The numbers are astonishing. The COVID pandemic has caused an estimated 100,000 small businesses to close, and more are likely to shut their doors for good in the next six months. Many small business owners are watching their passions become burdens as customers retreat and sales decline. 

But, there are ways business owners can bring their leadership to an end without erasing jobs for surrounding neighborhoods. The right kind of succession planning can help these owners transfer their companies to workers or investors from diverse backgrounds, which increases economic equity and anchors jobs. This is particularly important for manufacturing businesses whose careers can provide pathways to the middle class and often don’t require a college degree.

Our Pathways to Patient Capital program held a talk with three organizations which have on-the-ground experience guiding manufacturing businesses through succession planning. They talked about the patience required to make employee transfers work, the institutional players that can help ease planning along, and how they’re navigating an economic environment in which business owners and potential buyers are rattled by risk. 

Darrin Redus, Vice President and Executive Director of the Cincinnati USA Regional Chamber’s Minority Business Accelerator joined us to talk about the opportunity he sees in this moment to get more business owners of color into manufacturing. Tomás Durán, President of Concerned Capital in Los Angeles, told us about his work with aerospace contractors in the Los Angeles area and how public layoff aversion funds can be used to find businesses on the brink of closure. Franzi Charen, who oversees Marketing and Communications at Project Equity, discussed her organization’s mission to make equitable business transfers with help from a $5 million fund.

Here are some tips and takeaways from what they shared. 

The negative effects of this pandemic are uncountable, but succession planners believe it is creating new opportunities to change the face of U.S. manufacturing ownership. “Baby boomer” business owners whose kids aren’t interested in continuing the family business are particularly good candidates for succession planning, said Redus. “It’s a phenomenal opportunity, especially in industries like manufacturing that have been largely void of minority entrepreneurs.”

Durán agreed. “The vast majority [of manufacturing businesses in the L.A. area] are owned by people near or past retirement age. The other thing we know is that the vast majority of staff are people of color,” he said. His company identifies employees that could successfully take over businesses, and then helps them get the financing they need to make it happen. 

Charen says one of Project Equity’s main objectives is to close the racial wealth gap, which succession planning can help achieve. “Our goal is to work in 10 regions across the U.S. to help transition 60 companies to employee ownership [and] bring on 1,600 employees as new owners,” she said.

Succession planners are relying on creative approaches to capital to make transfers happen. Interested buyers who go through the Minority Business Accelerator in Cincinnati use their own capital and tools like SBA loans to purchase businesses, but sometimes those sources aren’t enough. Redus says they’re looking to create a hybrid CDFI-fund that can invest equity into these deals and increase the initial capital a buyer has on hand. 

Concerned Capital uses SBA working capital loans and hiring tax credits to make employee transitions happen. They have also tapped into Los Angeles’ layoff aversion fund to help the city identify companies that could be good candidates for succession planning. “Every county in the country has layoff aversion money, and is funded to find these kinds of deals,” said Durán.

In September 2019 Project Equity launched a $5 million fund called Accelerate Employee Ownership in partnership with an economic cooperative. The fund was created with an initial investment by the Quality Jobs Fund, a collaboration between the New World Foundation and the Federal Home Loan Bank of San Francisco. It will be deployed to help businesses adopt Employee Stock Ownership Plans and cooperative ownership models. 

Getting to business owners before they put their business on the market is key. When a business is placed on the market, speculation and competition might make the buying process far more difficult for mission-driven buyers. That’s why Redus and Durán stressed the importance of finding and getting in touch with business owners early on. 

“What we try to do is more on the proactive side [to] enable our potential buyers to build relationships with potential sellers so ideally it never gets to a competitive shop transaction,” said Redus. 

Getting the word out about your interest in succession planning is one way to help that along. Redus said one of their current deals happened after he gave a talk at a conference, and was approached by a few business owners looking to sell their businesses. 

Ending a business is a major and often difficult decision for business owners to come to, but it’s important to keep in mind the impact such a decision can have on the communities the business employs.