October is always an amazing time of the year as the weather changes from the warmth of Summer to the crispy cool temperatures of Fall. These seasonal changes remind me of the transitions we all face no matter the industry we work in. As things change, we can’t forget to look back and remember the past and where everything initially started.
We have been discussing some of the many benefits of selling to an ESOP including how selling to an ESOP creates a built-in buyer and how selling to an ESOP can increase after-tax proceeds by over 40%. In addition to the higher after-tax return, selling to an ESOP can provide additional ways to add additional consideration and benefits for the selling shareholder above and beyond the sale proceeds.
When a business is sold to a third party, the buyer generally prefers to purchase a company’s assets rather than its stock for liability and tax reasons. Selling to an ESOP is always a stock sale which is more favorable from a tax standpoint than a traditional asset sale. When analyzing the purchase price, it is essential to consider the after-tax proceeds when comparing an ESOP transaction sale to a third-party sale.
Efforts to engage and inspire employees with gimmicky perks will result in very little if you get the company culture wrong. Your Perks Aren’t Motivating Your Employees shares some examples of how management plans of kindness and good intentions often turn into perks to nowhere and lost capital.
It takes a concerted effort – in time, energy, and resources – to keep good employees. One method that gets results is to establish a mentorship program. It might not be easy because you’ll need buy-in at all levels of your company, but it’ll be well worth the effort. With the potential for five generations in your workforce, a program that matches new employees with company veterans can pay huge long-term dividends.
We recently discussed how selling to an ESOP provides greater employment stability and increases job satisfaction. It is important to note that job satisfaction is not significantly impacted by employee ownership alone. Job satisfaction and employee engagement are driven by having a meaningful ownership stake AND active participation in the decision making process. The NCEO's Research on Employee Ownership and Corporate Performance reiterates the formula of OWNERSHIP + PARTICIPATIVE MANAGEMENT = OWNERSHIP CULTURE:
We have been discussing the benefits of selling to an ESOP. A review of existing research on ESOPs found that ESOP companies have greater employment stability. The studies found that the average employee tenure was "significantly longer" than their non-ESOP counterparts and that firms were more likely to adjust wages than the number of employees. It also found a mild increase in "job satisfaction, organizational commitment, identification, motivation, and workplace participation.”
The article Legislation would encourage creation of more ESOP companies shares commentary from Van Meter and CarePro, two prominent Iowa ESOP companies, on Iowa House File 2085 – Iowa’s ESOP Initiative to promote selling to an ESOP. The article discusses the need for establishing incentives to sell to an ESOP and how selling to an ESOP rewards loyal employees and preserves the company legacy and provides a business owner with liquidity and diversification.
Every small business owner will face a time when they will need to sell their company. When a small business is put up for sale to a third party, particularly in rural areas, local jobs and the other benefits are at risk. Since an acquiring business may not have any ties to the local community, they could liquidate the assets of the company or relocate the company operations to a different location. This obviously has negative consequences for the employees and the community.