professional, and proud of their jobs?
Do you want to be involved, but also want to share the responsibility with others?
Rather than selling to a competitor; have you considered selling to your employees or a community-owned enterprise?
If so, this blog post is for you. We will consider the advantages of using the co-operative business model for your business’ succession plan and share some examples of successful business conversions to co-operatives.
The Challenge
Statistics show that three-quarters of small business owners do not have a business succession plan. Furthermore, only 30% of family-owned businesses survive into the second generation, and only 12% are still viable by the third generation. Co-operatives face similar challenges, but their unique structure and values provide opportunities for successful succession.
The Co-operative Advantage
Co-operatives are known for their resilience and long-term sustainability. By adopting the co-operative business model, employees and community members improve their chances of success. Unlike the private sector, where succession failures often lead to business closures, co-operatives thrive due to their shared ownership and commitment to community well-being.
There is also strong evidence that employee ownership has tremendous benefits for workers, for businesses, and for society. When successful businesses become employee-owned, local economies get stronger, workers’ earnings and agency increase, employee-owners build assets, and the companies themselves are more productive and enduring. More than one-hundred studies link employee ownership to better productivity, pay, job stability, and firm survival (Kruse 2016).
A co-operative business succession provides a solution for SME owners looking to retire. It is a successful transition model that provides a great exit strategy for the owner, while providing for job security for the employees, and preserves the service of the business to the community. Co-operatives are member-driven, community-based organizations. They care about the needs of their members and the quality of life in their communities, as well as the bottom line. They bring many obvious benefits to their members, such as sharing costs or financial dividends. Member-Owners can contribute to social, economic and community development. Perhaps most importantly, membership provides common ground and support to reduce isolation, and build confidence and skills.
A Co-operative Solution
Co-operatives offer two main options for succession:
Employee Ownership: Business owners can sell their business to employees. This approach ensures continuity and empowers the workforce.
Community Ownership: Community members can jointly purchase a business and continue offering its products and services. Co-operatives provide a platform for collective ownership and decision-making.
Who is Eligible?
Any business with three or more employees can become incorporated as a co-operative corporation.
Is Transitioning your Business to a Worker Co-operative Right for You?
Selling to your employees to develop a worker-owned co-operative can satisfy a number of needs for you as an owner. As a business owner, leaving your legacy to the employees and the community you developed is an important factor. Employees can be a buyer for a profitable company avoiding the "open", volatile market. A sale to the employees may allow you, the owner, who is not ready to retire, the chance to transition out over time, or gain some liquidity from your assets.
Examples of Successful Business Conversions to Co-operatives
1. Kincardine Ladies Fitness Co-op. In 2015, women users of the FitWorx facility in downtown Kincardine (formerly Curves), wondered what they were going to do when the gym closed. They decided to purchase it themselves and make it a community-owned co-operative. The co-op promotes fitness and well-being for women of all ages by providing a comfortable, well-equipped, and supportive gym. It is owned and operated by its members who pay a monthly fee and contribute one hour of volunteer time to keep costs low.
2. Moonbeam Community Grocery Co-op. Moonbeam is a small town in northern Ontario near Kapuskasing. The town's only grocery store was going to close because the owner wanted to retire. With support of their local caisse populaire, the people formed a community co-operative and sold bonds to raise the capital to purchase and upgrade the store. Sales have increased by 50% and they have expanded their meat selection and fresh fruit and vegetable offering for the community.
3. The Aron Community Theatre. In Campbellford, a small movie theatre constructed in 1949, was going to close in 2010 when its owner decided to retire. Dozens of community members joined together to form a community co-operative, and bonds were sold to raise funds. The theatre was purchased and upgraded. It now has first-run movies, community events and become a cultural focal point in the region.
4. Arise Architects Worker Co-op. A sole proprietor was looking to sell but was not ready to retire. He approached his employees to see if they were interested in ownership, and they formed a new co-operative that he became part of. They negotiated terms for a buyout package and now have expanded their operation that he is part of, with shared responsibility for success of the co-operative.
If you think that co-operative business succession may be right for you, let us help! The Ontario Co-operative Association can put you in touch with the right people; individuals with the legal, accounting, insurance, and business development expertise to help you confidentially assess your situation and if you so choose, guide you through the conversion process.
Submitted by Audrey Aczel, Communications Manager, OCA, July 2024.
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