Should Your Employees Own Your Company?

According to estimates from Pew Research Center and AARP, in the United States there are about 10,000 baby boomers, those born between 1946 and 1964, retiring every day.  Boomers own over 4 million businesses.  Given that dynamic many, if not most, of these businesses will be “on the market” in the next 10 years.  Although Boomers own the majority of small businesses, few have a formal exit plan.  Some refuse to address the matter, thinking things will take care of themselves.  How many times have you seen that happen?  

Given that the majority of retirement assets are often invested in the business, owners of these businesses face a dilemma…how to get their investment in the business out of the business?  Just shutting down the enterprise does not solve the problem for many, because many businesses have few tangible assets.  And for those who do, “fire sale” prices are not very appealing.  Not to mention the effect shutting down the business would have on dedicated employees, those have helped build the business to what it is today, as well as loyal customers who would have on less place to purchase a good or service.  Other possibilities include selling to management / family, selling to an outside investor, merging with another company, etc.

Another possibility is creating an entity know as an Employee Stock Ownership Plan (ESOP), which is established for the benefit of participants (employees), and selling the company to the ESOP.  While not for every situation, establishing an ESOP and selling your company, all of it or part of it, to the ESOP is a viable exit alternative for many business owners.  Benefits include tax savings, if done correctly, preserving employment opportunities while establishing a retirement plan for employees, preserving culture, improved performance by giving people an ownership stake.  

Members of the Bridge Business Transformations team can discuss with you the pros and cons of ESOPs and can help you navigate the often confusing ESOP landscape

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