Joining Jonathan Goldhill in this episode of the Disruptive Successor Podcast is Patti Plough, President, and CEO at Excel Legacy Group, LLC. There are numerous benefits for owners to decide on going for ESOPs instead of selling to third parties when they decide to exit.
Some benefits include safeguarding the employment of employees, giving the company a chance to grow exponentially, and giving the owner several opportunities to earn even more.
Patti introduces several important concepts like owner financing, the second bite of the apple, and selling your company twice. This is when a business owner retains a minority position in the company post-transaction and, when the new majority owner decides to sell, the original owner cashes out again in the second transaction.
Patti details how companies can avail of an ESOP arrangement, the minimum requirements for this to be successful, and what the business owner can do to remain in the company and take advantage of selling the company twice.
02:40 Patti’s background and introduction to ESOPs
07:38 Protect your employees by selling the company to them
12:23 Defining ESOP and “the second bite of the apple”
19:48 How to grow exponentially with an ESOP
28:14 When to exit via ESOP
31:31 Step-by-step: How to set up an ESOP
40:41 The owner of the business can be a seller and become the trustee
09:38 “I think, in my opinion, the only way to really protect your employees is to sell your company to them. Then you’re protecting them.”
12:36 “An ESOP is a retirement fund for your employees. So how it works is very similar to a 401k, but it’s actually been stated that it’s like a 401k on steroids.”
20:01 “When you form an ESOP, you become a tax-free entity. You no longer pay corporate taxes. So today you’re paying 33 to 40% corporate taxes, tomorrow all that money goes to the bottom line on your balance sheet.”
37:17 “Plus the second bite of the apple, the retirement benefit windfall for your staff, the management incentive program. If you have multiple shareholders, you can customize the ESOP transaction per shareholder. So it’s very flexible that way.”
40:55 “What they do need every year is they need a valuation. The company has to have a valuation done on an annual basis, and that has to be reported to the trustee. That is the only requirement is that annual valuation.”