Her CEO Journey™: The Business Finance Podcast for Mission-Driven Women Entrepreneurs

Weekly show where my featured guests and I explore the financial and business challenges women face on the entrepreneurial journey to success. You'll hear them talk about the money side of their businesses in ways you've always wanted to know about, but wouldn't dare ask. They openly share their disappointments, failures, successes, and everything in-between as they grew sales ranging from 6 to 9 figures. Knowing where your business stands financially helps you make critical decisions with confidence. It's simply the best way to be sure you grow a business that fuels the life you want to live.

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episode 144: Steward Ownership: Exiting Your Business with Employee Ownership - The Journey of Alison Lingane [transcript]


What is the definition of success? If you’re a mission-driven business for good, you know that success is about more than just the bottom line. However, you need to make a profit in order to survive and make a positive social impact. That’s where employee ownership comes in. Employee-owned businesses do better on average than their standard counterparts, and also do good for society.

In this episode, Alison Lingane provides insights into the benefits of employee-owned companies. She also discusses ways to get into employee ownership, its financing structure, and the financial institutions to support the transition. Finally, she explains the relevance of financial record keeping, financial forecasting, and transition planning to various ownership structures.

If you’re interested to know how your business can engage more employees and create a positive impact in the community, then tune in to this episode!

Episode Highlights:

  • [05:04] Alison’s Journey in Project Equity
  • [06:26] Building a Program for the Urban Youth 
  • [07:17] Getting Her MBA at UC Berkeley 
  • [08:24] Alison Working for an Employee-Owned Company 
  • [09:21] About Project Equity
  • [10:47] Why Employee Ownership Is Not Taught in Business School 
  • [12:00] Launching of The Global Social Venture Competition
  • [15:18] Employee Ownership Increases Enterprise Value
  • [16:11] Different Forms of Employee Ownership 
  • [20:01] Finding the Right Form 
  • [24:43] Difference Between ESOP and Worker Co-op
  • [28:10] The Financing Process 
  • [31:32] How Employees Become an Owner
  • [34:40] Transitioning to Employee Ownership
  • [36:51] Bringing Capital to Your Business
  • [37:49] Lending Institutions
  • [43:23] The Community Development Financial Institution (CDFI)
  • [45:57] Does Credit Score Matter?
  • [51:03] Engaging Employees During COVID-19

Resources:

  • Visit Christina Sjahli's website for more insights on designing an ownership structure that aligns with your company vision on the Her CEO Journey™ podcast series!
  • Chat with Christina and set up a time here!
  • Download the Forecasting Guide so that you can create a better and improved financial forecast for your business!
  • Connect with Alison at LinkedIn
  • Visit Project Equity 
  • Take part in the Global Social Venture Competition!
  • Learn more about the CDFI Fund


Enjoy the Her CEO Journey™ Podcast?

Write us a review and share it! If you enjoyed tuning into the show, then do not hesitate to leave us a review. You can also share this episode with the women you know so they can find financial empowerment and get their ideas into the world.

For more episode updates, feel free to visit my website. You may also tune in on Apple Podcasts, Google Podcasts, Spotify, or Stitcher.


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 2021-11-25  54m
 
 
00:06  Alison Lingane
There is this
00:06
powerful, powerful tool that is
00:09
actual ownership. That ownership
00:09
of a portion or all of the
00:13
business combined with this
00:13
ownership culture development.
00:17
We all know that the business
00:17
can only succeed if the
00:21
employees are aligned and
00:21
engaged. And this is a powerful
00:26
tool that can help you engage
00:26
your workforce, can actually
00:29
help you grow your business
00:29
faster, get to those goals
00:32
faster, whatever they may be.
00:35  Christina Sjahli
Shareholder
00:35
primacy and share value
00:38
maximisation are not the focus
00:38
for purpose-driven founders.
00:42
Instead, purpose-driven founders
00:42
see profits as a tool to support
00:46
a company's mission. Profits are
00:46
reinvested in business and share
00:51
with all stakeholders. Profits
00:51
are not an objective in
00:55
themselves, but a means by which
00:55
the purpose is furthered. The
00:59
question is, can your commitment
00:59
to the triple bottom line
01:03
continue if leadership and
01:03
ownership change over the last
01:08
six weeks? Starting with episode
01:08
137, we explore this question
01:13
from various perspective. We
01:13
invited guests who dedicate
01:17
their work to alternative
01:17
ownership. They have shared
01:21
about the different ownership
01:21
structures to protect your
01:24
purpose. The relationship
01:24
between governance, ownership
01:27
and financing, the transition
01:27
process to alternative
01:31
ownership, and if alternative
01:31
ownership is right for you and
01:36
your business.
01:37
Today's episode is the seventh
01:37
and last episode of this
01:41
alternative ownership podcast
01:41
series. We hope you have learned
01:45
a ton about the alternative
01:45
ownership model from the
01:49
cooperative model to The
01:49
Perpetual Purpose Trust model.
01:53
For the last episode of this
01:53
podcast series, we close the
01:57
series with Alison Lingane,
01:57
co-founder of Project Equity.
02:02
Alison shares among others, her
02:02
personal hypothesis on why
02:06
employee ownership wasn't taught
02:06
in business school, the
02:09
different ways to get into
02:09
employee ownership, the
02:12
financing structure and
02:12
financial institution that
02:16
support the transition to
02:16
employee ownership, and draw of
02:20
financial record keeping and
02:20
financial forecasting and
02:24
planning for transition to
02:24
employee ownership.
02:27
You're listening to Her CEO
02:27
Journey, the business finance
02:30
podcast for mission-driven women
02:30
entrepreneurs. I'm your host,
02:34
Christina Sjahli. If you are new
02:34
here a big warm welcome. If we
02:40
are not connected on LinkedIn,
02:40
please reach out and say "Hi",
02:43
because that's where I hang out
02:43
and share my business finance
02:47
tips. If you have been listening
02:47
to this podcast for a while, and
02:51
you are a regular listener, I
02:51
want you to know - I appreciate
02:55
you. My podcast won't be around
02:55
without your support. This is a
03:00
free weekly show where my guests
03:00
and I want to inspire you to
03:04
balance between mission and
03:04
profit, to create an impact in
03:07
this world, and to achieve
03:07
financial equality through your
03:12
business for good.
03:13
As you are listening to this
03:13
episode and the other six
03:16
episodes in this alternative
03:16
ownership podcast series, our
03:20
guests often share the common
03:20
characteristic of purpose-driven
03:25
businesses that are successful
03:25
to transition to employee
03:29
ownership or other alternative
03:29
ownership model. A successful
03:34
transition to alternative
03:34
ownership model requires a
03:37
credible business model and
03:37
strategic plan, a track record
03:41
of business profitability, sound
03:41
financial management oversight,
03:46
as well as the capacity to adapt
03:46
effective governance systems. A
03:51
sound financial management
03:51
oversight includes your ability
03:55
to create well-thought financial
03:55
forecasting for the long term.
03:59
Financial forecasting is a
03:59
combination of your historical
04:03
record, as well as your vision
04:03
for the future.
04:06
If you don't have a financial
04:06
forecast in place and would like
04:11
to know how to build a well
04:11
thought financial forecast, then
04:14
we have created a guide for you.
04:14
Use the link in the show notes
04:18
to download the guide and
04:18
jumpstart your financial
04:22
forecasting journey. When you
04:22
are ready to focus on building
04:25
your business, and want us to
04:25
manage the financial back office
04:29
process that comes with a
04:29
virtual CFO, connect with us at
04:33
christinasjahli.com/lets-chat.
04:33
Alison Lingane, welcome to Her
04:40
CEO Journey. It is a pleasure to
04:40
have you here today.
