The Journey to an ESOP

On this episode, we dig into a better understanding of the buy side team for an ESOP transaction. This would include the Trustee, Evaluation Firm, and their legal counsel.  As you invite them into the ESOP deal, they are in a sense the enemy and there are certain aspects of working with them in this process that are important to understand so that you can be better prepared for your transaction and your journey to an ESOP.

As the podcast discussed at the beginning of the new season- we wanted to give a strong overview of the Third-Party Administrators (TPAs) role in the ESOP. On this episode, the podcast interviews Tom Roback with Blue Ridge. The episode looks at the trends in the ESOP community and the consolidation of TPA companies.  We look to answer what challenges with TPA firms are currently being experienced and how TPAs (particularly Blue Ridge) are looking to overcome those to provide a strong partnership with their clients. Tom does an excellent job walking through a a various list of topics - this should be a helpful podcast episode along your journey to an ESOP.

Power Rangers are an excellent example of strength in combining multiple superheroes on one team. On this episode we consider: What is your company worth?  What happens when we combine it with another then another? The value could significantly change for better multiples and for multiple reasons.  One of those would be a larger combined EBITDA with a reduction in redundant expenses.  Another could be the risk profile is reduced given larger geographic and higher diversification of revenue. Whether you sell to an ESOP or another buyer, through this podcast episode we discuss the multiple reasons to consider this approach. 

In this episode, we sit down with Kevin Birch, Regional Manager at CNA Surety, to explore best practices for contractor ESOPs. A key theme throughout our conversation is communication—and lots of it. One of the biggest mistakes a contractor can make is surprising their surety with news of an ESOP transaction. Kevin strongly recommends that contractors—whether general or specialty—get their surety agent and company involved early in the process. Doing so allows the proposed ESOP structure to be reviewed and vetted, ensuring buy-in from your surety partner. Throughout the podcast we discuss how critical it is to present models that illustrate valuation, cash flow projections, debt structure, and pro forma balance sheets. These elements are essential for the surety to properly underwrite the transition and help avoid issues with your bonding line after the ESOP is in place. 

The show “Band of Brothers” offers a perfect example of leadership from the character of Captain Sobel and provides examples of overcoming obstacles to establish a strong culture. Specifically, the show provides an example of an employee-centric culture: a culture that embodies a solid group of employees ultimately banding together.  This episode covers the 5 c's of an employee-centric culture: Commitment; Care; Celebration; Communication and Community. The topic might be helpful to assess wherever you are in your journey to an ESOP as you build, improve, or sustain the culture of your business. 

In this episode the podcast discusses the recent uncertainty with the economy and how this effects the ESOP world. Considering this, the podcast interviews senior level banker Chris Cucci with Climate First Bank. Chris' bank does financing for ESOP deals all over the United States, providing valuable perspective on ESOP financing credit decisions in light of the first quarter of 2025. While the future of recent economic events in unpredictable, the important take away from this episode is to build your ESOP around the ability to flex with any changes in the economy. 

This episode provides the background on both Warrants and SARs in an ESOP transaction.  The typical usage of synthetic equity structured within a deal can create a solid win-win for the shareholders and the company.  Within the topic, the podcast uses the Nicolas Cage film “Knowing” as an example to explain how a warrant and SAR model help to predict the future just like so that we can create a lasting legacy for the company and a successful reward for those that are taking on the future risk of the enterprise. 

On this podcast episode we interview Jason Ireland, President of Industrial Supply Company (ISCO), a distributor of manufacturing parts who went 100 percent ESOP last year. Jason explains the step by step process their 100-year-old company went through to transition to an ESOP process.  The company was part union and part non-union, providing some background for some companies dealing with that reality.  There is even a ghost in this story…but he cannot be part of the ESOP (it's an ERISA thing).  We discuss the consensus building process with multiple shareholders and Jason's future generation as part of the leadership to steer the company into the future of employee ownership making the employees part of this family. 

The Mad World of ESOPs!  This episode reviews the roles ESOP professionals play and the reality of variance in one transaction to another.  We discuss the differences in costs, approaches to structure, closings, and other areas given the backgrounds, perspectives and objectives in leading the transaction.  This episode is intended to help orient the listener to questions they may want to ask on their journey to an ESOP. 

