“There’s a big opportunity for a racial wealth transfer as well as a generational one because of the demographics of who’s in the workforce versus who the owning group is,” said Carolyn Edsell-Vetter, program director at the Cooperative Fund of the Northeast (CFNE).
Over the next decade, roughly six million baby boomer small business owners are expected to exit their companies, according to a recent McKinsey study. Over one million of these businesses, representing $5 trillion in value, will enter the market.
At a time when wealth inequality in the US just hit a 30-year high, some owners are converting into employee-owned cooperatives that transfer wealth to workers rather than selling to private equity firms or shutting down.
CFNE is a community development loan fund helping navigate this shift. While employee ownership can take various forms, such as employee stock ownership plans, CFNE finances worker-owned cooperatives, which are democratically-governed businesses where every employee has an equal say in major company decisions.
For example, when the owner of O’Donal’s Nursery in Maine decided to retire, he wanted to preserve his legacy in the community and reward the people who helped him build the business. Rather than sell to outside buyers or close, he sold the business to his 36 employees.
Once the nursery converted in 2023, the new worker-owners hired a general manager, grew its revenue by $600,000, established a 401(k) plan, provided healthcare and raised wages. They went on to purchase 10 acres of land underneath the nursery to create supply chain resiliency, keeping the property locally-owned and helping to expand their operations.
O’Donal’s isn’t an isolated success story. Over the past decade, CFNE has financed 40 worker cooperatives with 39 still operating.
The fund is part of the Northeast Transition Initiative, a collaboration with nonprofit developers the Cooperative Development Institute (CDI) and ICA Group, which aims to transfer wealth from one generation to the next through sales to workers. CFNE and CDI often work together to help business owners in the Northeast through the conversion process and by supporting employees as they become new owners.
Going from employees to owners
CDI works with local small business development centers and chambers of commerce to identify owners considering exit strategies by providing education on employee ownership models. CDI evaluates the business, assesses whether a sale is feasible and introduces the appropriate model to workers.
If the employees decide to move forward, CDI helps them form a steering committee—which later becomes the cooperative governing board—to handle negotiations. CDI then supports the committee with ongoing business education, financial training and growth planning.
“It’s a group of five or six employees who decide that they’re willing to do the work on behalf of the potential future cooperative to explore it and do the due diligence,” said Heather Foran, education and training manager for business ownership solutions at CDI.
At this point in the process, CDI will connect the business with a cooperative lender like CFNE that can provide financing options.
“One of the challenges in lending to cooperatives is if you’ve got 100 members, who’s going to put their house on the line? Who’s going to give the bank a personal guarantee? Banks tend to be nervous about trying to lend to something like that,” Edsell-Vetter said.
CFNE fills that funding gap by evaluating and issuing loans based on the strength of the cooperative’s business model rather than individual personal guarantees. Typically, these transitions rely on some seller financing, where the retiring owner accepts payments over time. CFNE then provides loans to make up the difference. Some states like Colorado and Massachusetts are starting grant and incentive programs to help workers with these funding gaps.
The broader impact of equitable ownership
CFNE has financed diverse conversions across the Northeast, including plant nurseries, architecture firms, hardware stores and landscape design companies like Earth Designs in New York, which converted to a worker cooperative in 2016 and has seen robust growth over the past decade. Last year, the fund helped Eastern Garage Door in Massachusetts become a worker-cooperative after 100 years in business.
While financing may seem like the biggest hurdle to launching a worker cooperative, both Edsell-Vetter and Foran noted that the mental transition from an employee to an owner is often the biggest obstacle.
“With conversions, one of the challenges is that you came into this job because you needed the job, not because you wanted to be your own boss,” Edsell-Vetter said. “There is really an ownership mindset shift that needs to happen.”
After making that leap, employees start to define success collectively rather than individually, working collaboratively on ideas that drive profit while serving customers, the community and each other.
“Worker cooperatives are actually a highly resilient business model,” Foran said. “Workers know where to save money, they know what customers want and they’re very in touch with the market.”
To date, CDI has helped 40 small businesses transition to cooperatives, assisting them in securing over $45 million in capital and creating ownership opportunities for more than 700 workers in sectors ranging from manufacturing to energy and insurance. After converting, Foran said worker-owners have been able to move off government assistance programs, buy homes and save for their children’s college education.
“I think that the more that we can demonstrate that this is a viable business model in general, the more we can overcome the assumption that workers aren’t able to do this,” Foran said.
Kaitlyn Ridel is a Contributing Writer.
Photo courtesy of the Cooperative Fund of the Northeast/Earth Designs.
