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<p><!--block-->[0:10] Everyone this is the ESOP guy we are on a journey to an ESOP and so happy you could join us today this podcast is a resource that we've created. <br> That's really intended to help people as they start to think about an employee stock ownership plan, whether or not it might be the right fit for them and so in some cases some some companies are selling shareholders or, are thinking hey we want to start this next year and some cases they're already in the middle of a transaction so either way it's really there to help you and make sure you can be prepared to ask the right questions in the people maybe you're working with. <br> So with us today is Nino Cervi he is the CEO and president of progressive flooring and services, and we got to do an ESOP transaction last year and so today's topic is going to be about the ESOP experience that nino had, gone through this whole process from beginning to end and his stories you know every story is a little unique and different his stories multi-year it didn't happen overnight it happened in the middle of, of covid and after covid and there was a lot of things that really kind of I think stood out to me so we're going to get to kind of go into that with Nino today, before we do that I just wanted to kind of point out if you do have an interest in this podcast please go to our website at journey to an ESOP.com and you can find out more information about Aesop's and other other types of topics that might be super helpful for you. <br> <br> [1:38] With all that I wanted to welcome Nino thank you so much for joining our podcast today. <br> Thank you Phil pleasure being here thank you so I didn't tell you this but I was going to ask you kind of I always ask people this question what was your what's your favorite movie and why of all time this is a hard question, my favorite movie of all time and why. <br> <br> [2:01] I think my favorite movie probably would be Terminator Terminator Tolman a pen and. <br> I need early 90s I believe just because it was so different from anything I had seen before just the concept the special effects the the idea, that would be very much followed closely by matrix is just saying things movies that are I love those yeah, I'll be very different and takes you off guard and yeah yeah I'll be back so cool that's a terrible Arnold Schwarzenegger that anyway I love that too so that's awesome so as we start off you know it really will help be helpful for people to understand what your company really does you know in in the companies Progressive flooring and services can you tell us a little bit about your company and then we'll get into the ESOP story. <br> <br> [2:57] Yes Progressive flooring and services established in 1978 is a specialty contractor. <br> Their operates on a national scale providing primarily commercial flooring installation services. <br> Farm from that we grew to also provide additional Services outside of flooring. <br> <br> [3:21] We are not a full-scale remodel contractor however we do a lot of services, on a smaller scale specialty project type level when a national client. <br> With multiple locations has a need throughout the country. <br> We can certainly handle all their flooring needs and other specialty type projects like ceiling tile Replacements trim handrails you know miscellaneous repairs that, might be more difficult to get a larger scale contractor to have interest, and doing something like that so we work for a lot of national brands, um and have multiple locations to support those Brands yeah what's and what's interesting about your business your in Ohio, but you have business all over the country so you have also warehouses to support your business so you truly are a I would say a small business but doing business all over the country which is a correct unique thing for what you guys, um do and provide you provide service to to big companies that demand all types of things so that's that's got to be pretty difficult sometimes to, to meet the demands of your kind of customer base. <br> <br> [4:43] Yes and as we grow and enter into different markets there's different needs we started out primarily in the restaurant Market which continues to be our primary Market but then that is expanded to the entertainment industry the retail industry. <br> And then recently we have been getting into the long-term care as well as the c-store market so every time we enter a new market we learned the particulars and we adapt our operations accordingly. <br> Which I which when I went to get into that a little bit because I think what you guys did in you're in the process of doing your ESOP was was pretty interesting in terms of diversification but we'll get there in a second I want to go I'm we really want to start with, when you guys first started to talk about this as a board in you have multiple shareholders why did you guys gravitate to an ESOP as the the optimal strategy for your succession and Exit Plan. <br> <br> [5:43] Well it all started first because of the four owners approaching a time where succession and exit strategy became. <br> More. <br> A topic of discussion more frequently you know I began looking at all right what are the Avenues for owners to, um exit the company and fortunately for us there you know I learned of an upcoming ESOP form then I attended and learned about an ESOP. <br> And once I had done that it interests me and I was able to learn more about it and then in our next. <br> Company board meeting it was something that I put on the agenda and walk the other owners through the various options, um that we may consider to eventually you know exit the company. <br> And in that review process discussing all the various options