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:

Contractor Exit Strategy 6 of 6: Sale to Employees (ESOP)
Continue building value in your business, yourself and your key team members with a good succession strategy....
Previous Next Go To Series
Related Insights Series
Contractor Exit Strategy 6 of 6: Sale to Employees (ESOP)
Continue building value in your business, yourself and your key team members with a good succession strategy....
Previous Next Go To Series
Related Insights Series
Average is Rare and Rarely Valuable
Study the differences between the varying levels of performance and work to close those gaps. Seeing how the average is trending can be very valuable to visualizing the trajectory, and that goes for every element on a Contractor's Scoreboard.
Related Article
Mastering Job Role Transitions in the Construction Industry
For construction contractors, the challenges with role transitions are significantly worse due to changes in the construction process including technology, the shortage of talent, and the highly competitive fragmented nature of the construction industry.
Related Article
Strategic Foundations: What Is Unlikely to Change?
Like construction projects, construction businesses are only as strong as their foundations. Build your strategies around things that are unlikely to change in the long-term (10+ years).
Related Article