Contractor Exit Strategy 6 of 6: Sale to Employees (ESOP)

Contractor Exit Strategy 6 of 6: An ESOP (Employee Stock Ownership Plan) is a qualified defined contribution employee benefit plan designed primarily to invest in the company’s stock.

D. Brown Management Profile Picture
D. Brown Management
November 27, 2018 2 minute read
Share

This is a more complex and costly structure to set up and maintain but also comes with some tax advantages. And while these costs and savings are easy to model, they should not be your deciding factor in whether a ESOP should be all or part of your exit strategy.

Succession: Exit Strategy 6 of 6 - Sale to Employees (ESOP).

For starters, this exit strategy should be weighed against a sale to management because all the same prerequisites have to be met, including having strong leadership, an aligned management team, and a business that is continually generating excess cash flow for funding of the deal.  

The big initial questions to really dig into:

  • Will broader employee ownership make the business operate better than having a smaller group of managing owners who carry more of the risk but also have more to gain?
  • Is the culture truly prepared for an ESOP? In a leveraged ESOP, often other contributions to retirement programs and bonuses are cut back which can demoralize a team without the proper education.
  • Will your bank and surety be onboard with an ESOP?

Resources:

Succession
Continue building value in your business, yourself and your key team members with a good succession strategy....
Previous Next Go To Series
Related Insights Series
Succession
Continue building value in your business, yourself and your key team members with a good succession strategy....
Previous Next Go To Series
Related Insights Series
Management and Leadership (Similarities and Key Differences)
A growing contractor requires both great leadership (right direction) and great management (right actions). The creativity required to attract, motivate, develop, and retain people are where management and leadership intersect.
Related Article
Building a Systems Development Team - Apps
Can’t I just buy an app for that? One of the biggest shifts in the construction technology ecosystem is the transition from a few large monolithic packages to a mixed regime of comprehensive software packages and smaller apps.
Related Article
Field Productivity Grand Slam
When contractors are truly successful at improving their field productivity it is like Mickey Mantle’s pivotal Grand Slam during game 5 of the 1953 World Series. The bases are loaded. You are at bat. The Big Four productivity home runs:
Related Article