Primary Benefits of Selling Your Company to an ESOP

Primary Benefits of Selling Your Company to an ESOP

 

LUTZ BUSINESS INSIGHTS

 

PRIMARY BENEFITS OF SELLING YOUR COMPANY TO AN ESOP

BILL KENEDY, LUTZ CONSULTING AND M&A SHAREHOLDER

 

Business owners sometimes overlook the option of selling their company to an Employee Stock Ownership Plan (ESOP). Although this option may not be right for all businesses, it can be a very attractive and flexible alternative for the right type and size of business. The following is a list of some of the potential benefits of an ESOP:

 

1. The selling owner can still be employed by the business and potentially still control the business.

2. There is no disruption to the business (which typically occurs with a 3rd party sale).

3. The business name and employees remain intact.

4. The transaction can be structured in phases (owner does not have to sell entire business at one time).

5. An ESOP can used borrowed funds to pay the owner for the sale (need to address bank guarantees).

6. ESOPs act as a motivator and incentive-based retirement plan for employees.

 

Tax Benefits! 

  • Sales to ESOPs are typically stock sales, giving the owner capital gain treatment for the transaction.
  • An S-Corporation that is owned (100%) by an ESOP pays no income taxes! Among other things, that makes the repayment of debt associated with the transaction much easier.
  • A C-Corp can effectively deduct the loan payments made on the ESOP bank note.
  • C-Corp owners can defer paying tax on the sale (under specific circumstances).

 

These are some of the more important benefits of an ESOP, but this is not a complete list. Please contact us if you would like to discuss ESOPs in greater detail.

ABOUT THE AUTHOR

bill kenedy

402.492.2132

bkenedy@lutz.us

BILL KENEDY + LUTZ CONSULTING AND M&A SHAREHOLDER

Bill Kenedy is a Lutz Consulting and M&A Shareholder at Lutz. He specializes in business valuation, litigation support, and merger and acquisition advisory services.

AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
  • American Institute of Certified Public Accountants, Member
  • Nebraska Society of Certified Public Accountants, Member
  • Certified Public Accountant
  • Accredited in Business Valuation
  • Certified in Financial Forensic
  • Certified Exit Planning Advisor
EDUCATIONAL BACKGROUND
  • BSBA in Accounting, St. John’s University, Collegeville, MN
COMMUNITY SERVICE
  • Construction Financial Management Association, Past Treasurer, Board Member
  • A Time to Heal (non-profit focused on cancer patients), Board Member

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Omaha, NE 68154

P: 402.496.8800

HASTINGS

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Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

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Grand Island, NE 68803

P: 308.382.7850

Is Your Business Transferable?

Is Your Business Transferable?

 

LUTZ BUSINESS INSIGHTS

 

Is Your Business Transferable?

RYAN MCGREGOR, LUTZ M&A MANAGER

 

Does your business rely on you to generate revenue? Does most of your revenue come from a few customers? Does your company lack depth of management? Do you have short term or no contracts with customers or suppliers? Do you have outdated technology for your industry? Are there limited barriers to entry?

If you have answered yes to most of these, then transferring your business may be difficult. When it comes to selling you really should ask yourself, why would someone buy my company? What are they really purchasing?

“Intellectual capital is knowledge that transforms raw materials and makes them more valuable.”  – Thomas A. Stewart, The Wealth of Knowledge

Christopher M. Snider, author of “Walking to Destiny: 11 Actions an Owner MUST Take to Rapidly Grow Value & Unlock Wealth”, breaks intellectual capital or knowledge assets into four groups. He titled these groups Human Capital, Customer Capital, Structural Capital and Social Capital.

1) HUMAN CAPITAL measures the depth and talent of your team. If a buyer feels your team has the know-how and know-what, they will pay more.

2) CUSTOMER CAPITAL considers how entrenched are you in your customer’s business. Do they rely on you to be successful?

3) STRUCTURAL CAPITAL is focused on the infrastructure of a business. These are the systems and tools that allow the human capital to interact with the customer capital.

4) SOCIAL CAPITAL could be best described as your company’s culture or brand. This is the secret sauce! You could have the best product in the world with a great distribution system, but if you don’t have the workforce that cares about the perfection of the product, the customer service when things go wrong, or the empathy to care about their fellow employees, the business will eventually be impacted.