04:44  Alison Lingane
It's so
04:44
wonderful to be here with you
04:46
today. Thanks for making the
04:46
time for this conversation.
04:49  Christina Sjahli
So, before we
04:49
dive into employee ownership and
04:52
appropriate deal structure to
04:52
finance a transition to employee
04:56
ownership, I would like you to
04:56
share with my audience. How did
05:01
you start your journey to
05:01
founding Project Equity?
05:04  Alison Lingane
As many folks on
05:04
your podcast are probably have
05:07
similar experiences. Makes sense
05:07
in the rearview mirror, and is a
05:10
little windy on the path to
05:10
where we got. Way back when
05:16
first job out of college, this
05:16
was now 30 years ago, was
05:21
running job training programs
05:21
for young people. I worked at
05:25
really a neighborhood-based
05:25
community youth organization.
05:29
And I work primarily with the
05:29
high school students. Job
05:32
training is a space and a field
05:32
that's really, really important
05:36
in terms of creating past
05:36
opportunity for people. And,
05:40
think the space has come a lon
05:40
way in the last 30 years. When
05:44
first got into it, the youn
05:44
people who we worked with, th
05:48
s nonprofit had a contract wi
05:48
h local parks. Every day, five
05:53
ays after school on Saturday
05:53
ornings, we would get the van an
05:56
the tools and go to local park
05:56
and do weeding and mulching a
05:59
d, and that kind of work. You
05:59
now, I started just thinking a
06:02
d learning more about what the j
06:02
b training space is all about
06:05
nd started asking the question,
06:05
Well, you know, why are there
06:08
so many job training programs
06:08
hat really are training
06:10
ven for adults?" In what are
06:10
frankly, poverty-level jobs or
06:14
obs that don't have a lot of o
06:14
portunity. So, getting a job is
06:17
reat. But then, where do you go
06:17
from there? How do we really
06:20
think about what the infras
06:20
ructure is needed to break
06:24
he cycles of poverty?
06:26
While I was there, at this
06:26
nonprofit organization, I built
06:31
up a program where the young
06:31
people could create their own
06:34
microenterprises. So, they could
06:34
get promoted from the the entry
06:38
level job training into this
06:38
microenterprise development
06:41
program. Probably not
06:41
surprising, the difference
06:45
between asking people to show up
06:45
and kind of check their brains
06:48
at the door, and break and
06:48
mulch, and sweep versus really
06:52
you can't check your brain at
06:52
the door because you are
06:54
creating something. You're a
06:54
part of all of the pieces of
06:58
what this new enterprise is
06:58
going to be. It was day and
07:00
night difference. The same young
07:00
person and the two different
07:03
programs. Day and night
07:03
difference, right? If you ask
07:06
people to bring their full
07:06
selves, they absolutely do.
07:09
Seeing some of these young
07:09
people, it was just amazing.
07:13
That to me is kind of what is
07:13
really framed up the rest of the
07:16
story.
07:17
So, I left there to get my MBA,
07:17
I went to UC Berkeley High
07:20
School of Business. I wanted a
07:20
set of skills to be able to
07:24
scale programs that were really
07:24
creating opportunity for people
07:28
and really leveraging the
07:28
business world. I left my MBA
07:32
program wanting to get real
07:32
world business experience. So I
07:37
went into the mission, worked in
07:37
mission-driven companies through
07:40
different executive roles over a
07:40
period of nearly a couple of
07:43
decades. Always in this quest
07:43
for how do we create opportunity
07:47
for people, and how do we do it
07:47
at scale. Then, on this learning
07:50
journey to how does it all work
07:50
and really itching to get more
07:53
back to sort of the roots of
07:53
where I started and just started
07:58
meeting people and was
07:58
introduced to my co-founder,
08:00
Hilary Abell. That was the first
08:00
time that I had learned about
08:04
this business model called
08:04
employee ownership. Mind you,
08:08
I've been to business school,
08:08
I've been in mission-driven
08:10
companies. That was my lightbulb
08:10
moment of, "Oh my gosh, wow!
08:15
This really is a business model
08:15
where that opportunity is baked
08:20
in." So, I become an employee at
08:20
an employee-owned company. I
08:25
have the opportunity for a job
08:25
that really is high quality job,
08:31
has the ability to not only have
08:31
higher wages and good benefits,
08:35
but also to have asset building
08:35
for me and my family, which
08:39
really is what breaks the cycle
08:39
of poverty, what breaks that
08:42
chain of intergenerational
08:42
poverty. And, also has
08:46
professional development
08:46
opportunities because these are
08:48
workplaces where, back to that
08:48
experience in the to job
08:51
training programs, these are
08:51
companies where people are asked
08:55
to bring their full selves.
08:55
They're asked to bring their
08:58
ideas and their energy, and
08:58
their creativity, and their
09:02
sense of ownership and what that
09:02
looks like to the job. In some
09:07
workplaces that are
09:07
employee-owned, there is also
09:09
the opportunity to run for and
09:09
be elected to serve on the Board
09:14
of Directors of the business,
09:14
which is a tremendous
09:18
professional development
09:18
opportunity and can open up all
09:20
sorts of new avenues.
09:21
So, the question then became,
09:21
"Where have you been all my
09:24
life?", "Why haven't I heard
09:24
about this?", "Why is it that
09:30
this isn't being taught at the
09:30
top business schools?", because
09:33
all of the data shows that
09:33
employee-owned companies
09:36
outperform their peers, they're
09:36
better for workers, they're
09:39
better for the businesses and so
09:39
therefore, they're better for
09:42
the communities in which they
09:42
operate. Why isn't this being
09:46
taught? And so, "What can we do
09:46
about it?", became the next
09:49
question. And that really is the
09:49
genesis of Project Equity. What
09:54
we're trying to do about it is
09:54
we're trying to make this into
09:58
something that is normal and
09:58
self-generating, and people have
10:02
heard about it. In fact, is the
10:02
preferred business model because
10:06
again, all of the data backs up
10:06
that this is a business model
10:11
that truly is a win-win for the
10:11
business, for the workers, for
10:16
communities and for the founders
10:16
as well.
10:19  Christina Sjahli
Okay, you kind
10:19
of intrigued me there because
10:21
the question that you're asking,
10:21
"Why this has not been taught in
10:26
majority of business school?"
10:26
Right? Because I never heard
10:29
about employee ownership until a
10:29
few months ago. I understand
10:35
about stock option. I worked for
10:35
a startup before. I know I have
10:38
a stock option. But this is a
10:38
completely different model. So,
10:42
why do you think this has not
10:42
been taught in the business
10:47  Alison Lingane
I don't know
10:47
that I have a great answer to
10:47
school?
10:49
that. But I can give you some
10:49
hypotheses. I think that, in the
10:54
US in particular, the founder is
10:54
the hero probably over the past
10:58
three decades or something. This
10:58
shift from, "I'm founding my
11:02
business", to "Start a business
11:02
and maybe I'll support my family
11:06
with that business", or whatever
11:06
it may be. A self-sustaining
11:10
enterprise that, it gets to a
11:10
certain size, and it might stay
11:13
there happily. And that's good
11:13
for everyone. It's good for our
11:15
communities versus, "Oh, it's
11:15
all about the capital and the
11:19
big opportunity and really, the
11:19
entrepreneur and the capital
11:23
providers are the kind of the
11:23
heroes of the story", if you
11:26
will. Just a little side stat,
11:26
which, referring to our baby
11:31
boomer business owners, that a
11:31
real entrepreneurial generation.
