Selling Your Firm? Is ESOP a Good Option? Yes



If you’re thinking about retirement and want to sell your business, you might wish to consider the benefits of selling it to your employees via an employee stock ownership plan (ESOP).

Surely, you want to get a reasonable selling price.

Selling to a third-party buyer might not be as gratifying as selling to your employees in an ESOP.

ID-10040939After all, your employees probably have worked hard to help you build your company.

Admittedly, selling to your employees might not yield the highest price.

But an ESOP provides tax benefits for owners of private companies, and grants ownership opportunities and a retirement source for middle-class workers.

An ESOP is a qualified retirement plan – according to the Internal Revenue Code and the federal Employee Retirement Income Security Act

It does mandate investment in shares of stock of the ESOP business.

Employees can finance the purchase of the company by leveraging its assets, and either by borrowing from financial institutions or from the seller.

How it works

Basic checklist for an ESOP process:

— The company’s board of directors approves the ESOP approach and assigns an independent person to serve as an ESOP trustee.

— The company is appraised.

— The trustee negotiates the sale.

— The company can borrow money and lend it to the ESOP for the purchase of the business.

— The corporation must make tax-deductible contribution annually to the ESOP.

— The business can issue tax-deductible dividends on the stock held by the ESOP.

— Any loans are paid off by the trustee; often by the dividends.

— Parties receive noteworthy tax benefits – to the seller, the company, and the employees.

Pros of an ESOP

In addition to tax benefits, an ESOP also provides non-tax benefits:

— An instant opportunity to sell the company.

— The seller can sell the business instantly or over time.

— It’s an opportunity for the owner to sell the company without selling it to competitors.

— Employees get retirement benefits.

— It’s an opportunity for continuity – to avert bothersome issues by assuring no restructuring or layoffs to former loyal employees.

— Competitors don’t learn the company’s proprietary information.

Cons of an ESOP

Like other selling options, ESOP costs can be high:

— An ESOP does necessitate hiring financial and legal advisors for both the seller and trustee.

— Sellers should also hire a wealth-management firm, an experienced ESOP tax advisor and a transaction law firm.

— There are miscellaneous expenses for continuing management.

From the Coach’s Corner, related business-buying and selling tips:

Private ESOPs Are Where the Action Is – in Economic Value, Job Growth — Private employment stock ownership plans (ESOPs) are thriving. That’s according to a study by a former advisor to the Simpson-Bowles bipartisan deficit reduction commission and a fellow at the American Enterprise Institute. Economist Alex Brill, who conducted 2012 study, found that ESOPs as S corporations grew their jobs by 60 percent over this past decade.

Selling Your Mid to Large-Size Business? Beware of the Obstacles — With plenty of angst and working long hours, you’ve spent a lifetime building your company. Now, you’re dreaming about an exit strategy – selling out before your retirement for easy living. Perhaps you’ve exhausted so much time and energy growing your company you haven’t given any thought to the business-selling process. Here are recommended strategies.

Selling Your Company for Tons of Gold Takes Planning — Many startup entrepreneurs dream about an exit strategy – launching their business, being acquired and striking it rich. Here’s how to make it easier.

When Should You Develop an Exit Strategy? Now…Here’s How — You should always have an exit strategy in place – no matter what. Whether you’re just starting out or you’re a veteran business owner, you should always have an exit strategy.

7 Basic Questions to Ask Before Buying a Business — Depending on your situation, there are beneficial reasons for buying a business. It works for a person lacking business-ownership experience as well as for a veteran business owner. Perhaps you’ve been laid off, or you’re tired of working for a boss. With sufficient experience and training from the seller, you can create a new career.

Financial Tips for Taking the Plunge to Buy a Business — So you’ve decided to take the plunge in buying a business. Congratulations. I salute such bravery. Owning a business represents one of America’s great fundamentals — our free-enterprise system. You’ll have multiple financing options.

Haste in every business brings failures.”

-Herodotus

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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

Photo courtesy of Photostock at www.freedigitalphotos.net

Selling Your Company for Tons of Gold Takes Planning



Many startup entrepreneurs dream about an exit strategy – launching their business, being acquired and striking it rich. Perhaps you have the same dream.

As an exit strategy, yes, it’s a common occurrence especially in technology. But it isn’t always easy. It helps to understand human nature – the motives of acquirers. 

You have to make it a buying environment. Competitors are especially interested in acquiring a fast track to increase market share. 

ID-100123394 graur codrinSome entrepreneurs buy micro companies to accelerate their business prospects.

(In my early days as a consultant to get a jumpstart in a new market in which I was unfamiliar, I bought a firm to insure that prospective clients would readily hire me. I told them: “I’m the new president of an excellent five-year- old company with an outstanding record of success.”) 

Savvy acquirers are motivated to buy if they get the right answers for their key concerns about building a company vis-à-vis acquiring one.

They wonder if they’ll save time and money for potential earnings by buying a business instead of building their own startup.  

Emotions can play a part in their decision-making – a fear of being left behind in a competitive marketplace – or a desire to seize an opportunity for growth. 

They want to buy a company with tangible and intangible assets:  

  1. A great business plan
  2. Strong financials
  3. Effective operations/business processes
  4. Excellent branding
  5. Cutting-edge technology
  6. A healthy reputation
  7. Superb talent and human resources approach Note: Talent is most important. 

(For specifics on the seven assets, see: When Should You Develop an Exit Strategy? Now…Here’s How.) 