In some cases an ESOP company can choose to sell to an outside buyer after they transition to an employee-owned company.  In this episode Greg Daugherty, Porter Wright and, I discuss the factors related to selling your company after it has become an employee-owned company.  Greg does a great job of discussing how this process works and what business owners should know as it relates to the board of directors, trustees and, support related to selling the business. 

Arguably one of the best James Bond 007 movies - “Casino Royale” - is it time to get some chips off the table?  This episode focuses on the motivations of why some companies look at doing a partial ESOP which is going to be accompanied by risk/reward decisions.  Not as risky as going all in and hoping for the high hand.  But a partial ESOP can still be the right strategy a lot of companies to determine if an ESOP works in both the short and long term, and for shareholders and employees.  This may be your next step on the journey to an ESOP!    

Journey to an ESOP and Beyond continues to bring perspectives that can challenge conventional thinking and at the least provide the listener with questions for their advisors.  Jeff Forrestall, CPA provides a good overview of the changes in SBA ESOP financing as well as a compelling forward planning model to leverage the C Corp opportunity beyond 1042.

This episode takes advantage of the classic film “Meet Joe Black” starring Brad Pitt and Anthony Hopkins. The podcast uses the movie to demonstrate the two guarantees in life - Death and Taxes.  The nuances of taxes can catch individuals by surprise.  As it relates to an ESOP transaction - most of the time there is a resulting seller note established.  Relative to an S-corp sale - there will be capital gains taxes that need to be estimated.  We usually look to installment sale method but if a company's transaction is large enough to create a seller note greater than $5 million there will be an additional IRS interest cost known as 453a.  We detail this issue so that listeners do not underestimate the additional cash outflow to the sellers.   This is a very important step in your personal  Journey to an ESOP!

This is the first episode of the new year where we like to cover changes to the podcast.  This kick off message for season 6 focuses on our core value: “It Takes A Team”. This works out well to connect the dots on the old tv show and 2010 movie “The A - Team”.  Some of the changes to the podcast have already been incorporated in our logo change.  This episode covers some of the highlights of 2024.  Looking forward to the new year for 2025 and some of the areas we plan to focus on as well as the open invitation to send your questions to our contact us page on the Journeytoanesop.com website.  Lets get started on our next step on this journey to an ESOP.

In this episode, Noelle Montano returns to discuss ESCA's tireless efforts to preserve and promote the S-Corporation ESOP in Washington after the 2024 election. We also discuss some of the impacts employee ownership has on companies, communities, and Congress.

Every company has its own lessons to be learned in the journey of converting to an ESOP. This interview with Kevin MacRitchie, CEO and Karen Lyons, CFO of Tactical Rehab provides key leadership perspective on the transition of this company through the process of becoming an ESOP.  Kevin has a large company background and has brought a level of management that is moving their company to the next level.  As part of his strategic leadership, he has fostered a vital partnership with the employees of Tactical Rehab, Inc. and even a greater level of trust with his CFO - Karen Lyons.  Karen brings an order to the company to provide financial insight with not only important data points, but also to support the well thought out strategic direction of the company.  Both Kevin and Karen speak to the importance of teamwork in the success of building the company.  The ESOP was considered and moved into a reality as an essential tool working through many common objectives that most companies have:  succession, culture, retention, incentive.  They have embraced a full on ESOP communication strategy for their employees on a monthly basis in addition to other key initiatives.  

This episode highlights the leadership issue a business finds itself continually facing.  Ongoing leadership development is a common concern with most companies both before, during, and after the ESOP transition. Going through the feeling of being “Alone Again” is a natural and normal issue that needs to be addressed whether it be for management succession in the short run or for the company's final exit plan. 

This episode addresses effort the challenges and applicable solutions for a mature ESOP company. Diana Clark and Jason Miller provide insight into including preservation of ESOP knowledge in the organization contemplating changes to leadership.  Other items we discuss include how to look ahead at areas that need to be thought about not only as a mature ESOP but also preparing ahead of time for these issues.  The discussion includes best practices that should be thought about post ESOP issues.  ESOP companies should be focused on the long-term sustainability as companies build out infrastructure the can produce solid results like employee engagement.  Ultimately, it takes work and ongoing focus to stay on top of this just like other areas of the business. 