11:35
Today, that generation owns an
11:35
estimated one out of every two
11:40
of our local privately-owned
11:40
businesses that employ people so
11:44
that the local job creators
11:44
are... Half of them are owned by
11:48
baby boomers. And those
11:48
businesses need need new owners,
11:52
right? Because baby boomers are
11:52
retiring already and are going
11:56
to continue to retire. That's
11:56
really what's being taught in
11:59
business school.
12:00
Just a quick side story when I
12:00
was at Haas - The UC Berkeley
12:04
Haas School of Business. This
12:04
was in the late 1990s. The
12:08
internet was just getting
12:08
started and everyone was going
12:11
to start their internet company.
12:11
There was a business plan
12:16
competition - The Berkeley
12:16
Business Plan competition, I
12:18
believe. It still exists today.
12:18
And then everyone was designing
12:20
their big internet empire. Of
12:20
course, the ".com" bust happened
12:24
shortly thereafter. While I was
12:24
there, there were a group of us
12:28
who said, "Well, gosh, there's
12:28
got to be a way to start
12:30
businesses that are really about
12:30
creating positive change in the
12:34
world, and creating revenues,
12:34
right?", because you got to pay
12:37
for that business and make it
12:37
self-sustaining. But the leading
12:40
reason for you doing the
12:40
business is to create positive
12:42
change in the world. So, we
12:42
founded what's now The Global
12:45
Social Venture competition back
12:45
in, I believe it was 1999. Still
12:51
going strong today, but it was
12:51
the first business plan
12:54
competition of its kind that
12:54
required a social return on
12:57
investment. So, the financials
12:57
that you had to submit included
13:00
your normal profit and loss
13:00
statement, but also a social
13:02
return on investment analysis
13:02
that forced you really to think
13:06
about, "What is the change I'm
13:06
going to create in the world
13:08
through this business?" The way
13:08
that I think about this is...
13:12
Business exists - yes, because
13:12
we need to make money and
13:17
support ourselves and our
13:17
families. We need to do good by
13:20
our employees and our customers
13:20
and our vendors, and, you know,
13:24
we could also create some
13:24
positive change in the world on
13:27
top of that. That's what success
13:27
looks like. And frankly, I think
13:31
that's how success should be
13:31
defined in business.
13:34  Christina Sjahli
I completely
13:34
agree. And then you brought back
13:37
some memory from 1995/1994 when
13:37
I was in a business school,
13:43
right? I went to University of
13:43
Oregon, and I was in accounting
13:48
program over there. And I
13:48
clearly remember, one of my
13:53
projects for the whole semester,
13:53
was about calculating
13:59
shareholder value. That was the
13:59
whole project. How can we
14:04
increase more value for the
14:04
shareholders? There was no talk
14:10
about other stakeholders. I had
14:10
no clue about this social
14:15
enterprise model, thinking about
14:15
the different stakeholders, not
14:20
only the shareholders until to
14:20
tell you the truth, like three
14:25
years ago. That's only because
14:25
my experience, my own
14:29
experience... Is just something
14:29
is nagging me. Something is not
14:33
right, and then I don't know
14:33
what is not right. Right? It is
14:36
always that. You don't have the
14:36
answer. You kind of feel like
14:39
there is misalignment. How can
14:39
you feel to be in alignment
14:45
again? But I wish... And then, I
14:45
know there are more and more
14:49
business school that talk about
14:49
social entrepreneurship. That is
14:53
talked about like, "The ability
14:53
of a business should go beyond
14:58
the shareholder value." If we
14:58
have been thinking about this
15:02
all along for generation and
15:02
generation thinking about beyond
15:05
the shareholders value. I don't
15:05
think we would be in this
15:09
situation in the world right now
15:09
with the climate change, right?
15:15
But unfortunately, that wasn't
15:15
the case.
15:18  Alison Lingane
The thing about
15:18
it is, is that employee
15:21
ownership, there's sort of this
15:21
narrative of, "Oh, well, there's
15:26
trade-offs, right?" If you do
15:26
good in the world, maybe you're
15:30
going to decrease your
15:30
shareholder value. But employee
15:33
ownership really puts up on its
15:33
head, because employee ownership
15:39
is doing good in the world. And
15:39
it's actually increasing your
15:44
enterprise value and your
15:44
shareholder value at the same
15:48
time. So, we just need to
15:48
understand that if you engage
15:54
your stakeholders and do well by
15:54
your stakeholders, your business
15:59
will be more successful. So,
15:59
you're not giving something up,
16:02
you're actually adding.
16:04  Christina Sjahli
Let's get into
16:04
the employee ownership. What are
16:07
the different ways to get into
16:07
employee ownership?
16:11  Alison Lingane
At Project
16:11
equity, which you know, we're a
16:13
national nonprofit organization
16:13
and we support businesses in all
16:18
of the forms of what we call
16:18
broad-based employee ownership.
16:23
There are many forms. Just very
16:23
briefly, the three most common
16:29
that your listeners might be
16:29
familiar with the ESOP form.
16:33
ESOP is an acronym that stands
16:33
for Employee Stock Ownership
16:36
Plan. This form of ownership is
16:36
basically created by Congress,
16:41
and they passed legislation in
16:41
the late 70s, strengthened in
16:45
the 80s in order to encourage
16:45
employee ownership because of
16:49
all the reasons we're talking
16:49
about today - that employee
16:51
ownership is good and gave a lot
16:51
of tax breaks to businesses that
16:58
utilize this particular form.
16:58
So, it was a way for the federal
17:01
government to say, "We want
17:01
business owners to integrate
17:04
employee ownership. So, we're
17:04
going to give you a bunch of tax
17:07
benefits, and you have to kind
17:07
of follow the rules and the
17:10
regulations associated in order
17:10
to get those tax benefits."
17:13
Shares are owned in a trust, on
17:13
behalf of the employees and it's
17:16
structured as a retirement plan.
17:16
It follows many of the
17:20
guidelines that a 401(k) would
17:20
follow. Those are great for
17:23
businesses that are above a
17:23
certain size. So, a rule of
17:27
thumb is sort of 40 employees or
17:27
higher might be a good fit
17:31
because of the regulations
17:31
associated with those tax
17:34
benefits. There's costs, which
17:34
means if you're much smaller
17:37
than that, it doesn't really
17:37
pencil out.
17:39
There's also a worker
17:39
cooperative form of broad-based
17:43
employee ownership, which is a
17:43
form of cooperatives. So, many
17:47
people may have heard of food
17:47
co-ops, or farmer co-ops. Ocean
17:52
Spray is a farmer co-op, for
17:52
example. Many brands or Rural
17:56
Electric Co-ops, serve a lot of
17:56
people in the United States. So,
18:00
it's a form of cooperative,
18:00
which is a business that is
18:03
owned and governed by and for
18:03
the benefit of its members. So,
18:08
in a food co-op, a consumer
18:08
co-op, it's the people who shop
18:11
there who are the members. So,
18:11
it's owned by the consumers. In
18:14
a worker co-op, it's owned and
18:14
governed by and for the benefit
18:17
of the workers - the employees
18:17
that was talking about the
18:21
professional development
18:21
opportunity to be able to serve
18:23
on the board of directors. So, a
18:23
cooperative form of employee
18:27
ownership has built into it. A
18:27
board of directors made up by
18:31
majority employee owners. So if
18:31
you have a board of seven, maybe
18:36
four of them are employee owners
18:36
and three are external. They're
18:39
elected by the full base of
18:39
employee owners. And then, the
18:43
third is a trust structure that
18:43
utilizes the Perpetual Trust. It
18:48
can be an employee ownership
18:48
trust, or Perpetual Purpose
18:51
Trust. There's different flavors
18:51
of it. But the idea is the
18:55
shares of the company are held,
18:55
sort of in perpetuity and based
18:59
upon the rules of what that
18:59
definition means at the state
19:03
level. On behalf of insert
19:03
the... Is it the employees? Is
19:08
it the purpose? So, that company
19:08
is essentially preserved, can't
19:13
be sold. This is a great way for
19:13
founders who have a business
19:17
that they really, really, really
19:17
want to make sure whether it's
19:20
because it has an important
19:20
mission, or they see it as an
19:24
important job creating engine in
19:24
their community, or it has an
19:27
important innovation role in an
19:27
industry. And, they really want
19:30
to make sure the company isn't
19:30
bought up by private equity and
19:34
then becomes traded around in
19:34
those spaces. But that it is
19:37
preserved and that it's
19:37
preserved to serve its purpose,
19:41
whether that is the employees or
19:41
a broader purpose that is
19:45
inclusive of the employees
19:47  Christina Sjahli
Are there like
19:47
pros and cons for each? If a
19:51
founder is thinking about
19:51
employee ownership, and then
19:55
they listen to this episode and
19:55
they're thinking, "Is it ESOP?
