So this guy says to me, he says, “I want my building company to have an ESOP (Employee Stock Ownership Plan). I hear my business can have tax-free revenue. And my employees will treat my business equipment like it’s their own, instead of some kind of rental. Gimme one!” I can’t really blame him. After all, we all want to be corporate income tax-free and have our employees treat equipment as if it were their own. But, can he implement an ESOP for his business? Should he do so?
The news is out! ESOPs are increasingly popular. Here are some quick facts that speak to the trend:
~ In the USA, around 4% of companies had ESOPs. Now, it is closer to 8% and rising fast.
~ ESOP 101 courses are very popular. Lots of people are learning about this structure.
~ More banks are figuring out how to do these loans, and that means there is more opportunity than ever before to finance the switch to ESOP. Not just banks, but private credit shops as well.
I met with an ESOP consultant the other day. He says the process of creating an ESOP is getting smoother all the time. He also says more and more companies are eligible. I used to say that you needed at least 100 employees, $2 mil EBITA, and some other things to have this conversation. He says companies with 15 people and $700k EBITA are getting it done.
This does not necessarily mean an ESOP is for you, dear reader. This is still an intense process. It is expensive. You need a solid HR leader, and a solid CFO, both of whom must be willing to put in a lot of extra hours. And your balance sheet must be able to take a punch.
What did I tell the building company owner? We sat down and had an honest conversation. We talked about his plans for the company, and the plans for his family. We made sure the two aligned. We talked about the process and the costs. We talked about the benefits to the employees and to the customers. At the end of the day, this was not for him. But it was a valuable conversation. Worth his time and worth my time. It is probably worth your time as well.
Give us a call! You will find us at the intersection of business and family.