This episode was inspired by the recent NCEO conference and provides a good overview for those that are new to an ESOP or those who have recently transitioned to an ESOP. The podcast discusses the need to build the employee-ownership concept as a vibrant part of the culture of your company.  As we go through some of these concepts, we will address the audience, frequency, repetition, and plan for ESOP communication.  This can affect each employee-owned company differently depending on where the company is in their development whether that be a new, young, maturing, or mature ESOP.

This episode is extremely timely given the potential changes to estate tax.  Agnes Gregory with Berman Hopkins CPA tax team in Orlando FL and Justin Stemple with Warner Norcross + Judd from Grand Rapids, MI explain how important it is to have an Estate/Gift Tax plan going into an ESOP transaction.  We cover some important elements of Estate planning as we consider the event of an ESOP transaction.  One of the areas of planning is considering the potential lifetime exemptions with other assets.  This gets somewhat clearer as you consider the valuation of a primary asset - your business.  When it comes to estate and gift planning there are a myriad of options and the earlier you start the better.  We also cover who should be helping you do this kind of planning so that you can enjoy your journey to an ESOP.  

This episode highlights ESOP advisors you may run into at the conferences (or really anywhere!)  The topic is to help provide an overview of the ranging roles as it applies to ESOP advisory and how to choose advisors who can best support your personal journey to an ESOP.

 This episode focuses on the role of the ESOP trustee through an interview with Bryce Lenox - an ESOP trustee out of Cincinnati, OH.  Bryce does a great job reviewing the role of an ESOP trustee both on the transaction and ongoing side.   Relating to transaction, Bryce explains the role he plays as a buyer and the steps he takes to conform to the department of labor process agreements.  Once the transaction is complete, he explains his ongoing duties for the retirement plan from a fiduciary standpoint. 

In this podcast episode we use a classic scene from the movie “Pink Panther” which highlights using the “American” French accent to illustrate the strangeness related to an ESOP negotiation.  In ESOP transactions it is important to understand that the purchase price or valuation of shares being sold hinge on the ultimate result of the negotiation with a trustee along with their independent buy-side team.  The strangeness can come from the back and forth with the seller offer/trustee counter offer/seller offer.   

This episode we invite Diana Clark, who specializes as a full-time ESOP communication's consultant, to provide a framework to understand the power of frequent and effective communication around employee ownership.  If you are brand new to ESOPs or been an employee-owned company for a few years or even many years - the bottom line of communication will improve the bottom line of your business. 

This episode is part 2 of discussing the inside note versus the outside note on an ESOP transaction.  We feature the recently released part 2 of Inside Out - as it is an excellent sequel in the story of how human emotions can play into how we make decisions , in particular how anxiety can cause problems in daily life. The podcast contrasts this to how we deal with the anxiety of the company going into debt for leveraged buyout financing.  The episode focuses on the planning side to provide a sustainable ESOP transaction and helps to provide some terminology for those wanting to better understand and enjoy their journey to an ESOP.

This episode represents the 2nd interview with Joe Hurt of RLH Construction.  Joe discusses some of the challenges and opportunities of an established ESOP.  A few years into their ESOP, RLH Construction has experienced very strong results from the ESOP.  Joe is the CEO of the company and has worked through issues such as leadership transition, retiring a large portion of the initial senior debt, managing bonding issues, as well as a myriad of other specifics.  For Joe and his team, the ESOP has been a tremendously valuable took to strengthen their efforts in the industry and has helped the company reach new heights.

This episode provides clarification to the difference between an inside note and an outside note.  In an ESOP transaction there will be two types of notes created when the transaction occurs.  This episode is part 1 of 2 episodes.  The first part explains the background of the terminology as it relates to why these two types of notes exist.  The majority of this episode deals with the inside note and its use in releasing shares to employees as well as IRS code section 404 and limits applied as well as implications related to related to future repurchase liability.  In addition, this episode covers how the tax benefits get created in the analysis of an ESOP from the structure of the inside note. 

 On the podcast this week, we interview Corey Rosen, the founder of NCEO and a huge contributor to ESOPs discusses the updates and trends relative to ESOP companies. Through our discussion, Corey highlights the expansion of ESOPs as the finance world has begun to leverage this realities and benefits of an ESOP in private equity.  Some of these ideas discussed on this podcast have been highlighted on a recent 60 Minutes program (which can be found on our website at Journeytoanesop.com). 

In this episode we discuss the motivations for selling your business to an ESOP.  The focus of this episode is to help better understand the reasons to choose an ESOP.  The episode was encouraged by the experiences of working through other company's ESOPs and interacting with diverse personalities and companies, along with their varying goals and objectives.