19:58
Is it worker cooperative? Is it
19:58
trust structure?"
20:01  Alison Lingane
The thought
20:01
process shouldn't start with
20:03
what's the right form. The
20:03
thought process always starts
20:06
with, "What's the goal?" Goals -
20:06
usually plural. "Why am I
20:11
interested in a broader set of
20:11
ownership?" Can be just
20:16
employees, or it can include
20:16
other stakeholders as well.
20:19
"What am I trying to accomplish
20:19
with that?" From there, you
20:22
figure out, "Okay, so my goal
20:22
is..." Let's just pick a goal or
20:28
two, "...My goal is increased
20:28
employee engagement, plus
20:32
setting up for me an exit
20:32
option, that's five or eight or
20:38
10 years down the line."
20:38
Ownership and high participatory
20:44
engagement and involvement in
20:44
the business, that sort of
20:48
recipe gives you very strong
20:48
employee engagement. Let's
20:53
create a plan then for you that
20:53
starts with some level of
20:57
ownership now, really focuses
20:57
then on building the culture of
21:03
ownership - that participation,
21:03
that engagement. Maybe at this
21:07
point, you do bring a seat on
21:07
the board that is for an
21:11
employee, and there's a process
21:11
for that. That becomes a
21:14
professional development
21:14
opportunity, it becomes, again,
21:17
a deeper engagement opportunity.
21:17
That then sets you up. You've
21:21
kind of built the employee
21:21
ownership container, if you
21:24
will, and you've started
21:24
activating it and getting some
21:28
of the benefits of it. As you're
21:28
thinking about your own exit
21:32
timeline that's in the future,
21:32
then you can do a full
21:36
transition to employee
21:36
ownership. Maybe at this point,
21:39
you're doing 30%, or even some
21:39
value less than that. I picked
21:43
30 because depending on the
21:43
form, that's a threshold where
21:46
some tax benefits kick in. And
21:46
then, five years down the line,
21:49
you're ready to do your exit
21:49
operationally from the business.
21:55
Between now and then, you're
21:55
really grooming the next general
21:59
manager - or whatever your CEO
21:59
title is, and your management
22:03
team and making sure that all of
22:03
the roles that you play are
22:06
covered, and then you exit in
22:06
that timeframe and do the
22:10
remaining to get to 100%
22:10
transaction. Maybe you're big
22:15
enough to be an ESOP, and so the
22:15
tax benefits are worth it. And
22:19
so, you're doing an ESOP, and
22:19
then you're pulling in some
22:21
components of a worker co-op
22:21
because you really want that
22:24
employee voice on the board. Or
22:24
maybe for you, it's really
22:28
about, "I don't want this
22:28
business. I want it to live on
22:32
'perpetuity'." So, I'm going to
22:32
do the Perpetual Trust
22:38
structure, and I do also want
22:38
employee engagement. So, I'm
22:41
going to do the Perpetual Trust
22:41
structure with some components
22:43
of what a worker co-op brings.
22:43
So, you always want to start
22:47
with the goals, and then you map
22:47
the goals. It's not always about
22:50
just one of the structures, as
22:50
you noted from my comments. If
22:53
sometimes you can pull from more
22:53
than one in order to accomplish
22:56
those goals, that's the starting
22:56
point, right? And then you can
22:59
map out what that process in
22:59
that timeline looks like. I can
23:03
do it in multiple stages in
23:03
order to accomplish those goals.
23:07  Christina Sjahli
When you said
23:07
"pulling multiple line", are you
23:13
saying that maybe a business can
23:13
start if they are big enough?
23:18
Maybe they can start with the
23:18
ESOP model, and then, after
23:22
that, eventually they move to a
23:22
cooperative, and then eventually
23:26
move to a trust.
23:28  Alison Lingane
Yeah, so it's
23:28
not so much as moving from one
23:30
to another. It's you can have an
23:30
ESOP in a worker co-op coexist
23:34
with each other. You can use if
23:34
you're big enough for an ESOP.
23:38
You can set up an ESOP and get
23:38
the tax benefits of the ESOP.
23:42
And then, build in the voting
23:42
and the participation of a
23:47
worker co-op. You don't think
23:47
about it as like, "I'm going to
23:50
transition from form A to form B
23:50
to form C." You think about it
23:53
of "What are my goals, and what
23:53
are the characteristics of the
23:57
different forms that meet my
23:57
goals? And can I pull on those
24:01
different characteristics?" You
24:01
can't always combine them,
24:03
right? An ESOP doesn't have the
24:03
perpetuity of the Perpetual
24:07
Trust or the employee ownership
24:07
trust. So, that's a choice,
24:10
right? Do I want one or the
24:10
other? The Perpetual Trust
24:13
doesn't have the tax benefits of
24:13
the ESOPs. So there are
24:15
trade-offs, but it doesn't mean
24:15
that it's one versus the other.
24:19
You can kind of combine some of
24:19
the elements together.
24:22  Christina Sjahli
I know one of
24:22
the thing that came up often
24:25
when I mentioned about employee
24:25
ownership, nobody really
24:30
understand the difference
24:30
between ESOP and worker
24:34
cooperative. Can you give a
24:34
high-level understanding for my
24:38
audience? What are the
24:38
differences between ESOP and
24:42
worker cooperative?
24:43  Alison Lingane
I'll start with
24:43
a worker co-op. As I mentioned,
24:46
it's a business that exists is
24:46
owned by and for the benefits of
24:52
its workers. Owned and governed.
24:52
One of the key characteristics
24:56
of a worker co-op is that it has
24:56
governance by the employees
25:02
built into it. So, the board of
25:02
directors is made up of a
25:06
majority of employee owners who
25:06
are elected by the full base. If
25:10
you had 100 employees, let's say
25:10
they're all employee owners that
25:15
you might have a board of seven,
25:15
and four of them would be
25:18
elected by the full base of
25:18
those 100. So, the
25:21
representative - democracy, if
25:21
you will. There's other
25:25
components, but that's probably
25:25
the most meaningful
25:28
differentiation, if you will, of
25:28
a worker co-op. An ESOP is, as I
25:34
mentioned, was, sort of created
25:34
by the structure, was created by
25:38
Congress. It really is a
25:38
retirement plan. It's a
25:42
retirement plan that owns the
25:42
shares of a company stock. It
25:49
can own 100% of the shares, or
25:49
it can own a very small
25:52
percentage of the shares, and
25:52
anything in between. The shares
25:57
of the company exist in this
25:57
trust, that help the employees
26:01
build the asset of ownership,
26:01
that they can then access once
26:06
they retire, or leave the
26:06
company. Either of those
26:10
scenarios, but it's designed as
26:10
a retirement plan. As the value
26:15
of the business grows over time,
26:15
and of course, we know that
26:19
doesn't happen 100% of the time,
26:19
but when I retire, I get the
26:23
value of that paid out to me
26:23
over a period of years. I have
26:27
this amazing retirement savings
26:27
that has grown because of the
26:32
direct connection between my
26:32
work and my engagement in that
26:36
business and the success of that
26:36
business over time.
