When Is a Business Ready to Become an ESOP?

For whatever reason, you and your partners are considering selling your business to a third party. Maybe it’s an issue of productivity or turnover, or maybe you’re just ready to give up the stress of owning a business. You’ll broker a deal that retains your job and most of your authority, but in the end, you will no longer be the majority owner. Before you decide this is your only option, consider the benefits of becoming an ESOP (employee stock ownership plan).

An ESOP offers your employees with an ownership interest in the company. Instead of selling a business to a third party, companies provide their employees with stock ownership, often at no upfront cost.

Boost Productivity and Reduce Turnover
If you turn your organization down the path of an ESOP, you could gain valuable financial liquidity, preventing the need to sell to a private equity group. By providing employees with an ownership interest in the company they work for, you give them added incentive to work harder and improve the quality of their work. In addition, the stock holdings you provide can grow into a valuable retirement benefit, encouraging them to stay with your company for the long haul.

When Is a Business Ready to Become an ESOP? 1

Tax and Other Incentives
ESOPs get impressive government tax incentives. On top of that, research concludes that asset growth in an ESOP outpaces 401(k)s, allowing ESOPs to make substantial income for employees’ retirements. When you add up these incentives, it could be more financially rewarding than selling, which might be why that the last 10 years has seen a spike in the number of ESOPs – with more than 10,000 in the U.S. alone.

A Recruiting Edge
According to the ESOP Association, U.S. ESOPs employ 10.3 million employees. They make up about 10 percent of the private sector workforce and the ownership option often attracts the top performers in many industries. Even though ESOPs are growing, they’re still uncommon enough to be a unique draw for motivated, driven employees – the very kind you want, and need, to be on your team.

Perks for You
For many business owners, becoming an ESOP is a much better alternative than selling a company or jumping into full-fledged retirement. The sales price is often the same, even better when you consider the numerous tax advantages. In addition to all of these benefits, most owners are see becoming an ESOP as a way to preserve their legacy and pass it on to those who helped to build it.

ESOPs are not the only option for businesses, and should be seriously considered before making the jump. However, the numerous benefits to you and your stakeholders are clearly apparent. If you’re ready to retire or sell, and want to learn if an ESOP is a viable succession-planning technique for your company, contact Burnett and Choice Specialists. As the largest ESOP in Texas, and a leader in the staffing industry, we a unique perspective on solving workforce and staffing challenges. Give us a call today.