When Kayla Thompson walked into Melissa Ashley Brides in Westerly in search of a wedding dress about seven years ago, she had no idea she would own that bridal shop someday.
She bought a dress that day for her wedding and befriended the owner, Denise Pellegrino, who later hired Thompson. After running the shop for about 17 years, Pellegrino was thinking of selling. Thompson decided she wanted the business.
Avoiding the need for a loan, Thompson said she and Pellegrino came to “a personal-finance agreement” that allowed her to take over the shop in January 2018.
“I used to joke about buying the shop, never thinking it would come to fruition,” Thompson recalled.
Employees who end up owning the small businesses where they work is neither common nor rare, said Josh Dale, southern region director of the Rhode Island Small Business Development Center, which assists people in financing and running small businesses.
“It certainly happens,” Dale said. “I think it’s happening more as baby boomers retire.”
Doug Scala, the Rhode Island regional president for Webster Bank, sees it happening, too.
“Baby boomers are getting to their retirement years,” Scala said.
‘Only about 30 percent of businesses that go up for sale on brokers’ websites sell.’
JOSH DALE, Rhode Island Small Business Development Center southern region director
Today, Thompson and her husband, a school teacher, have two children. She devotes about 40 hours a week to the shop, both there and at home. Three part-time employees help her run the business. It’s still Melissa Ashley Brides, named after Pellegrino’s daughter and her former business partner’s daughter.
Thompson doesn’t think she’ll ever become a millionaire, but she said the shop is doing well and she enjoys the work and being her own boss. She credits Pellegrino for building a base of local customers, as well as a good reputation that made the ownership transition easier.
“Working for her, I got to know how the business works,” Thompson said. “But you still don’t realize all the different things you need to know.”
Thompson sought advice from the Small Business Development Center, which helped her with filings and paperwork.
Because employees often don’t have enough money to take over a business, Dale said, the center provides free advice to people considering a loan. That was something that Thompson didn’t have to do, as she had money to spend on the shop. Pellegrino worked with her to make it happen.
The center also helps business owners plan for their retirement, including ownership transfers. The center works with the U.S. Small Business Administration, state agencies and the University of Rhode Island to provide the resources that small-business owners may need.
Dale said he sees managers and employees taking over businesses for retired owners in Rhode Island in a range of sectors, from retail and restaurants, to manufacturing and business services, to boating and marine-related companies.
“We’re seeing a wave of retirements,” Dale said. “Some close their businesses when they retire, but others want to keep it going” with new owners. Some outgoing owners count on selling their companies to help fund their retirement, but that can be challenging.
“Only about 30 percent of businesses that go up for sale on brokers’ websites sell,” he said. “A lot of them end up quietly closing down.
“The key is to be able to finance it,” he said of successful sales. “A business has to be strong enough to continue” under new ownership. “And be stable enough to cover any debt” related to the purchase.
He added: “If a person is buying a business, they have to show that [it has been] and will be profitable. … But a lot of those things are unknown for some small businesses.”
Scala, of Webster Bank, said Webster – which focuses on commercial and business lending – and other banks have seen increased demand for such commercial lending. He also said a lot of private equity has been looking for companies to buy during the economic expansion of recent years.
Because there often is competition among buyers scouting around for the right companies, private-equity firms are looking at smaller businesses more than they generally did before, including those earning less than $5 million a year or with less than $15 million a year in revenue.
“There’s a lot of private-equity money coming down to the lower and middle-lower markets,” Scala said.
That can create a big obstacle for an employee looking to buy a company, as private-equity groups usually can offer more money for a business than an individual, Scala said. Occasionally, he added, a private-equity group that buys a company may ask an established, high-level employee to manage the company for the new owners, sometimes also offering an ownership stake.
“Sometimes they give a second-in-charge a piece of the action,” Scala said.
Scott Blake is a PBN staff writer. Email him at Blake@PBN.com.
