For many business owners, exit planning is agonizing, but could selling it to your employees as a cooperative home care agency be a win-win exit plan?
Thank you to Katrina Kazda of The ICA Group for providing a deep dive into employee ownership of home care agencies. In the article, she outlines the benefits of selling an agency to employees, explains some of the unique aspects of employee ownership, and maps out the transition from traditional ownership to employee ownership.
After years of investment in the company – time, financial, physical, and emotional – owners want to ensure the legacy of the business they’ve built. In a survey of home care business owners by The ICA Group and Home Care Magazine, nearly 50% of respondents expressed a desire to sell their businesses within the next five years. However, over 50% of those same respondents either had no exit plan or had only “thought about their exit”. Very few home care business owners reported having a written exit plan.
While succession strategies such as selling to family members, or competitors are well known, selling to a broad base of employees through a process known as “employee ownership conversion” is little known and often overlooked.
By selling to employees, owners can receive a higher gain, set the pace of the sale, and ensure the long-term success and the legacy of their business. Unlike selling to an outside buyer, the goals of selling owners and buying employees are deeply aligned.
By selling to employees, owners can receive a higher gain, set the pace of the sale, and ensure the long-term success and the legacy of their business. Unlike selling to an outside buyer, the goals of selling owners and buying employees are deeply aligned.
Four Benefits Of Selling Your Agency To Your Employees:
- Employee-owned home care cooperatives have significantly better caregiver recruitment and retention than traditionally owned agencies, with a turnover rate less than half of the industry average
- Employee ownership rewards employees and strengthens your community.
- The sale can happen gradually, at a pace that suits the selling owner’s needs.
- Employee-owned home care cooperatives are supported by a national network of other cooperatives and supportive institutions.
Agency owners have built community assets they want to see survive to the next generation. They also need the equity they’ve built to fund their retirement. Many also want to leave a legacy and to reward the ‘work family’ that helped build it.
Top 3 Objectives for Selling Home Care Owners
#1: Maximizing after-tax seller proceeds
#2: Take care of or recognize/reward employees
#3: Preserve the business’s legacy
Converting businesses to employee ownership is the only business succession strategy that guarantees all three objectives. So, what is employee ownership and how does it work in home care?
What is a Worker-Owned Home Care Cooperative?
A worker-owned home care cooperative looks like any other home care agency. It provides services to seniors in the community and employs caregivers and office staff. But unlike a traditional home care agency, employees at a home care cooperative share ownership and have more say in how their business is run. A worker-owned cooperative is a business that is owned and controlled by its workers. Like conventional businesses, worker cooperatives incorporate with the state, secure appropriate business licenses, pay taxes, and hire employees.
“Ownership” of a business gives owners the right to business profits and decisions about how the business is run. In a worker cooperative, employees can purchase a membership share that entitles them to certain rights. These rights determine how influence, money, and information flow through the company.
- Influence: In a worker-owned cooperative, workers have more say in how their business is run. The workplace is governed democratically, and worker-owners elect board members to represent their interests.
- Money: In a worker-owned cooperative, workers receive the profits generated by their work. These profits are distributed based on hours worked. If a company has an unprofitable year, profits are not distributed.
- Information: Worker-owners are also entitled to information about how the business operates and performs. This helps worker-owners make informed decisions about how to run the business.
The idea of caregivers owning their workplace might seem revolutionary. But worker-owned cooperatives are a proven business model in home care that benefits everybody. By sharing the risk and rewards of ownership, workers can build wealth, improve the quality of their jobs, develop the skills needed to run a successful business, and create and maintain jobs within their community. When caregivers own part of the agency they work in, they have a deeper commitment to the company and a deeper investment in its success. This improves care and business outcomes.
How are worker-owned home care businesses started?
Some agencies start as worker-owned cooperatives. Others start out as conventional agencies, and the owners decide to convert their business to worker ownership partly because it offers a profitable and flexible pathway to sell the business. Often this process occurs as an owner retires or moves on to the next chapter. Some owners choose to continue to manage the agency while sharing the risks and rewards of ownership with their employees.
How does a conversion to worker ownership work?
The ICA Group works with business owners of all types (not just home care agencies) to convert their firms to employee ownership. We provide simple, straightforward tools designed to ensure that the interests of all parties are addressed.
Here are three basic phases of selling your business to your employees:
- Owner Planning: ICA works one-on-one with the owner to determine whether a conversion to worker ownership will work for their business and meet their personal and financial goals.
- Worker Engagement: Through a series of presentations and training, ICA supports employees in learning about worker ownership, developing the skills needed to take over the business, and structuring the new entity.
- Transaction Execution: ICA supports both workers and owners in completing legal and financial transactions.
How long does it take?
In general, the process takes between six months and a year. Whether you are ready for retirement or just beginning to explore your options, a transition to employee ownership is an option worth considering. Owners who have made this decision are invariably happy with the results.
As Kippi Waters of Peninsula Home Care Cooperative in Port Townsend, WA so eloquently stated, “We all want the very best care for our community elders and know we cannot do it alone. It’s an honor to be part of a cooperative family that is collectively working together to raise the bar of excellence in home care. We are proud of our co-op and the difference we are making.”
—
About the author
Katrina Kazda is the director of the home care program at the ICA Group. She provides consulting support to home care cooperatives nationally including start-ups and operational home care cooperatives. Katrina has also been a lead researcher and writer on multiple home care cooperative publications.
For more information visit: www.icagroup.org/conversions/