26:39
An ESOP does not have
26:39
built-into-it things like profit
26:44
sharing, which can be really
26:44
important if you want to think
26:47
of it as a tool for employee
26:47
engagement, or a benefit to
26:51
employees, that means you're
26:51
doing well by your employees.
26:55
Profit sharing can be really
26:55
important. There's nothing in an
26:58
ESOP that says you can't do
26:58
profit sharing. So, you can add
27:01
profit sharing to help get some
27:01
financial benefit to your
27:06
employees today, to help bridge
27:06
the difference between kind of
27:10
the cost - the current salaries,
27:10
if you will, of your lower end
27:13
pay scale, and the ability to
27:13
actually live comfortably, which
27:16
often has a gap. And, there's
27:16
nothing that says in an ESOP,
27:21
you can't have employees on the
27:21
board. So, you can build in
27:24
these other things. That's why I
27:24
was saying it's not about one
27:28
versus the other necessarily,
27:28
it's about starting with your
27:30
goals. If I'm aiming for
27:30
employee engagement today, then
27:33
profit sharing is probably an
27:33
important tool. Participatory
27:37
culture - maybe that's inclusive
27:37
of government role. Maybe not.
27:42
So, start with the goals and
27:42
then you can map those goals to
27:46
what the different forms offer.
27:46
There's ways to kind of pick
27:50
from the different forms, but
27:50
not exclusively.
27:54  Christina Sjahli
So, I know,
27:54
one of the complicated areas in
27:57
transitioning to employee
27:57
ownership is structuring the
28:00
financing. If you can explain
28:00
the financing process when you
28:05
work with clients more from,
28:05
what should they think about?
28:10  Alison Lingane
Let me first
28:10
explain how this all works. I
28:15
own a company, and I'm
28:15
interested in starting off with
28:20
30%, employee ownership. I'm not
28:20
retiring. I'm doing it because I
28:23
believe in it. I believe in
28:23
stakeholder engagement. I want
28:27
to do right by my employees. I
28:27
believe that my business
28:30
outcomes are going to be better
28:30
when I have that stakeholder
28:33
engagement. Let's just say the
28:33
value of my company is $10
28:37
million - I'm just going to use
28:37
round numbers for easier math.
28:41
Value of my company is $10
28:41
million, so the value of that
28:43
30% is $3 million. I am going to
28:43
keep this high-level, so if
28:49
there's any employee ownership
28:49
experts listening to this, you
28:52
might be like, "Oh, but and
28:52
there's asterisk, and there's
28:54
this and that." I'm just gonna
28:54
do the most simplest approach
28:57
here. So, $3 million of business
28:57
value. What happens when that
29:03
goes from being owned by me to
29:03
being owned by my employees is
29:08
that I am being paid $3 million
29:08
for that. So, where does that
29:11
money come from? My employees
29:11
that probably don't have $3
29:14
million in their mattresses or,
29:14
their rich uncle or, aren't
29:19
going to take out HELOCs to
29:19
cover that.
29:21  Christina Sjahli
You don't have
29:21
money grow on trees.
29:23  Alison Lingane
Right. This is
29:23
one of the important things, to
29:26
understand about employee
29:26
ownership. And also it drives
29:29
many of the misconceptions, that
29:29
mean that owners rejected out of
29:33
hand. For this example, I'm
29:33
going to simplify it and say,
29:37
"It's coming from the external
29:37
financing source." So, I need a
29:40
$3 million loan. The business is
29:40
the one that's taken out that $3
29:45
million loan. And so the
29:45
business is taking that out
29:48
based upon its historical cash
29:48
flow. The first step of, "Could
29:54
this work for me?", is a
29:54
feasibility analysis which runs
29:58
these numbers in a spreadsheet.
29:58
It does what's called a debt
30:01
capacity analysis, to say,
30:01
"Well, how much debt can my
30:03
company take on? Can I take on a
30:03
$3 million debt and pay it back
30:08
over a period of, say, five to
30:08
seven years?" If that debt
30:12
capacity based upon my last five
30:12
years of financial shows that I
30:16
can take on a $3 million debt,
30:16
then I'm gonna get financing to
30:22
be able to buy me out. I get a
30:22
$3 million check, and then the
30:26
company has a $3 million loan on
30:26
the books that it pays back over
30:30
time out of its profits. You can
30:30
think of it this way, and that,
30:35
essentially, the employees are
30:35
working hard at the business.
30:39
And, the profit that that hard
30:39
work generates is what's
30:43
enabling them to become owners
30:43
because that profit is paying
30:48
back that $3 million loan.
30:50  Christina Sjahli
How does the
30:50
employees start owning it? I'm
30:54
just trying to think. The
30:54
business borrow money. And, who
31:00
is paying to the lender? It's
31:00
not the business. The business?
31:05  Alison Lingane
The business is
31:05
the one paying to the lender, so
31:06  Christina Sjahli
Yeah, so
31:06
they're the owner, right?
31:06
that loan sits on the books of
31:06
the business. Company name now
31:11
has a $3 million loan from a
31:11
lending institution - I'm not
31:15
going to use the word bank, and
31:15
I'll get to that in a second.
31:17
From a lending institution, tha
31:17
is to pay back this loan to bu
31:22
my 30% of the ownership.
31:26  Alison Lingane
They're the
31:26
owner. Right.
31:27  Christina Sjahli
The debt, that
31:27
$3 million, the owner is going
31:31
to receive that $3 million.
31:32  Alison Lingane
Exactly. The
31:32
company pays that back over
31:36
time. Five year loan. Could be a
31:36
typical loan amortization,
31:41
regular payments - kind of like
31:41
a regular mortgage. Or it can
31:44
have some features that you see,
31:44
sometimes in home mortgages, or
31:48
you have no interest to start,
31:48
and then you have a bigger
31:50
payment at the end or whatever.
31:50
So, different ways to structure
31:52
it. But if you just assume 'it's
31:52
a regular old five year loan',
31:55
it's, you know, every month
31:55
you're paying that principal and
31:59
interest down. Then, how do the
31:59
employees become owners? It
32:02
depends on the form. So, I won't
32:02
get into the details. But in
32:05
some forms, you become an owner
32:05
immediately as soon as you
32:10
qualify. So, maybe there's a...
32:10
You have to have been an
32:13
employee for a year, or you have
32:13
to be at working at least 30
32:16
hours a week or something like
32:16
that. In other forms, you become
32:20
in your shares best over time.
32:20
So, you become a partial owner,
32:25
and then have full ownership
32:25
over your shares over a period,
32:28
maybe it's three to five years.
32:28
The details depend on the form.
32:32
But your employees are not
32:32
paying, they're not bringing
32:35
cash to cover the cost of that.
32:35
They're working hard at your
32:38
business and creating profit,
32:38
and that profit then buys their
32:42
ownership.
32:43  Christina Sjahli
Oh, okay. I
32:43
see. Because I thought maybe the
32:48
employees, for those debts
32:48
through their salary. That's
32:54  Alison Lingane
That's what most
32:54
people assume, which is where
32:54
what I thought.
32:57
employee ownership is different.
32:57
It's just a little bit different
33:00
from kind of the way, if you are
33:00
selling to a third party,
33:03
somebody else is buying the
33:03
business, and then they have
33:06
that loan. They have to pay it
33:06
personally, right? Employee
33:09
ownership is just works
33:09
differently. And that's, in some
33:12
ways, really the beauty of it.