it quickly became clear amongst the other three owners that the ESOP was the one. <br> <br> [6:57] Most interest and checked off the most boxes when we you know. <br> Evaluated what'd we want you know besides you know the Legacy you know the valuation the timing confidentiality you know complexity and all that sort of thing so. <br> And then once you know we had that meeting and we agreed to pursue. <br> That further and learn more than you know game was afoot. <br> <br> [7:30] And now it started so when we first met it was really the beginning of thinking through the conceptual to the planning part of the ESOP. <br> In covid I just started to become an issue but we I remember both of us were like we don't really know, what the impact of covitz going to be and so we started doing some planning in the ESOP for your specifically for your company. <br> What was that from that perspective with a lot of uncertainty in front of you when you're when you were thinking about, what do we do next what was on your mind and in terms of does this even make sense because because I do get that question from people with times that become uncertain and their business and it covid-19 of a national problem but, you know companies move into some you know years where it's a little uncertain and then other your so from your standpoint what kept you moving toward forward in the ESOP process even though you, you know you had a lot of changes happening in the company. <br> <br> [8:29] Well just this the the desire of. <br> <br> [8:36] Several of the owners wanting to have some a plan in place on exit strategy. <br> Was what kept driving it plus just going through the ESOP process and all the details that you did, need to be put together whether the ESOP happened or not it was a great exercise to really just do a self-examination internally so in my mind it was not a waste of, I'm in effort going through all the details that we went through when we. <br> You know began our feasibility study because in and the other part. <br> <br> [9:18] It was at that time of interest is in the past. <br> You know I had done a previous valuation about five years earlier and that valuation was based on past performances where now it's all based on future forecasting which was something that I was not aware of at that time and then you add the whole covid-19. <br> You know picture that really clouded things as far as, the forecast how believable is that forecast so that was an added challenge that we had to go through at that time yeah it definitely was a challenge and I think I would I would. <br> Add on to what you're saying and I think that what's interesting about it for people is the process itself if you've got the right consultants and advisors, well really help you see other things that are going to be very beneficial to help you frame out and I some people come and they call me and I kick I think I'm going to do a partial ESOP I'm going to do a 30% ESOP and this is how I'm going to do it. <br> And I'm like I think that's fine but have you done any planning do you really know I mean do you know what the valuation is going to be do you know you know the way the structure the financing is going to be do you know how the cash flow in your business is going to work and all these different things. <br> <br> [10:37] They don't I don't know nobody knows until you really kind of work work through that so even in a very uncertain time, um I think with what we were doing was helpful because we were able to kind of plant some data points, and then build planning around that and what really happen is is covid-19 be worse than anybody wanted it before, your business in the interim so we had to kind of re reshuffle and say right now what do we do and we ended up you guys ended up responding amazingly because you were able to kind of, take that and create a silver lining which was hey let's go ahead and diversify our business so you raft rattled off multiple types of Industries. <br> Before before the ESOP process. <br> How many industries were you really in from a concentration standpoint and then after covid-19 really went into the ESOP process where were you where how did you land from that point so how did you how much new business or new of diversification did you guys employ in that process. <br> <br> [11:36] Prior to covid sixty percent of our Revenue was the entertainment industry our largest account AMC Theaters. <br> <br> [11:44] You know 40% was restaurants largest account Darden Restaurants and then we had the rest was retail those were the only two spaces, all three of those spaces were hit hard they were hit immediately so, it was very concerning and but fortunately, in 20 into 2018 2019 we're already starting to attend long-term care, Advanced and and wanting to move into that market which was very fortunate even though we did not have any clients at the start of covid but, as Fortune would have it in the middle of covid is when we first started. <br> Doing business with our initial long-term care client which, you know he's turned into a large account for us and I will add to that too because I know that you guys were it wasn't just a response it was you already kind of had plans strategically to do that anyways, it was just the Catalyst to kind of dig deeper into those other Industries. <br> One of the things I was just I was writing down I was thinking about like for some companies to go through what you guys did, some of them want to just Fallen apart you know and you know that like we all know that we've all been in business long enough but I think the main thing that stuck out stood out to me as you guys had a very very solid leadership that. <br> <br> [13:07] You know decided hey no matter what we're committed to this no matter what