Deciding if an Employee Stock Ownership Plan (ESOP) is the right business strategy for you is a little more complex than just addressing some of the most frequently asked questions. There are of course pros and cons to every business structure, exit strategy, or succession plan. It’s important to talk to your advisors so they can understand your personal and business goals before setting off in any one direction.
As an ESOP, we’re happy to have a conversation with you and share our experiences regarding how employee engagement, culture, and business strategy have been affected at our firm since we became 100% employee-owned back in 2003. You will benefit from first-hand knowledge and expertise that comes from helping ESOP companies—and those considering an ESOP transaction—thrive financially and culturally.
Simply put, an employee stock ownership plan (ESOP) is a qualified defined-contribution employee benefit plan designed to invest primarily in the stock of the sponsoring employer, providing employees with a beneficial ownership interest in the company.
Almost any corporation—public or private, large or small—can form an ESOP. Companies that may consider establishing an ESOP typically have strong cash flow, have borrowing capacity, and are not highly leveraged.
Some of the factors that must be looked at include:
While there can be great non-financial benefits to becoming an ESOP, there are some tax-specific and financial perks that can be realized.
Beyond the financial and tax benefits of ESOPs, there are other benefits that range from soft (employee engagement and culture) to more strategic (succession planning):
A feasibility study is conducted to help determine that the ESOP has the cash flow to repay transaction loans and addresses other pertinent issues. Feasibility studies will use company data to model post-transaction financial statements and will help identify the following:
If you have any questions about ESOPs or succession planning, you can reach Brian Sweeney at firstname.lastname@example.org or 651-407-5856. Or visit https://redpathcpas.com/industries/esop-companies/
Brian Sweeney is a Partner and Client Manager at Redpath and Company. He specializes in financial statement audits, business and systems consulting, management and advisory services, and mergers and acquisitions. He works with closely held businesses in a variety of industries, including manufacturing and wholesale distribution, with a specialty focus on employee-owned companies. Brian is Redpath’s ESOP Team Leader focusing on client services, financial health, and cultural consulting to employee-owned companies. He has provided public accounting services since 1997.More posts by Brian Sweeney