33:12
Because this enables you, as the
33:16
founder - with most of your
33:16
listeners as founders, you as
33:19
the founder, to be able to get
33:19
paid that $3 million, and
33:23
enables your employees to become
33:23
owners in a situation where your
33:27
employees probably don't have
33:27
the $3 million to be able to buy
33:30
it.
33:31  Christina Sjahli
So, you are
33:31
saying, technically, the debt,
33:35
you calculate it what is your
33:35
profit at the end of the year?
33:39
Maybe, that's how it works. And
33:39
then after that, you already
33:43
determine a portion of that
33:43
profit is to pay out the debt.
33:49  Alison Lingane
That's exactly
33:49
right.
33:50  Christina Sjahli
That's
33:50
interesting. I know that it's
33:53
not always going to be
33:53
straightforward, based on what
33:55
I'm reading on your private,
33:55
Project Equity website. I know
33:59
is more complicated than that.
33:59
Not to get into too much
34:04
technical, but there is the
34:04
thought process of the loan, it
34:10
seems like it's being matched to
34:10
the balance sheet of the
34:14
business. For example, if a
34:14
company has a lot of inventory,
34:19
a lot of maybe account
34:19
receivable, accounts payable,
34:22
there is a component of the
34:22
debt. Maybe more on financing
34:28
the working capital. But there
34:28
could be others on the balance
34:33
sheets that requires a different
34:33
type of debt. Do you think you
34:37
can explain that a little bit?
34:40  Alison Lingane
In many cases,
34:40
companies, when they're doing an
34:43
employee ownership transition,
34:43
they are needing both what we
34:47
call transaction financing. So,
34:47
that's that $3 million in the
34:50
example we've been talking
34:50
about. So, transaction financing
34:53
to purchase the 30% of the
34:53
business from the current owner,
34:57
and a working capital loan.
34:57
Because maybe, as part of the
35:02
sale of that 30%, the owner is
35:02
pulling out some of what they
35:08
own in the business. There may
35:08
be a need for an infusion of
35:12
cash, or maybe it's just a part
35:12
of running the business that
35:16
we've been running really tight
35:16
on cash, and now that we're
35:19
taken on this additional debt,
35:19
maybe we need a line of credit
35:22
versus a working capital loan.
35:22
So, yes. Absolutely.
35:26
You need to look at the whole,
35:26
and you need to look at what the
35:29
cash needs are because the last
35:29
thing you want to do is to set
35:33
the business up, so that it
35:33
can't pay back the loan that
35:37
you've taken on. Because you
35:37
don't want to put the business
35:40
at risk by doing this. Instead,
35:40
what you want to be doing is
35:44
setting up the right amount of
35:44
of debt, so that you can take
35:50
this opportunity for the owner
35:50
to get some liquidity from the
35:54
business, to get some cash out,
35:54
some payment for that 30%
35:58
ownership share. And then that
35:58
increased employee engagement,
36:03
and that investment in the
36:03
ownership culture that you're
36:06
going to do as a part of this,
36:06
that actually increases the
36:09
value of the business so that,
36:09
in five years or eight years,
36:14
when maybe you're selling the
36:14
remaining 70%, it's actually of
36:18
a higher value than it would
36:18
have been if you hadn't sold the
36:22
30% to your employees, five or
36:22
seven years ago.
36:25  Christina Sjahli
So, let me
36:25
clarify. Based on what you just
36:29
explained to me, the debt
36:29
itself, it's sometimes... When a
36:35
business transition to employee
36:35
ownership, the structure of the
36:40
debt is not only to pay the
36:40
owner, but it's also to give
36:46
access to capital to grow the
36:46
business.
36:51  Alison Lingane
So you can think
36:51
of the ability to bring more
36:54
capital into your business on
36:54
two fronts. The first is that
36:58
you can combine a transaction
36:58
with working capital loan. The
37:03
second is about creating more
37:03
profit, which creates more
37:08
forward investment capital. The
37:08
National Center for Employee
37:11
Ownership did a study that
37:11
showed employee-owned businesses
37:14
grew 2% more, year over year.
37:14
Not one time, but compounding
37:21
year after year, than their
37:21
nonemployee-owned peers. And
37:25
that growth by itself can also
37:25
bring increased capital, right?
37:31
Because you're more profitable,
37:31
you're creating your own capital
37:35
through your increased profit in
37:35
order to invest in the business.
37:40  Christina Sjahli
You also
37:40
mentioned earlier about, "Not a
37:43
bank, but a lending
37:43
institution."
37:46  Alison Lingane
Yeah.
37:47  Christina Sjahli
Can you
37:47
elaborate on that?
37:49  Alison Lingane
The same way
37:49
that neither you nor I heard
37:52
about this in business school,
37:52
and for the very reason that
37:56
Project Equity exists to try and
37:56
make this normal and
37:58
self-generating. Today, it
37:58
isn't. There is lower awareness
38:02
than we would all like for there
38:02
to be. And that lower awareness
38:05
extends to financial
38:05
institutions of all types. So,
38:10
not just banks, but community
38:10
development, financial
38:13
institutions, community banks,
38:13
credit unions, any lending
38:18
institution that might do loans
38:18
to businesses. There's just a
38:22
low awareness of what employee
38:22
ownership is. Chances are, if
38:26
you walked into your bank, or
38:26
wherever you might bank,
38:30
whatever type of institution
38:30
that might be, if you walk into
38:32
that institution, you're like,
38:32
"Okay, great. I'm already... I'm
38:35
going to do this. Can you
38:35
finance the transaction?"
38:39
They're probably going to look
38:39
at you a little cross eyed and
38:41
be like, "Okay, wait, hold on!
38:41
How does this work?" You and
38:45
I've just talked through how
38:45
does this work and how it's
38:46
different, and banks are not
38:46
familiar with that.
38:49
In addition, depending on the
38:49
form of employee ownership,
38:54
there might be some challenges
38:54
because most banks, most lending
38:59
institutions require a personal
38:59
guarantee on a loan. Okay, so
39:04
let's go back to, "it's not the
39:04
employee owners who are taking
39:08
out the loan, it's the business
39:08
that's taking out the loan." So,
39:13
you've got 100 employee owners.
39:13
Who's gonna sign a personal
39:17
guarantee? How do you choose who
39:17
puts their own personal
39:23
financial situation on the line
39:23
for the business? Like, does
39:26
that even make sense? So,
39:26
there's a real issue with the
39:29
personal guarantee being a
39:29
barrier. But do not fear. There
39:34
are lending institutions that
39:34
specialize in financing these
39:39
transactions, or specialize in
39:39
providing working capital for
39:43
employee-owned businesses. And
39:43
by going directly to those
39:47
institutions, you won't get
39:47
somebody looking at you cross
39:50
eyed. Instead, you'll get
39:50
somebody saying, "Let's make
39:54
this happen!"
39:56
Yeah, so Project Equity, we do
39:56
have a loan fund and we have
40:02
also a really important
40:02
partnership with the national
40:05
CDFI that enables us to make
40:05
loans both for the transaction,
40:10
as well as for that working
40:10
capital. We just launched
40:14
actually timed with Labor Day of
40:14
2021, what is called the
40:18
Employee Ownership Catalyst
40:18
Fund. And that fund really
40:22
exists in order to provide very
40:22
flexible capital for businesses
40:29
that are either on the path to
40:29
becoming employee-owned. So,
40:34
maybe they're working on it. You
40:34
as a business owner, you're
40:36
working towards that 30%. And
40:36
you're like, "Oh, right, lawyers
40:40
aren't free, so I got to pay
40:40
some lawyers, and I got to pay
40:42
for this, and I got to pay for
40:42
that." And actually be really
40:44
helpful to have a loan to cover
40:44
that. So that I don't have to
40:47
do, you know... I'm also trying
40:47
to reinvest in a whole bunch of
40:50
stuff because of COVID, and
40:50
dealing with hiring challenges,
40:53
right? So, it'd be really
40:53
helpful to have a working
40:55
capital loan to cover that. So,
40:55
we can support you in that way
40:59
in terms of your working capital
40:59
needs, while you're working
41:03
towards the employee ownership
41:03
transaction. And the transaction
41:07
itself, we can play a role in
41:07
financing that.