we're going to move through this. <br> <br> [13:13] You know so understanding that that's a really strong Value Point for you guys from a leadership standpoint what are your what were your concerns or what are your concerns going, into the ESOP as far as the future leadership of the company you know because that's going to be, in a circle that that's going to be something that people are always thinking about who's the next Nino who's the next you know. <br> CEO or CEO of the company and so how has the ESOP become maybe a tool for you guys in and helping too, you know start working through that process in or at least like where you are in that process as a resource. <br> <br> [13:54] One of the reasons for the ESOP was the. <br> <br> [14:00] Retention and recruiting of employees. <br> <br> [14:07] That was extremely important to replace myself to start building that, upper level management layer so there wasn't so much burden you know on myself and and having that ESOP and place was going to make it. <br> <br> [14:27] Certainly help retain the key employees that I had and then when we're at the point and ready to start recruiting and finding key Replacements or additions to the staff, the ESOP was going to be a valuable recruiting tool. <br> <br> [14:47] Well now I will say that what you know this is one of the things about Aesop's I think is really helpful for people to know and understand. <br> The idea behind what you guys did right would you started planning early in the process where you are still ready to work out you know. <br> Say five six seven years or whatever in your in your career had you not been ready to do that that's a different picture that's a much more difficult transition so what the ESOP does is it allows. <br> Company go through that very flexibly but leadership is a critical element of any company so it does get you moving forward in the process but at the same time there's no. <br> You know there's no kind of rigid line that says if you don't get this done this leadership transition done tomorrow then you know that's going to be an issue so I think that's that's one thing in your story, now it's given you the ability to kind of like use this as a tool to work through a good transition leadership transition plan. <br> Right one of the things that stood out to me a lot in the process that we went through is because you guys have had had covid years. <br> And we were doing and we did we spent a lot of time building a very very solid forecast and honestly it was all uni no because you did like just an amazing job on the forecast. <br> But one of the things I wanted to kind of look at is is the bank financing process that we went through tell me a little bit about that from your perspective like. <br> <br> [16:12] When because what we were doing is we were going to do some financing from the bank and then the rest from seller financing which is a very normal, ESOP structure what were your thoughts going into the getting like sourcing Bank financing what was what was going through your mind when we were doing that. <br> <br> [16:29] Well having not done it before. <br> There wasn't a lot going through my mind lately new experience so that's where I was relying on my advisors which to me was a very keyed I mean, that was kind of the second highlight of the process is finding the right advisers they could, stare with me what I should be expecting but fortunately. <br> Um I always try to have more than one resource where I need it so I already had two banking Partners involved so, it was just a matter of reaching out for a couple others and we ended up working with, one of the banking partners that we already had a relationship with and. <br> <br> [17:21] Um having that relationship which huge you know that adds credibility being able to forecast, at a very detailed level to where you can explain clearly you know where the numbers are coming from and how and then fortunately for us. <br> Um the forecast was, on target stay on target you know the first three months not so much but within six months I mean we are very close and then by you know nine months it was even closer and I think between those three things I mean it gave the bank enough. <br> <br> [18:00] You know confidence that you know they went ahead and, you know extended us that commitment letter which was you know the ultimate goal and achievement so but I really didn't know how involved how detailed that was going to be in. <br> And how long it was going to take I mean and that ended up being one of the primary differences between the banks that the different banks required a different length of time to prove ourself yeah unfortunately the bank we went with within six months had enough confidence. <br> To do something where others they weren't even going to consider anything. <br> For at least 12 to 18 months yep I think that the takeaway to like you said, having multiple sources was really critical especially because honestly as from an advisor standpoint to I what was going through my head is like I don't know what they're going to do because a lot of banks when they do financing for esops are going to be very very, heavily weighted on the historical and not as much on the forecast in this case. <br> <br> [19:09] And I think I know why but in this case we were able to convince the bank hey we really are back on a normal like our normal cash flow is really coming back covid-19 anomaly and in fact we're stronger than we were before because we've Diversified the company's Diversified. <br> But I think the main thing I would say that my at least my opinion was the bank saw the character of the company the character of the borrower the leadership you know be tight behind you and your team and you know, and I think they made