This episode will be very informative through the long-tenured experience of Renee Jenkins with Holiday Builder's ESOP.  Renee has been a long-time employee of the company managing the Finance/HR Branch. On this episode of the Podcast, we discuss the issues in a straightforward approach and solutions that she has worked through. This discussion covers possible issues that can arise during the ESOP process which may seem unsolvable, but have reliable solutions. For mature ESOP company's there might be areas you are currently dealing with including repurchase liability, changes in the economy, and running out of ESOP shares in the trust. This episode covers solutions to these topics! 

We find that once an ESOP closes, there is some degree of uncertainty on the next steps. In this episode, we focus on the ESOP closing guide to prepare clients on the correct ways to implement the organizational structure and timeline of a successful ESOP. In other words, we cover how to accomplish a company's goals in the transition of an ESOP that take specific knowledge of timing and communication. 

On this episode, Jason Miller (former National Director of ESOPs for Bank of America) and I explore the “Expanding ESOP Initiative” that was recently aired on 60 Minutes.  The focus of this podcast is to provide an update as to what is happening in the National ESOP space and how the ESOP initiative started.  The initiative's work is centered around the question: “Why are there not more ESOP companies in the United States?”   Jason Miller was part of the initiative and shares some insight into the process and how this initiative is currently being developed. 

This episode focuses on the development of an expected valuation to help a shareholder understand selling their shares to an ESOP.  When the historical average cash flow is much lower than the forecasted cash flow, the negotiated fair market value or adequate consideration can be much lower than desired.  This is what the podcast refers to as “bridge over troubled water.”  Where the bridge is historical to forecasted cash flow.

 This episode is a general overview of ESOP communication.  Diana Clark and I discuss the importance of communicating an ESOP transition to your employees.  We discuss how to present an ESOP to your company, answering the question: What is in it for the employee? This is a very essential part of the ESOP journey--once the ESOP closes this marks a new beginning for the company. Communication is central to building a highly effective ESOP company, as well as re energizing mature ESOPs. 

Randy Macho Man Savage was a childhood hero who my brothers and I constantly impersonated while watching WWF wrestling.  For a time, I didn't realize it was choreographed fighting and not a real fight. This podcast episode uses this picture of WWF Wrestling to discuss what is called the “bring down” call for an ESOP transaction. This is a call conducted by the independent valuation firm representing the trustee around the final closing call.  It is intended to ask about any changes in the business since they did due diligence and after negotiations. The importance of this this episode is to understand how to navigate changes in your ESOP transaction right up to the point of closing.  

This podcast episode features Nancy Pratt, CFO of Frederick Derr and Company.  They are a construction company out of Sarasota, FL who closed on a 100 percent ESOP transaction at the end of 2023.  The episode is our first interview from a CFO perspective. Nancy does a phenomenal job of explaining the ESOP process from the role of the CFO. This episode also compares and contrasts an ESOP transaction vs. a strategic sale.

This podcast is all about designing your ESOP so the company can be successful and avoid any potential pitfalls. Through the episode, we get to celebrate the movie: “Titanic” (Spoiler alert - the ship sinks at the end). One of the aspects of ESOP design is understanding the ESOP process and the importance of cash flow and balancing leverage for the company with the respective tax benefits. As a whole, the ESOP industry often has diverse opinions on what creates a sustainable ESOP deal. This is partly due to the myriad of conflicts of interest often found in deal teams. The goal of this episode is to help you ask the right questions and ensure your company has the correct ESOP design. 

This episode we dive into the very essential role of the transaction/ongoing ESOP trustee with Bill Kropkof out of Dallas TX.  Bill's background includes time with the Department of Labor - so he brings a perspective that is very helpful to think about how that affects a transaction as well as ongoing work related to best practices related to trustees.

In this episode, I discuss the tension of making these choices around ESOP - but not just the path of an ESOP.  This episode is to discuss some general ideas around what shareholders face when making decisions towards how they go about the transition of their business.

On this episode - Dale Hobbs founder of Hobbs Madison - consulting firm discusses him and his partner (Gary Madison's) journey to an esop.  Dale and I discuss the process that we worked through to sell 100 percent of their stock to a newly formed ESOP.

