COVID-19 is having devastating effects on our local economy
The impacts of COVID-19 on Washington have been far-reaching.
Locally-owned businesses are the lifeblood of our economy and our communities. Over half (51.5 percent) of the private sector workforce in Washington State is employed by small businesses. However, many of these businesses are shutting down or severely curtailing operations to try to limit the spread of the coronavirus. As Washington State experiences some of the highest level of job losses since the Great Depression many leading economists fear that many of these local businesses will not survive.
Small business ownership in Washington State was already threatened before COVID-19 by the Silver Tsunami of retiring business owners. Nearly half of job-creating small businesses are at risk simply because their owner is of retirement age, with few options for business succession.
The added devastating impacts of COVID-19 on Washington have been far-reaching. The COVID shutdowns—required to protect public health—have created new challenges, now compounded by the need to retool in order to operate in our changed social distance environment. We’ve partnered with HomeBase, a company that provides scheduling and timesheet software to more than 80,000 firms and 1 million employees throughout North America. The Homebase data, illustrated above, gives us insight into these impacts for Washington State through three key measures:
1) the volume of hours worked by employees
2) the number businesses open at all
3) the number of employees working
Compared to January benchmarks, all three measures have shown dramatic declines before stabilizing at what may become the new normal. According to the Census’ Small Business Pulse Data as of June 30,2020, 40.8% of businesses in Washington State have been negatively affected by COVID-19 (2.6% higher than national average) and 9% don’t believe their business will return to normal level of operations. In addition, 60.4% of businesses in Washington have 2 months or less worth of cash on hand available for business operations 31.6% have 1 month or less.
Additionally, a poll of small businesses published by the U.S. Chamber of Commerce on June 3, 2020 showed fifty-five percent of small businesses believe it will take six months to a year before the U.S. business climate returns to normal.
What we can do about it
We must support small businesses to both weather this crisis and to retool to meet the COVID-required interaction models. Businesses need flexible, low cost capital and, in many cases, access to skilled business advisors / technical assistance to help navigate their local and industry requirements.
We must also support retirement-age business owners to not just close up shop—the community assets that their businesses have generated need to be preserved: jobs, services, tax base and vibrant local businesses communities. Faced with the challenges of bridging this crisis, many business owners may feel that the best route is to close down; the investment of energy and capital may not feel worth it at the end of a long career as a small business owner. Since for most small business owners, the business is their retirement nest egg, they are faced with devastating choices.
The next generation can step in and help bring the business through the crisis and carry the torch forward. Employee ownership offers business owners a path to a sale and to preserving their legacy. But only if the business can weather this crisis.
Given the changing nature of work and the economic insecurity of low- and middle-wage workers, proven yet under-represented solutions like employee ownership have immense potential for impact.
There is strong evidence that broad-based employee ownership has tremendous benefits for workers, for businesses, and for society. When successful businesses become employee-owned, they create better working conditions, increase worker voice, and facilitate asset building for employee-owners—all while boosting business survival rates and keeping local economies strong.
For more detail, see our recent publication, The Case for Employee Ownership.
How Project Equity is stepping up
We can help get our community’s small businesses through the crisis and embed employee ownership into the recovery.
We urgently need to provide flexible, low-cost capital alongside business advising and technical assistance to small businesses and to demonstrate, especially to retirement age business owners, that there can be a light at the end of the tunnel that makes it worth it to persevere.
Project Equity is accelerating our efforts and working with partners around the state and the country to help business owners who are considering closing their businesses for good see that keeping these companies alive through this crisis can have a positive long-term outcome of an employee ownership transition. Employee ownership increases employee engagement, which is key to business success during this uncertain time period that requires businesses to be nimble and respond quickly to change.
Business owners who sell to their employees post-crisis can gain retirement income and prevent the flame of their life’s from being simply, and unceremoniously extinguished. Communities will retain job-creating businesses and economic engines. And through employee ownership, workers gain a voice and ownership stake in their company and greater job security.
Business Continuity Funding Pilot: helping companies through the crisis and toward employee ownership
At Project Equity, we are actively designing pilot projects with workforce development boards, small business development centers and others across the state of Washington and beyond to create funds to help small businesses survive this crisis, so that their owners can execute a business sale upon retirement that leaves a powerful legacy: employee ownership.
Longstanding businesses have an outsized impact in local economies. Our studies (see this example, developed through our partnership with the Whatcom Community Foundation and other Washington State foundations) demonstrate that businesses over 20 years old typically provide upwards of 60% of small business revenue in a local community and about one-third of small business jobs.
We are actively raising impact capital and welcome pilot partners from communities across the country.
Policy recommendations: embedding resiliency in the recovery through employee ownership
Project Equity is advancing a vision for economic recovery that prioritizes employee ownership as a way to create more resilient businesses and higher quality jobs.
In our home state of California, we are working at several levels of state and local government to advance employee ownership.
We co-founded the Worker-Owned Recovery California (WORC) Coalition, and together with many allies, created and are advancing a comprehensive policy agenda through which the State of California can accelerate and support businesses to transition to broad-based employee ownership through education and outreach, technical assistance, and financing support and incentives.
On the national level, we contributed policy recommendations to advance employee ownership as part of the American Sustainable Business Council’s policy efforts in response to COVID-19.
These priorities are:
Employee-owners at A Slice of New York in San Jose, CA.
- Provide funding to states to educate business owners about broad-based employee ownership as a business continuity option.
- Build on the Paycheck Protection Program (PPP) forgivable loan program to roll out additional financing for companies that commit to a broad-based employee ownership transition.
- Address barriers to lending for employee buy-outs: Extend the Economic Injury Disaster Loan (EIDL) waiver of the personal guarantee for cooperative lending to the SBA 7a loan guarantee, and remove the “standby” requirement for seller financing for employee buyouts.
Please join us in advancing a recovery agenda that incorporates employee ownership. We must rebuild with more resiliency for workers, businesses and communities.