Typically, EO sales offer the best tax advantages. ESOP sales are typically capable of

1. deferring capital gains tax (for the seller),
2. exempting future income tax of the business, and
3. deducting both interest and principal payments on the ESOP loan,
4. as well as some payroll tax

1. Analyzing historical financials and KPI's,
2. conducting a detailed review of assets, liabilities, debt, and tax position,
3. ensuring compliance, analyzing working capital management,
4. validating revenue and cost accounting practices, and
5. benchmarking financial performance

A few indicators that can support an upward sloping bridge in forecasted cashflow are: new customers, recurring revenue, market expansion, or acquisitions.

The optimal time to sell a business is when it is

1. performing strongly,
2. has a capable management team in place, and
3. the founder is prepared to transition out - ideally with a 12-month runway to execute the sale process effectively.

Strategic buyers are generally less likely to close a business location post-acquisition (in the interest of maximizing synergy) compared to financial buyers, who may be more willing to make operational changes to improve profitability and returns on their investment.

The sale prospects of a business are dependent on its ability to generate recurring profits. Buyers review historical performance for this. COVID-related doubts can be addressed by strong data from pre-COVID and post-COVID as well as benchmark data from within your industry and geography.

Employee-owners in a dataset of over 5,000 respondents had substantially more job stability than non-employee-owners: their median tenure with their current employer is 5.2 years, compared to 3.4 years for the non-employee-owners.

EO can enhance company performance, as it creates a closer tie between employee performance and rewards. Employees are effectively “working for themselves,” productivity-reducing conflict is minimized and productivity-enhancing cooperation and innovation encouraged.

Yes, fiduciary liability insurance, as well as life insurance, disability, director's and officers, and employment practices liability insurance.

1. Evaluating the acquisition's strategic rationale and synergies,
2. analyzing the target's competitive position and market,
3. identifying critical capabilities and personnel,
4. addressing cultural integration,
5. validating assumptions, and
6. ensuring deal structure and price are justified

Most advisors and succession planners are either unaware of EO or misunderstand it. Sometimes supporting owners to pursue other exit-paths better aligns with their incentives. However this is changing and there are many ongoing efforts to raise awareness of EO.

Asset sale: buyer acquires some or all of the stuff of the business. Does not include liabilities.

Equity sale: buyer purchases equity in the business and also includes the liabilities. There are different tax implications as well.

1. Establish an Employee Ownership Committee
2. Implement Open-Book Management
3. Provide Ownership Opportunities
4. Recognize and Reward Employee Contributions:
5. Foster Diversity of Viewpoints
6. Provide Ownership Education

The typical timeframe to receive the first offer is between 1 and 6 months. Business listings receive 3-4 inquiries per month on average.

Proactively marketing the business to a wide pool of potential buyers is important to attract that first offer in a timely manner.

Staying with the company post-sale depends on

1. How long you want to remain active
2. How long you expect to continue financially benefiting
3. how critical you are to the day-to-day operation of the business, both in terms of knowledge and/or holding key relationships.

The options are not mutually exclusive, though historically, they often have been. There are fewer strategic or financial buyers who value employee ownership, making it harder to find the right partner for blended finance opportunities. However, this is a rapidly changing field.

The following two categories of deal structures can mitigate the risk of historical cashflows being substantially lower than forecasted cashflows:

1. Create a financial incentive structure to align the seller's interest with continued performance of the business. E.g., earnouts, clawbacks, seller financing
2. Execute the deal at a lower initial valuation based on conservative projections.

EO is a flexible option with any current ownership structure, and allows selling only a portion of the company to employees over time, maintaining the business's legacy and culture while transitioning ownership gradually.

An EO sale pays fair market value for the company. A seller could receive less compensation by selling to EO than by selling to a strategic buyer, but the seller should also consider the additional value that the tax savings of an ESOP (or worker co-op) sale generate.

Yes! During COVID-19, majority ESOP firms drastically outperformed other firms at retaining jobs by a 4 to 1 rate, maintained standard hours and salaries at significantly higher rates. Worker co-ops' rates of furloughing and reducing wages were high to avoid layoffs

Yes, unions can be mutually beneficial to EO: Unions can facilitate various paths to worker ownership. Cultural considerations are needed as union members may struggle with transcending the standard labor-management duality.

Suppliers typically care the most about their selling price, your reliability and expediency as a buyer, and the quality of your brand as a distributor for the supplier. A third party sale is more likely to jeopardize what suppliers care about than an employee ownership sale.

Most EO sales occur with no down payment from the new employee owners, so EO becomes a net new benefit for those employees. There is also some risk reduction in ESOP and EOT sales by virtue of the new trustee who will watch out for the employees' interest in structuring the deal.

EO companies have flexibility in terms of how they structure the benefits of ownership, and some will reward longer tenure more. EO works best when successive generations of workers can "receive the torch" after previous owners have retired or moved on.

According to Exit Planning Institute "only 20 to 30% of businesses that go to market actually sell."

Employee ownership sales are typically financed by a combination of the following options:

1. External lenders
2. Seller financing
3. Employee contributions (In most worker co-op EO sales the employees will put up some equity in the form of a buy-in).

1. Working with an experienced M&A advisor or investment banker**
2. Preparing a professional business valuation
3. Proactively running a structured sale process

Every ESOP’s plan document articulates the specifics of its vesting schedule for employees.

There are two basic types:

1. Cliff vesting refers to a participant going from 0% to 100% vested at a prescribed point of accrued service time.
2. Graded vesting is gradual.

For most ESOP's and EOT's the answer is "$0."

For worker co-ops there is typically an equity buy in amount, but this will be decided on by the workers themselves democratically, and will typically be nominal (between $500 and $5,000).

Founders should ensure SOPs clearly document

1. core workflows and processes,
2. defined roles to reduce the founder's involvement,
3. transferred responsibilities and identified a successor for a smooth transition, and
4. the operations and financials are streamlined