Development News Northland Institute Launches New Initiative to Promote Employee Ownership
Minnesota Employee Ownership Fund offers up to $1 million in financing for owners selling their businesses to employees.
New Fund is hosting series of employee ownership educational seminars throughout rural Minnesota in 2008.
Small business owners now have another option as they plan for retirement thanks to a new program offered by the Northland Institute, a nonprofit dedicated to supporting community development through education and increased access to capital for businesses and communities throughout Minnesota.
The Minnesota Employee Ownership Fund helps retiring owners finance the sale of their businesses to their employees, rather than an outside party who may relocate or dissolve the company. This first-of-its-kind economic development loan fund partners with banks and other financial institutions to provide financing support for the implementation of Employee Stock Ownership Plans (ESOPs) — offering loans up to $1 million for qualified businesses.
What is an ESOP?
ESOPs are most often used as a business succession strategy by retiring business owners who have no family members or local buyers who want or can afford to acquire their companies. More specifically, an ESOP is an employee benefit plan through which business owners can sell all or part of their interest in their company to their employees over a period of years. By offering the power of business ownership to their employees, selling owners can reduce their taxes, boost business performance, and provide employees and their families with an opportunity to build personal wealth.
“We established our ESOP in 1998 to ensure we had a logical, systematic way of transitioning company ownership from my family to our employees,” explained Roger Ryberg, employee-owner and president of Windings, Inc., a New Ulm-based manufacturing company. “We chose an ESOP as a key element of our succession plan because I wanted our employees to have the opportunity for substantial benefit from the continued growth and profitability of this company they helped build. After one year of employment, staff at all levels qualify for the ESOP, which I believe gives employees added motivation to continually improve our business performance.”
In addition to the benefits enjoyed by business owners and their employees, Scott Martin, President and CEO of the Northland Institute, points out that employee ownership through ESOPs supports job preservation and helps maintain a community’s tax base by keeping successful businesses operating and securely grounded in their local communities.
“Locally owned businesses are crucial to the health of all communities,” Martin noted. “That’s why we created the Minnesota Employee Ownership Fund. We believe that employee ownership is a long-term community development strategy that can help stabilize local economies, especially in rural areas. Through the establishment of an ESOP, business owners can enjoy significant tax advantages and improve the performance of their company—while enhancing employee job satisfaction and providing employees with the opportunity to build wealth,” he added.
Thousands of Minnesota Businesses Could Benefit from ESOP Financing
The available market for ESOPs in Minnesota appears to be thousands of businesses based on research conducted by graduate students at the Hubert H. Humphrey Institute of Public Affairs at the University of Minnesota. However, most business owners aren’t familiar with ESOPs, and many companies don’t generate enough cash to finance typical ESOP stock sales transactions through traditional financing sources. That’s where the Minnesota Employee Ownership Fund comes in.
“Many small and medium-sized businesses are unable to obtain all of the capital required to finance an ESOP stock sale transaction through traditional financial institutions, such as banks,” explained Paul Halverson, principal and managing director for Chartwell Capital Solutions, a Minneapolis-based business ownership consulting firm. “The Minnesota Employee Ownership Fund partners with financial institutions to make up the difference between the financing a bank is willing to provide and the total dollars needed to complete a transaction. As a result, more business owners in Minnesota now have the opportunity to sell their companies to their employees and keep successful businesses operating in their hometown communities.”
Educational Seminars Planned in 2008
In addition to helping finance ESOP stock sales transactions, the Minnesota Employee Ownership Fund is committed to providing ESOP education and training to business owners, accountants, attorneys, bankers, financial advisors and human resource executives throughout rural Minnesota who are unfamiliar with the many benefits of ESOPs.
The Fund will be hosting daylong seminars beginning later this spring in Mankato, Rochester, Duluth, St. Cloud and Detroit Lakes to introduce small business owners and local business service providers to ESOPs as a business succession planning option. The Institute has retained experts from several disciplines as seminar faculty to provide an objective overview of how ESOPs work and help attendees determine whether an ESOP makes sense for their companies.
“We encourage owners of companies with 25 or more full-time employees to register for one of our seminars, as businesses of this size or larger are best suited to achieve employee ownership through an ESOP,” Martin explained. “Additionally, the seminar gives business consultants — from attorneys and financial advisors to bankers and accountants — an opportunity to learn more about ESOPs, so they can better advise their clients about this succession planning option.”
For more information about the Minnesota Employee Ownership Fund, visit www.meof.org.
About Northland Institute
The nonprofit Northland Institute was founded in 1996 with the mission to design, establish and operate self-sufficient community development programs and organizations that increase access to capital and educate businesses and communities, especially in rural areas. In addition to the Minnesota Employee Ownership Fund, Northland Institute manages two nonprofit economic development organizations — the Minnesota Community Capital Fund (MCCF) and the Twin Cities Community Capital Fund (TCCCF)
