Although the employee owned business model can be applied to any scale, it tends to be most beneficial when used with companies that are 20 employees in size or smaller. The business should have the goal of staying private and not want to get involved with an ESOP as well. Sharing ownership is more than just trying to do the right thing. This business model is an easy way to establish a good community relationship, attract good people, and still be able to keep legal costs down.
The primary benefit of this business model is that it creates a system of shared responsibility. It takes a lot of work to bring a start-up small business toward profitability. By sharing the tasks that are required, it lessens the burdens that are placed on everyone so that more overall work can be accomplished. There are these additional benefits involved as well.
1. It Becomes Easier To Raise Capital Under The Employee Owned Business Model.
Employees that have equity within their business are invested in making it work. They are often more willing to invest additional capital into the business when necessary to keep it afloat. Sometimes this might mean accepting a lower salary or different benefits in exchange for equity or stock within the company.
2. Employee Owned Business Typically Perform Better.
When compared to the general population of businesses, those that are employee owned will typically perform better on a long-term basis. This is because employees are involved with the daily decision-making process that happens. Because everyone has some input, there is a higher overall feeling of ownership that each employee has and this allows everyone to bring their “A Game” to work every day.
3. It Eliminates The Need To Sell The Business Later On.
When there is just one owner of a business, when that person wants to retire, the business will invariably close. For The Shoe Man in Grand Junction, CO, this means a closure after 40 years in business. Under the employee owned business model, this doesn’t have to happen. Equity shares are small enough that one employee can cash out and bring new people on-board or the other employees can buy out that share so the company can continue serving the community.
4. Employees Are Attracted To The Ownership Option.
In markets where businesses are struggling to find good employees, this business model helps an employer avoid the trap of hiring “warm bodies” for open positions. This benefit adds value to the working relationship and allows each employee to feel like they’re actually contributing to their future every day when they come to work.
5. They Can Be Structured To Help Promote Loyalty.
Just because an employee comes in and begins working for a company doesn’t mean they automatically qualify as an owner. The employee owned business model allows a company to structure how someone can become an owner or a partner in the business. This might involve years of experience, a specific educational profile, or even time of service for the company. Having structures like this prevent people from coming in, grabbing a share, and then selling out in a way that could potentially damage the business.
6. It Gives a Business More Insurance Against a Recession.
When the 2008-2009 global recession hit, many business were affected. The ones that were able to withstand the negative tides were those that were employee owned, more often than not. People who are committed to making a business stay afloat will find creative ways to do this. It might be through a stabilized cash flow, a partnership culture within the company, or anything else that can help the business grow.
7. There Is Better Worker Security.
Most local economies could benefit from having more employee owned business models in place because they promote worker security. Employees who are owners are employees that are enjoying an enhanced job security. Instead of worrying about having a job from month-to-month, they can set money aside for retirement, continue working hard, and focus on innovation instead. This positive cycle then repeats and expands to other businesses so that everyone in a community eventually benefits.
The benefits of the employee owned business model are clear. By giving workers more equity, there is more productivity in return. It’s more than just the right thing to do. It’s often the necessary thing to do.