41:11
So, I mentioned earlier that
41:11
that 3 million that we were
41:14
talking about wasn't... It's
41:14
probably not just a single bank.
41:18
Probably the seller will have a
41:18
portion of that 3 million. On
41:24
day one, when you do the
41:24
transaction, maybe you'll get 2
41:27
million or a little bit more
41:27
than that, as a check on the day
41:31
of the close. And then the rest
41:31
of that, you'll be of a five
41:35
year timeline, just the same way
41:35
the bank loan is on the five
41:38
year timeline. So, you get
41:38
monthly payments, or whatever
41:41
the payment schedule is, for the
41:41
remainder say it's $1 million.
41:46
And it might even be that that
41:46
$2 million is a combination of
41:50
an employee ownership fund -
41:50
some lending institution that
41:55
specializes in and knows how to
41:55
do this. And, maybe it's a CDFI,
42:00
that doesn't do a lot of these,
42:00
but is excited to learn by
42:04
participating. So maybe we've
42:04
got a couple of different
42:07
lenders. And so that $3 million,
42:07
just to make it easy. Let's
42:11
suppose it's made up of you, the
42:11
seller. You're in for $1
42:14
million, then I'll use the
42:14
employee ownership Catalyst Fund
42:18
as the next million dollars, and
42:18
then a CDFI, or a bank as the
42:23
next million dollars. Usually,
42:23
when you got multiple lenders,
42:27
they all work out amongst
42:27
themselves. It's what's called
42:30
the waterfall or who's the most
42:30
subordinated. Basically what it
42:35
means is, if the business goes
42:35
belly up and can't pay back,
42:38
that $3 million, who gets the
42:38
money first. So, it was first in
42:42
line. The most senior lender is
42:42
most likely to be the bank. And
42:47
then the next in line, a junior
42:47
lender would be, in the case of
42:52
our fund, where we can take the
42:52
junior position, the employee
42:55
ownership Catalyst Fund, and
42:55
then you at the seller note
42:58
would be the most junior, the
42:58
most subordinated in what's
43:02
called that capital stack.
43:03  Christina Sjahli
Just want to
43:03
confirm. CDFI is Community
43:06
Development Financial
43:06
Institution, correct?
43:09  Alison Lingane
Yeah, thank you
43:09
for clarifying that.
43:11  Christina Sjahli
So, is CDFI
43:11
like a group of lenders or
43:17
financial institution? Or it's
43:17
just one? That, I never
43:22
understand that portion?
43:23  Alison Lingane
Yeah, a CDFI
43:23
(Community Development Financial
43:26
Institution) is a federally
43:26
regulated lending institution.
43:31
So, banks are federally
43:31
regulated. Community banks,
43:35
credit unions CDFIs, they're all
43:35
federally regulated. The CDFIs,
43:41
they've got the word community
43:41
in it. So, there are regulated
43:45
in a way to support them to have
43:45
positive community impact. Banks
43:51
have positive community impact,
43:51
right? I'm not saying that banks
43:54
don't. But they have a little
43:54
bit more flexibility in their
43:58
regulation because of this
43:58
community focus. That's why they
44:03
exist. There's also some federal
44:03
dollars that help them make
44:08
lending dollars available. There
44:08
are... I don't know the numbers,
44:11
but there are lots and lots and
44:11
lots of CDFIs nationwide. I
44:17
would be surprised if each of
44:17
your listeners didn't have one
44:20
in their community. And some of
44:20
them do small business lending.
44:25
Not all of them do small
44:25
business lending. And some of
44:28
them are very familiar with
44:28
employee ownership, the
44:30
specialized employee ownership
44:30
funds that exists out there, a
44:34
lot of them are structured as
44:34
CDFIs. Not all of them. So,
44:38
yeah.
44:38
The good news about trying to
44:38
connect up to any of these
44:42
financing resources is that any
44:42
organization that is supporting
44:46
you through that process of
44:46
figuring out where your goals
44:49
are and matching your goals to
44:49
the form of employee ownership
44:53
and helping you through that
44:53
transition is going to know who
44:56
all these folks are and can help
44:56
you navigate that. You don't
44:59
need to kind of be like, "Oh,
44:59
gosh, there's a whole another
45:01
thing or research I've got to
45:01
get on." I wouldn't worry too
45:05
much about that. Just know and
45:05
be confident that there is
45:09
capital out there to be able to
45:09
finance your transition. If you
45:15
work with an organization that
45:15
is in this space, they'll be
45:18
able to help you make those
45:18
connections.
45:20  Christina Sjahli
One of the
45:20
thing that a lot of businesses
45:22
struggle when they get or they
45:22
approach financial institution,
45:26
or any lending institution, the
45:26
five C's, criteria that a lot of
45:32
lenders are doing. And you
45:32
mentioned about personal
45:35
guarantee, that is one of them.
45:35
The other thing is about credit
45:39
score, right? And a lot of
45:39
especially underrepresented
45:43
founders are struggling to get
45:43
loan because of the five Cs,
45:48
which is the personal guarantee
45:48
and the credit score. How does
45:52
it work when someone want to
45:52
transition to this employee
45:54
ownership? Does credit score
45:54
come into play?
45:57  Alison Lingane
It depends is
45:57
the answer because it depends on
46:01
who's doing that loan. But if
46:01
you're working with one of the
46:05
CDFIs, or loan funds that
46:05
specializes in employee
46:08
ownership, the approach is a
46:08
little bit different from kind
46:12
of a traditional business loan.
46:12
For kind of what I talked about
46:15
before, "You got 100 owners.
46:15
Who's going to do the personal
46:19
guarantee? Whose credit score?
46:19
Are you going to run it?" Right?
46:22
So really, the analysis from the
46:22
lending perspective, it is about
46:27
how sound is the business,
46:27
right? Looking back five years,
46:30
and of course, understanding
46:30
that COVID created some some
46:35
negative cash flows, profit and
46:35
loss, and balance sheet
46:39
situations for businesses. But
46:39
you're looking back five years
46:42
of the business fundamental
46:42
sound, is the debt capacity
46:45
analysis showing that the
46:45
business is going to be able to
46:48
comfortably pay this loan? Like
46:48
we're not scraping every penny
46:51
out of the business and the
46:51
business has to double its
46:53
profit in order to make those
46:53
payments, right? The future
46:56
forecasts that the debt capacity
46:56
is based upon are reasonable,
47:00
and not too aggressive. So, it's
47:00
based upon the business
47:03
fundamentals. It's also based
47:03
upon understanding the
47:06
leadership of the company. Who
47:06
those people are? Their
47:09
strengths and understanding kind
47:09
of the the the approach to
47:13
employee ownership in the
47:13
engagement there. So, you just
47:16
look at it through a slightly
47:16
different lens because it's not
47:19
about sort of one person who's
47:19
going to hold the bag, if you
47:23
will, if things go south. It's
47:23
about... This is more of a team
47:27
effort than we really need to be
47:27
looking at the team.
47:30  Christina Sjahli
Yeah, based on
47:30
what you are just saying,
47:32
though, it seems like the
47:32
financial forecast, the
47:36
financial foundation, the
47:36
historical data from the
47:40
financial results are really
47:40
important in this process.