Before you get overwhelmed by the seven assets, not to oversimplify, but start concentrating on these three basic elements: 

Talent

Savvy businesspeople know that talent is paramount. Not only companies fear losing their own great talent, but in making acquisitions, they want to acquire great talent.  

A lot of sellers have great concepts, but not all have the best team of people. Make sure you have the right HR strategies for top business performance.

Intellectual property

If your concept is proven, your company will be more attractive. Patent protection is vital. Employ the basics in protecting intellectual property

Even if your concept isn’t advanced but has wonderful potential, you might attract buyers who believe by acquiring your firm that they’ll save time and money in going to market.  

Market share

For immediacy, many acquisitions occur when a buyer is able to save time and money in expanding into a new sector or region.

Often, buyers make an acquisition because they fear you and your company.

Meantime, lower your expectations of a buyout. Stay focused on your mission to grow a great company. That’s when wonderful surprises occur.

From the Coach’s Corner, related articles to help your business to be attractive to buyers:

5 Reasons for a Strategic Plan and its 6 Key Elements — Are you ready to compete? Is your company like many that need to rethink their strategic plans? Here are some tips in strategic-planning basics.

For the Best Cash Flow, Manage Your Inventory Costs with 8 Tips — With proper inventory management, you can lower your expenses and increase your cash flow. For many businesses, that means taking a look at your inventory costs. When your products aren’t selling, obviously, it hurts. Products just lurking and collecting dust in your warehouse are costing you money.

Management Best-Practices Include Solid Operations Checklists — Are you concerned about profits? Would you like for your business to be in a class of its own? Not to oversimplify, obstacles to profits result from two basic barriers: External and/or internal challenges.

For Stronger Profits, Avoid 11 Typical Pricing Mistakes — In general, how can you manage the sweet spot – between your price-optimization and costs? Dennis Brown of the consulting firm, Atenga (www.atenga.com), says many companies make 11 pricing mistakes: 1. Companies base their prices on their costs, not their customers’ perceptions of value.

Internet Shoppers Demand 3 Cs – Customer Experience Study — Success in e-commerce is increasingly challenging for retailers that want to dominate in brand preference, customer loyalty and word-of-mouth advertising. That’s because consumers want more and more in the three Cs — channels, choices and convenience.

It is always wise to look ahead, but difficult to look further than you can see.

-Sir Winston Churchill

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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.

Photo courtesy of graur codrin at www.freedigitalphotos.net

When Should You Develop an Exit Strategy? Now…Here’s How



You should always have an exit strategy in place – no matter what.

Whether you’re just starting out or you’re a veteran business owner, you should always have an exit strategy.

Yep. That includes whether you’re a new entrepreneur, looking for an angel investor, or trying to plan for a successful turnaround.

Change happens.

You might hit a tsunami. You might decide to try a different venture. You might want to retire. You might want to pass the business to your children because it’s a mistake to overlook succession planning.

Plus, not to discourage you, but data shows startups often fail. You should plan to create an asset that can be sold as easy as possible.

ID-100214062 Stuart MilesHere are basic tips to start:

1. Business plan

It should contain action-strategies for results.

Involve all logical employees in planning. Include your key performance indicators – measurements to meet operational and strategic goals – from finance to marketing.

That means being strategic.

For additional reading here’s a checklist for success in business planning for the new economy.

2. Financials

You should have superlative accounting system. Use best practices in  financial statements. 

Be sure to know your break-even point and be embezzlement-proof.

3. Operational and other business processes

Be well-organized and documented, and constantly evaluate your policies and procedures. Remember that management best practices include solid operations checklists.

4. Branding and marketing

Measure your brand’s personality. For best results, here are marketing plan essentials.

Don’t forget the importance of being tech savvy and using content marketing.

5. Technology

Be prepared to demonstrate your competence in technology. Be current for your industry and streamline as much as possible.

Make certain your business is prepared with tech precautions and response philosophy.

6. Reputation

Make certain your customers love you and that you use  manage your Web reputation. Take steps to be known as socially responsible and to be known as a green company.

7. Human resources

This is the last tip but quality talent is the most important asset to attract a qualified buyer. Take reasonable steps for excellent employee relationships.

If necessary, use proven steps to improve your business performance and power your brand with employee empowerment.

Take precautions to make certain your stars don’t become free agents.

Every business is different, but you get the idea. Make certain your business performs at a peak level and keep everything documented.

This will insure you receive top dollar if you decide to sell. It goes without saying that you want to be as competitive as possible anyway, right?

From the Coach’s Corner, here are more tips:

11 Sales Strategies to Outsell Your Big Competitors — Big companies have obvious advantages over small businesses. Their brands are well-known. They can afford sales training, sales-support staff and customer-relationship management software. On the other hand, there are good reasons why Cyber Monday has become big. Yes, many online customers do it to save money on sales taxes.

Sell Ideas to Senior Executives, Tap into Their Emotions — If you want to persuade a senior executive, polish your soft skills. Whether you’re trying to sell your ideas to your CEO or you’re trying to sell to a key decision maker at another company, big data is important. But data isn’t the most important factor in persuading senior executives.

 “Affairs are easier of entrance than of exit; and it is but common prudence to see our way out before we venture in.

-Aesop


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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.





Photo courtesy of Stuart Miles at www.freedigitalphotos.net

Seattle business consultant Terry Corbell provides high-performance management services and strategies.