Establishing an Employee Stock Ownership Plan (ESOP) is a powerful finance and employee benefit tool. While an ESOP may not be the right fit for every business owner’s situation, understanding the benefits may open the door to a valuable business transition and growth tool you need to consider.
From a company standpoint, an ESOP can benefit the company in many ways and actually become another part of your growth strategy. There are significant tax benefits to the company by becoming an ESOP company.
If you become a 100% ESOP company, you will generally eliminate federal and state income taxes and that significantly improves the cash flow position of the company. Now, in the short term, we can use that cash flow savings from not paying taxes to fund the transition to the business owner. But once that’s done, the tax savings remain and that’s a competitive advantage over your competitors in your industry. So, from a cash flow standpoint, an ESOP can improve things.
Cash flow savings can be used to reinvest in your business, reinvest in your people, add new equipment, acquire new businesses...the sky’s the limit with this cash flow savings. And as you grow, that’s going to be more earnings, more tax savings, and it’s going to exponentially grow the amount of savings that you’re going to get. So, from a tax and cash flow standpoint, an ESOP can become a competitive advantage.
In addition, an ESOP can be a competitive advantage from an employment standpoint. Providing employee ownership is a recruiting opportunity. It can be a differentiator when people are coming to choose your company or someone else, the fact that you offer employee ownership at your company is an advantage both from a financial standpoint, but also from a culture standpoint. Employees want to make a difference. They want to be a part of the company and the growth long term and employee ownership can provide that and that’s what an ESOP can provide.
To learn more about the benefits an ESOP has to offer and whether one may be right for your business, download our tip sheet, Is an ESOP Right for Your Company?