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:

This Series (10 of 45)
Contractor Exit Strategy 4 of 6: Merger with a Similar Contractor Contractor Exit Strategy 5 of 6: Sale to Management Contractor Exit Strategy 6 of 6: Sale to Employees (ESOP) 3 Facts About Ownership Transition Deal Structures Succession Fact #1: Capital and Cash Flow
This Series (10 of 45)
Contractor Exit Strategy 4 of 6: Merger with a Similar Contractor Contractor Exit Strategy 5 of 6: Sale to Management Contractor Exit Strategy 6 of 6: Sale to Employees (ESOP) 3 Facts About Ownership Transition Deal Structures Succession Fact #1: Capital and Cash Flow
More from D. Brown Management
Learning, Doing and Teaching
Growth in life, career, and business is about a continual cycle of learning, doing, and teaching.
Related Article
Executive Briefing - Understanding Industry Trends
The construction industry is changing at an unprecedented rate. The challenges for contractors are compounded by the shortage of talent at all levels, including craft, management, and technical experts.
Related Article
Be Specific About Problems
The business of construction is filled with constant problems. It’s not that great contractors don’t have problems, it's that great contractors have learned how to troubleshoot first, which allows them to learn from their problems faster.
Related Article