The Supreme Exit Strategy
Before you execute any exit strategy, you owe it to yourself to investigate an ESOP!
ESOPs provide huge financial benefits when selling. They will reduce or even eliminate taxes on the transaction. If you sell your equity (company stock) to an ESOP you will legally pay NO TAX on the transaction.
If you settle for a traditional asset sale, you will undoubtedly pay taxes at the highest rates.
By now, you know all that...
The other reason a properly structured ESOP represents your supreme exit strategy is that it creates the roadmap for management succession and orderly ownership transition:
- You set the selling price and the terms (based on the company valuation)
- As the seller, you receive top dollar for your equity and can control the percent of equity you want to sell to the ESOP
- + (Selling is not an 'all or nothing' proposition)
- You may sell whatever portion of your shares you wish and still remain in control
- An annual income can be provided to you by re-investing your pre-tax dollars
- Diversification of investments is now possible
- + Many business owners have their entire fortune 'Locked' in the business
- Liquidity and flexibility for estate planning can be accomplished
- Having control of the sale transaction facilitates an orderly management transition
The company you spent your life building will be better equipped to Soldier-On
- Improved cash flow:
+ Principal and interest on the ESOP loan in 100% tax deductible
- + Dividends paid to reduce the ESOP debt is 100% deductible
- + Can refinance existing debt at a lower rate and 100% deductible
- Easier to attract & retain the best employees
- Make capital expenditures using pre-tax dollars
- Complete future mergers or acquisitions with pre-tax dollars
- Increase the company's net worth and appraised value by rolling over any existing qualified plans into an ESOP
- Defend against a hostile takeover through a voting block
Employee Stock Ownership Plans (ESOPs) are a very powerful tool of corporate finance. Like any sophisticated financial tool, ESOPs must be planned and structured properly, which means working with people experienced in ESOP design and implementation.
The people at Financial Exit Planning, Inc. have designed and implemented numerous ESOPs skillfully and effectively. We are a member in good standing with the ESOP Association and finalize all our documents with our ERISA Attorneys.