On this episode I have been re-inspired by this great song to focus on why holistic planning your ESOP should minimize your worry of selling your stock during your journey to an ESOP.  As we go through the planning process, there simply are measures taken to balance all of the elements of your ESOP plan to provide a win-win-win…yes a triple win - one for the shareholder - one for the company and one for the employees…and even the key managers so that could be four wins.  Check out why this approach will help you to do what Bobby Mcferrin says “Don't Worry - Be Happy!!!”

I have been talking about EOS for years - so helpful to get to interview Mark O'Donnell, CEO of EOS Worldwide to discuss how Traction has made such an impact with companies executing  strategically and implementing innovation at the highest levels. The ESOP is a natural choice for EOS companies given the strong core values, culture, business processes, and most of all people leaving a long-term legacy of abundance for those that have contributed so much to get here and so much more to getting there.

This episode is focused on addressing a super common question with companies going through the ESOP process with their key people.  Proactive communication is really the best way to approach your key people - however the question is when should you talk with them and how much can you tell them.  This is really difficult to answer as it deeply depends on your company culture.  But there is some guidance here based on experience with different clients!

In this episode - I interview Steve Storken and their approach at EOX, an organization founded out of the NCEO to develop state employee ownership educational resources to support companies considering ESOP as an option.  Their approach is in response to research that shows - states with education on ESOPs have a lot more ESOP companies.  Steve has an interesting ESOP background and leading the initiative to have more state centers throughout the U.S.

In this episode, we jump right into the expanded version of Season 5 by dealing some factors related to communicating the ESOP to your employees.  Jumanji is an ideal movie to explain that there is something that changes after an ESOP that can change the outlook on how employees see themselves - who they are and who they want to be - we want them to move from employees to employee owners on this journey to an ESOP & beyond!

This episode is really meant to get at the heart of what defining employee communication for ESOPs.  We interview employees that are volunteering at Smooth Fusion - an ESOP company out of Texas - to participate in a newly formed esop committee.  We discuss the roles in the company, their ESOP communication strategy as well as extras that they are aspiring to that align well with company culture.  There company is on a journey to an esop & beyond!

This episode officially kicks off the Season 5 and the expansion of the podcast as a direct resource for Employee Stock Ownership Plans.  The Journey to an ESOP just became better because we are incorporating “& Beyond” to discuss not only pre-esop topics but go beyond that and deal with post-esop topics and issues that come up.  This episode provides a high-level understanding of what is to come and what we have dealt with in the last four seasons.  The value of listening will be to grasp some overall ESOP concepts that may be helpful for you to think about whether you are exploring your own journey to an ESOP or thinking about existing ESOP issues that are beyond the ESOP closing.

This episode takes advantage of the opportunity that we have during Christmas to stop and celebrate the reasons why folks decide to go towards ESOP… In this episode, we cover the ghost of Christmas past and thinking about the people that have helped your business get to where you are and how an ESOP can be the perfect way to reward them.  The Ghost of Christmas Present reminds us of what is happening right now that includes the current tax benefits of an ESOP and other benefits to reduce the workload and spend more time with the family.  The Ghost of Christmas yet to come makes us think of the future legacy of the business and how much better it will en to be an ESOP company.  MERRY CHRISTMAS - The ESOP Guy!

In this episode we finish the series we started to help prepare folks for the ESOP site visit.  The focus of the episode is to understand in covering first the financial highlights and how they connect to points you will want to make with the trustee and their valuation  firm.  In addition to the financials - the remaining part of the presentation will be to cover the ESOP deal structure and anything specific to the transaction.

This episode we get to review what is important about third party administration of an ESOP plan.  Scott Freund is an absolute expert at the nuances of how benefit testing as it incorporates IRS limitations related to ESOP Plan design.  For instance, IRS code section 404 that generally allows for a contribution to the ESOP plan up to 25 percent of the payroll and IRS code section 409(p) related to S-corporation ESOPs to test related to disqualified persons.  This is an essential step to understand for planning your ESOP and for staying on top of an existing ESOP plan.

In this episode, we discuss the other parts of the presentation as it relates to the company overview getting into other aspects of the presentation for the trustee and the valuation firm.  The value of having a solid presentation, regarding how the company operates, the leadership team, the business processes that are repeatable, and provide a functional mitigation towards the business.  This is the one opportunity that we have to put a factual, solid understanding of the way the company operates, including how the strength of the company provide a sustainable long-term ESOP.