An important thing to consider when implementing a strategy for making your business more transferable is acknowledging this actually helps you right now. For instance, most business owners miss the concept that delegating more work to employees will free up time for you to spend on more impactful business decisions, or even allow you to take some time to enjoy activities outside of the business.

The key concept to the transferability of a business is what can be transferred, and is it valuable enough for someone to pay for it. Furthermore, if you find that you are integral in most of the value in the company, then it may not be transferable. Before you determine when you are going to transition your business, you should review these concepts. 

ABOUT THE AUTHOR

Ryan McGregor

402.778.7946

rmcgregor@lutz.us

LINKEDIN

RYAN MCGREGOR + LUTZ M&A MANAGER

Ryan McGregor is a Lutz M&A Manager with a combined 14 years of related experience. He specializes in business consulting, valuation, and sell-side advisory services.

AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
  • Alliance of Merger & Acquisition Advisors, Member
  • National Association of Certified Valuators and Analysts, Member
  • Certified Merger & Acquisition Advisor
  • Certified Valuation Analyst
EDUCATIONAL BACKGROUND
  • BSBA in Management, University of Nebraska, Kearney, NE
  • Master of Investment Management and Financial Analysis, Creighton University, Omaha, NE
  • Master’s in Business Administration, Creighton University, Omaha, NE
COMMUNITY SERVICE
  • Past volunteer for various local nonprofit organizations including: Juvenile Diabetes Research Foundation (JDRF), Habitat for Humanity, Red Cross and Open Door Mission

SIGN UP FOR OUR NEWSLETTERS!

We tap into the vast knowledge and experience within our organization to provide you with monthly content on topics and ideas that drive and challenge your company every day.

Toll-Free: 866.577.0780  |  Privacy Policy

All content © 2018 Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

Is an Employee Stock Ownership Plan Right for Your Business?

Is an Employee Stock Ownership Plan Right for Your Business?

 

LUTZ BUSINESS INSIGHTS

 

Is an Employee Stock OWNERSHIP Plan Right for Your Business?

BILL KENEDY, LUTZ CONSULTING AND M&A SHAREHOLDER

 

One of the biggest reasons business owners struggle with how to exit from their business is getting a grasp of all of the options available to them. Often times, the business owner’s biggest financial asset is tied up in the value of their business. Obviously, maximizing the sale price upon exiting the business is a goal of most business owners, but there are typically many other concerns:

  • How will a sale affect the employees?
  • Will the owner still be able to work?
  • In cases where there are minority shareholders, how are they dealt with?
  • Will the Company name remain intact if sold to a third party?

The answers to these questions can be much clearer if the business considers a sale to an ESOP. But, is your company a legitimate candidate for an ESOP? ESOP experts provide varying answers to this question. Based on our experience, we believe the following are key areas to consider:

 

1. Number of Employees: Although there can be exceptions to this, we believe a company should have at least 50 employees to launch a successful ESOP.

 

2. Type of Employees: The employee base should be primarily made up of full-time workers. Companies with consistent employee turnover are not good candidates.

 

3. Management Team: The company will need to have a strong management team. Although a selling owner can still be involved, and even be running the company, an ESOP transaction will be hard to complete without a strong management team behind the owner.

 

4. Limited Existing Bank Debt: Typically ESOP transactions are partially funded by bank debt. If the company already has significant bank debt, an ESOP may not be a good option (unless the owner is willing to be the bank!)

 

5. Consistent Positive Cash Flow: Even with the multiple cash flow advantages of an ESOP, a company wishing to complete an ESOP transaction will need to have a proven record of positive cash flow sufficient to handle the debt requirements of the transaction.

 

An ESOP could be a great choice for exiting a business. Any business owner that meets these key criteria should contact us for additional information about how ESOPs work.

 

ABOUT THE AUTHOR

bill kenedy

402.492.2132

bkenedy@lutz.us

BILL KENEDY + LUTZ CONSULTING AND M&A SHAREHOLDER

Bill Kenedy is a Lutz Consulting and M&A Shareholder at Lutz. He specializes in business valuation, litigation support, and merger and acquisition advisory services.

AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
  • American Institute of Certified Public Accountants, Member
  • Nebraska Society of Certified Public Accountants, Member
  • Certified Public Accountant
  • Accredited in Business Valuation
  • Certified in Financial Forensic
  • Certified Exit Planning Advisor
EDUCATIONAL BACKGROUND
  • BSBA in Accounting, St. John’s University, Collegeville, MN
COMMUNITY SERVICE
  • Construction Financial Management Association, Past Treasurer, Board Member
  • A Time to Heal (non-profit focused on cancer patients), Board Member

SIGN UP FOR OUR NEWSLETTERS!

We tap into the vast knowledge and experience within our organization to provide you with monthly content on topics and ideas that drive and challenge your company every day.

Toll-Free: 866.577.0780  |  Privacy Policy

All content © 2018 Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

Lutz M&A adds Greteman as a Financial Analyst

Lutz M&A adds Greteman as a Financial Analyst

 

LUTZ BUSINESS INSIGHTS

 

Lutz M&A adds Greteman as a Financial Analyst

Lutz, a Nebraska-based business solutions firm, recently added Michael Greteman to its Lutz M&A division in the Omaha office.

Greteman joins the M&A division as a Financial Analyst. His primary responsibilities include performing business valuation analyses, analyzing and interpreting company historic and projected financial data, building financial models, and developing marketing and transaction materials. Michael received his Master’s degree in accounting from Creighton University.

 

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SIGN UP FOR OUR NEWSLETTERS!

We tap into the vast knowledge and experience within our organization to provide you with monthly content on topics and ideas that drive and challenge your company every day.

Toll-Free: 866.577.0780  |  Privacy Policy

All content © 2018 Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

Quarter Three Middle Market M&A Report

Quarter Three Middle Market M&A Report

 

LUTZ BUSINESS INSIGHTS

 

Quarter Three Middle Market M&A Report

“M&A MARKET REMAINS RESILIENT”

On the heels of a robust Q2, the M&A market in Q3 continued to be resilient. General economic growth remains strong as strong labor markets have helped boost consumer spending and put upward pressure on prices.

The M&A market continues to benefit from strong corporate earnings and good macroeconomic trends. Although interest rates have begun to edge higher, overall M&A financing remains historically cheap. While strategic buyers still comprise the majority of deals, PE firms continue to heavily influence the market as accessible financing and strong fundraising continue to support deal-making.

 

DOWNLOAD THE FULL REPORT!

 

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Why Investors Should Own International Stocks

There is a tendency for investors to focus their attention and investment dollars on assets located within the United States. This tendency is well documented and is referred to as Home Country Bias. People are generally more…

read more

2019 Manufacturing Outlook Survey Results

This year’s survey report contains the expectations and opinions of more than 350 manufacturing executives who produce a wide variety of products including industrial/machining, transportation/automotive…

read more

SIGN UP FOR OUR NEWSLETTERS!

We tap into the vast knowledge and experience within our organization to provide you with monthly content on topics and ideas that drive and challenge your company every day.

Toll-Free: 866.577.0780  |  Privacy Policy

All content © 2018 Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

Exiting Your Business Is Inevitable: 4 Keys to a Successful Transition

Exiting Your Business Is Inevitable: 4 Keys to a Successful Transition

 

LUTZ BUSINESS INSIGHTS

 

Exiting Your Business Is Inevitable: Keys to a Successful Transition

RYAN MCGREGOR, LUTZ M&A MANAGER

 

“… I don’t believe your business is your life, though it does and can play a significantly important role in your life. But before you can determine what that role will be, you must ask yourself these questions: What do I value most? What kind of life do I want? What do I want my life to look like, to feel like? Who do I wish to be?” – Michael Gerber, E-Myth

 

The only person that can determine with 100% confidence that your business transition was successful is YOU! This is your view of what matters and if the transition measured up to what you had envisioned. There may be quantitative factors that help compare the price you sold your company at and what other companies have sold for in your industry. However, valuation metrics are just one part of a transition. What are all the things that a business owner should consider?