47:44  Alison Lingane
That's
47:44
absolutely right. It might be
47:46
good for me to explain. So first
47:46
off, if you're interested in
47:50
just like learning more because
47:50
for most people, you haven't
47:54
heard about it before, it's all
47:54
brand new and gazillion
47:57
questions, we are happy at
47:57
Project Equity to talk with
48:00
anybody. We've got a free
48:00
consult, sign up on our website.
48:03
Please come and chat with us.
48:03
We'd love to learn more about
48:06
your situation, your goals and
48:06
talk about how employee
48:09
ownership might feel to help you
48:09
meet them. So there's a whole
48:13
kind of exploration, a series of
48:13
conversations. If you're like,
48:17
"Okay, this is really
48:17
interesting. I'd like to see
48:20
what could be feasible. Is it
48:20
feasible for me to do a 30%
48:23
sale?", or "Gosh, I'd really
48:23
like to retire in three years or
48:27
two years. Is it feasible for me
48:27
to do 100% sale in that time
48:30
period?" We engage in a
48:30
feasibility analysis. The first
48:34
part of that is this debt
48:34
capacity analysis. So we'll get
48:38
five years historicals from you,
48:38
will work with you to develop a
48:42
5-year future forecast. And
48:42
we'll actually do a
48:45
high-medium-low scenario on
48:45
that. We won't be be building
48:50
the debt capacity around the
48:50
high, right? So, we'll do a
48:53
combination of the medium and
48:53
low to be conservative and clean
48:58
out... You all know, as business
48:58
owner, sometimes there's
49:01
personal expenses that run
49:01
through the business or that
49:03
kind of thing. We will be for
49:03
forecasting forward to be able
49:07
to understand what the ceiling
49:07
of the sale price is. The amount
49:12
of debt that you can take on
49:12
back to that, your business is
49:15
worth 10 million, but you're
49:15
selling 30%, so you're you're
49:19
selling $3 million worth. Well,
49:19
if you can't afford the debt
49:23
payments of 3 million, then
49:23
maybe you're only selling 20%
49:27
right now, or whatever it might
49:27
be. So, that's that that ceiling
49:30
of the sale price based upon the
49:30
debt capacity.
49:33
And then we look at, we dig more
49:33
into the form of employee
49:37
ownership in these questions
49:37
that we were talking about
49:39
earlier. What is it for your
49:39
goals? What's the right way to
49:43
reach your goals? And we come up
49:43
with a straw model, meaning
49:47
high-level sketch of what it
49:47
looks like. To the extent that
49:51
it's important to have some
49:51
employee involvement and
49:55
different forms of employee
49:55
ownership in different
49:58
businesses choose to navigate
49:58
this differently, then we can do
50:02
some high-level employee
50:02
engagement, either with a subset
50:05
of employees or the broader
50:05
group, again, depending on what
50:08
the right fit for your situation
50:08
is at the tail end of the
50:12
feasibility. Once you know,
50:12
"This is exciting! It's
50:16
feasible. The roadmap looks
50:16
good." Let's then have a
50:18
conversation where we bring that
50:18
straw model of the employees.
50:21
Find out what the questions are.
50:21
Find out what if there are
50:23
hesitations or concerns, so that
50:23
we can figure out how to address
50:27
those. That's about a three to
50:27
four month process. From there,
50:31
if it sums up, then we'll work
50:31
with you to get that transaction
50:34
done, and that can be done in
50:34
you know, 6-12 months, again,
50:37
depending on the business, and
50:37
the needs, and the rhythm.
50:41
Oftentimes, you want to time
50:41
that transaction with an end of
50:45
quarter or end of year for make
50:45
your accounting cleaner.
50:48  Christina Sjahli
Allison, this
50:48
has been really knowledge... A
50:52
lot of knowledge that you share,
50:52
even for me and for my audience,
50:56
obviously. Is there anything
50:56
else that I haven't asked, and
51:01
then you would like to share it
51:01
with my audience?
51:03  Alison Lingane
Yeah. Thanks for
51:03
that question. Right now, I
51:08
think probably everybody who is
51:08
a business owners listening to
51:12
this, in the current time
51:12
period, there is just a real
51:16
challenge with hiring,
51:16
retaining, hiring back people as
51:21
we're continuing to come out of
51:21
the the COVID-19 pandemic, and
51:27
engaging employees and keeping
51:27
them engaged. I would just
51:32
really encourage folks to
51:32
recognize that, there is this
51:37
powerful, powerful tool that is
51:37
actual ownership, that ownership
51:42
of a portion or all of the
51:42
businesses combined with this
51:45
ownership culture development.
51:45
We all know that the business
51:50
can only succeed if the
51:50
employees are aligned and
51:54
engaged. This is a powerful tool
51:54
that can help you engage your
51:58
workforce, can actually help you
51:58
grow your business faster, get
52:01
to those goals faster, whatever
52:01
they may be - if their financial
52:05
goals, if their business success
52:05
goals or mission related goals
52:09
for your business. It's almost
52:09
like now more than ever, we need
52:13
this as a tool in our toolboxes
52:13
to help our small businesses
52:17
grow and be successful.
52:20  Christina Sjahli
Allison, where
52:20
can people connect with you?
52:22  Alison Lingane
Yeah, so we are
52:22
at project-equity.org. As I
52:27
mentioned, we've got a free
52:27
consults link right there on the
52:31
top nav on every page. Please
52:31
reach out. We would love to chat
52:35
with you, and we'd love to learn
52:35
more about your business, and
52:38
your goals and what you're
52:38
trying to accomplish.
52:40  Christina Sjahli
And any type
52:40
of business? And then, any size
52:44
of revenue and number of
52:44
employees? Or only certain size?
52:48  Alison Lingane
Yeah, so
52:48
employee ownership in the way
52:50
that we're talking about it
52:50
today really is a fit for
52:53
companies that are about 10
52:53
employees or greater. So, if
52:57
you're like, "Oh, this is great,
52:57
I love it." And, I'm maybe five
53:01
employees today. That's
53:01
fantastic! Keep doing what
53:03
you're doing! Be successful,
53:03
grow your business and let's
53:07
talk in the next year or so, so
53:07
that we can help you get a plan
53:10
in place for the right stage of
53:10
maybe when your business gets a
53:14
little bit bigger. And we do
53:14
have a lot of different stories
53:18
of employee-owned companies on
53:18
our website. So, we've got a tab
53:22
on our site called 'Learn from
53:22
others'. If you're interested in
53:25
just kind of perusing and
53:25
seeing, chances are you probably
53:28
find a company in an industry
53:28
similar to yours. Kind of seeing
53:32
how other businesses have done
53:32
it can also be a really helpful
53:35
way for business owners to get a
53:35
better sense of how this all
53:37
works.
53:38  Christina Sjahli
Yes, your
53:38
website is absolutely amazing. A
53:41
lot of resources, a lot of case
53:41
studies and stories. Alison,
53:45
thank you so much for being
53:45
here.
53:47  Alison Lingane
Thank you so
53:47
much. It's been a real pleasure
53:49
to talk with you.
53:51  Christina Sjahli
And that's
53:51
bring us to the end of another
53:53
show. Thank you so much for
53:53
listening to another episode of
53:57
Her CEO Journey, the business
53:57
finance podcast for women
54:01
entrepreneurs. If you want to
54:01
create a proactive financial
54:05
plan and process for your
54:05
business, so you are ready to
54:09
weather the financial storm over
54:09
the next few months. Let's chat
54:13
and see what's possible for you.
54:13
Book in a time to speak with me
54:17
at
54:17
christinasjahli.com/lets-chat.