ESOPs
An ESOP can be a tremendous tool that enables an entrepreneur to strengthen his company through employee ownership while at the same time liquidating some of the personal wealth that is tied up in his or her business. But ESOPs can seem dauntingly complicated to the newcomer. At the Beyster Institute, we have worked with ESOPs for many years and can guide you through the investigation and planning of a program that will be tailored to achieve your goals.
For those who would simply like to get some basic information on what an ESOP is and how it works, the Beyster Institute offers a wide range of helpful materials. You can start with a brief summary description. A quick but excellent book on ESOPs is also available.
If, based on your initial exploration, you think an ESOP might be right for you, a Beyster Institute Senior Consultant can help you from there. The process for going forward moves through four phases:
Phase One – Feasibility Analysis. In this phase we work up a careful analysis of whether, and how, an ESOP can be implemented in an effective way at your company. Our focus at this stage is on getting a full understanding of your business and your overall situation so that we can help you evaluate how an ESOP can serve your needs. We will help you assess both the costs and the benefits that will result from the implementation of an ESOP at your company, including a preliminary assessment of an ESOP’s impact on the company, its shareholders and its employees. The ultimate purpose of this analysis is to enable you to make a sound final decision on whether or not an ESOP represents the right path for you. If your answer is affirmative, we continue on to Phase Two.
Phase Two – Planning for the ESOP and Its Acquisition of Stock. In this phase, we create a detailed plan for the creation of the ESOP and its purchase of stock by one or more shareholders. Our recommendations will be set out in a formal report to you that will present a detailed financial analysis, including a strategy for financing the transaction, an action plan for implementation, and final projections of the impact of the proposed ESOP on the current shareholders, the company itself, and the employees
Phase Three – Implementation. With a detailed action plan in hand, the next step is to retain the services of professional specialists, as needed. An attorney will be required to prepare the necessary legal documentation and provide other legal services as needed. Likewise, you will be legally required to retain a professional business appraiser to determine the fair market value of the company and the stock that the ESOP will acquire. A plan administration firm should be retained to handle ongoing administration of the program, including recordkeeping and government-mandated reporting. Beyster Institute consultants can recommend qualified service providers and will coordinate and supervise their activities to assure that the work is efficiently delivered.
Phase Four – Making Sure Employees “Get It.” Research and experience have repeatedly shown that an ESOP can generate significant improvements in business performance – but only if employees have a good grasp of what the ESOP is, how it makes them shareholders and how their own efforts as employees will determine the extent of the gains they will reap from the ESOP. As we like to say at the Beyster Institute, the challenge is to get employees to think and act like owners. Without an effective strategy for raising the employees’ level of understanding, the great promise of an ESOP will almost certainly not be achieved. Beyster Institute consultants can help you craft strategies and training methods that will get employees looking at their company like business people.
To begin a dialogue with us, please fill out our Pre Consulting Questionnaire, which will provide us with some basic information about your company. One of our experts will be in touch with you shortly.
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