Peter G. Christman is an exit coach that has spent his life helping business owners develop a plan to transition with the greatest success possible. He created a business transition concept that describes three legs of the stool in his book, The Master Plan.  The goal was to help visualize the three areas that will help define a successful transition. He stated that all successful transitions need to align personal, financial and business goals. In addition, he adds his value systems chart to include additional viewpoints for each leg. He explains that it’s important to determine how your goals for each leg are impacted by your role as a family member, manager and owner.

 

QUESTIONS TO CONSIDER

PERSONAL

What are you going to do with your free time? Is your self-worth/self-identity tied to your business? Are you physically able to do the things you really enjoy? Do you have family members in the business and how will this decision affect them? Are there any philanthropic activities you would like to pursue?

 FINANCIAL

What are your income requirements after you transition? Do you know the value of your business and the factors that impact value? Now that you don’t have the business to fall back on, does your risk tolerance change? What are your insurance needs (life, health, disability…)?

BUSINESS

How is the business performing? Is the business salable? Is there too much reliability on you or key employees? Does the business rely on certain customers or suppliers too much? What is the future outlook for the industry?

This may seem overwhelming and for one individual to do all of this, it would be difficult. This is where we suggest putting a plan together and getting the right people to help.

 

#1

Start with creating an advisory team and include all facets that impact your personal, financial and business goals. Every business owner will have a different set of advisors that are important to their goals, some of which would include family members, attorney, CPA, wealth advisor, banking advisor, insurance specialist, and valuation analyst.

 

#2

Next, complete a personal, financial and business assessment. This should include an analysis of what life after the business transition looks like and if you’re ok with that transition now. This can be an eye-opening experience because for most business owners they have never really thought about what life would be like without the business.

The financial assessment projects your future based on factors as of now. Without going through this assessment, how will you know what amount of money you need to enjoy retirement? For most business owners, a substantial part of their nest egg is tied to their business’s worth. Therefore, we would recommend performing a business valuation to see what the current market would pay for your business.

The business assessment takes a fresh look at your business and what makes it salable. Think about when you first got into your business, what were the factors that were important to you and do they still exist. We recommend reviewing all important relationships in your business. These include but are not limited to family members, employees, customers, suppliers, competitors and advisors. Then conduct a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis to see what is within your control and what is not.

As best as possible, capitalize on the opportunities within your control so when you are ready to transition, the business will be in the best possible position to maximize value. Recognizing factors outside of your control are just as important because then you can focus your time and energy into more impactful aspects.

 

#3

Once you have compiled this data you can start to put a plan together to combat areas that you feel fall short of your goals of a successful transition. We also would recommend putting a contingency plan together just in case you are not able to fulfill all of your goals before a transition. This way you will be protecting your family and business through a transition to the next owner.

 

#4

Lastly, set goals for yourself and your advisors so there is accountability. We would suggest you review your plan often with your advisory team. This isn’t a one-time plan that you put in the drawer to pull it out when you want to transition. This is a living breathing plan that can change and more than likely will evolve, as you and your business change. All the time and money spent on preparation is to give you the comfort that when that day comes and you inevitably transition your business, you can say I was prepared and it was successful!    

ABOUT THE AUTHOR

Ryan McGregor

402.778.7946

rmcgregor@lutz.us

LINKEDIN

RYAN MCGREGOR + LUTZ M&A MANAGER

Ryan McGregor is a Lutz M&A Manager with a combined 14 years of related experience. He specializes in business consulting, valuation, and sell-side advisory services.

AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
  • Alliance of Merger & Acquisition Advisors, Member
  • National Association of Certified Valuators and Analysts, Member
  • Certified Merger & Acquisition Advisor
  • Certified Valuation Analyst
EDUCATIONAL BACKGROUND
  • BSBA in Management, University of Nebraska, Kearney, NE
  • Master of Investment Management and Financial Analysis, Creighton University, Omaha, NE
  • Master’s in Business Administration, Creighton University, Omaha, NE
COMMUNITY SERVICE
  • Past volunteer for various local nonprofit organizations including: Juvenile Diabetes Research Foundation (JDRF), Habitat for Humanity, Red Cross and Open Door Mission

SIGN UP FOR OUR NEWSLETTERS!

We tap into the vast knowledge and experience within our organization to provide you with monthly content on topics and ideas that drive and challenge your company every day.

Toll-Free: 866.577.0780  |  Privacy Policy

All content © 2018 Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850