a credit decision that was based more on that and they're in their historical knowledge of you guys, that I don't think it would have happened and just to kind of a cold basis like we wouldn't have gotten there if the bank had come out of nowhere and a cold basis just trying to kind of prove out, the the numbers and I thought that was just like so interesting in the process. <br> In just beginning from the beginning to the end and partly to like to be honest with you I didn't know what they were going to come back with I did you know I had a lot of confidence and their first coming into it they were very calm the one that did the the deal, came in first and was very confident and they were confident throughout the whole process. <br> <br> [20:18] You know and then the other ones seem to be like wow you know lots of questions and it was so kind of working through that process as much as you can early on is good, but for you guys I think it worked out really really well and at the end and this is what I always try to help people with this is have a good banking relationship you know, part of that is doing a good transaction but. <br> Deeper than that is a long-term banking relationship that goes now passed these up transaction and into hey what's good the company going to do now you know what's going to happen with growth, and all that and I think that's you guys got that out of that whole thing, and that was I was very fortunate because that was something that I did not know of an advanced but a recommendation I would have to any company that is looking to possibly pursue an ESOP is just that, do whatever you need to do to strengthen your banking relationship and if there's another relationship that you can kind of start doing a little bit of business that you have a relationship. <br> I would highly recommend that because two of the banks we dealt with hat we had some sort of relationship the two that we did not. <br> <br> [21:24] They looked at the numbers and one I never even talked to again a follow-up call and that was about it yeah see yeah we review all four of the lenders were completely new to Progressive regardless of what I was putting in front of them at that period of time, they're probably would not have been any deal no you're right right and then and then what would happen is you probably would have just held the note, you know as sellers which is that is the fall back but it is not ideal especially considering everything that you guys are thinking about because you do and I'll segue into this because I think it's a very interesting part of your ESOP too is an ESOP when we do an ESOP transaction where there's one owner. <br> <br> [22:07] 100% owner and we walk through all we have to do really in some sense is make sure that we really understand the owners goals and objectives, and all of these are process all we're doing is aligning with that goal and objective of the owner right when you have multiple shareholders. <br> You know where I'm going with this right you have different people at different ages and they all want different things. <br> Tell me like from from your perspective how was that you know because you and me were probably the main you know people working through it how was that for you to keep going back and you know number one you got to explain this stuff right it's like okay, guys this is how it works and all that but but ultimately you got to get them on board to do a transaction so how was that for you in doing that. <br> <br> [22:54] Um that was very challenging number one like you said we had four different owners however. <br> Um one of those owners was the founder starting a company in 1978 that has since been you know retired for several years 75 years old the other owner is his son, who's actively involved but not necessarily up in the management ranks and then you had a long time employee that was. <br> In his early 60s and then myself so you had four owners you had a retired Founder The Angel has ranged from you know 50 1275 so it was very, different and you also had the whole you know Legacy and and just the the. <br> Sentimental value being the founder and what's going to happen but yet, you know that individual is the one that certainly is already gone that would want some money sooner than later were the others may not necessarily need money's immediately, so there is a wide range of needs and interests and. <br> <br> [24:13] You know that needed to be taken into effect but when we reviewed all the various options. <br> And walk through them I mean it was the ESOP option that you know still provided monies you know hopefully that's why the lending was important is still maintain the Legacy because, their still. <br> <br> [24:38] Related parties in the company as well so it's not like the owners were walking away and there was no further attachment so that was a big consideration as well. <br> So it we had multiple meetings but it wasn't until the end of 2019 that that we all finally agreed all right. <br> We need to move forward I'm just taking time sticking so. <br> Yeah part of that part of that helps you in moving it Forward because time is ticking and no but honestly we're not none of us are getting younger right so you have to kind of something's going to have to go and you can only analyze this thing for so long, and make a decision. <br> So going into the kind of working through that process with the multiple shareholders was there anything that kind of you guys ran into walls on or anything that you really had to kind of like specifically overcome, in the in the putting the transaction together going forward. <br> <br> [25:41] The the biggest challenge of course would be what is the valuation going to be that's true far as the detailed process I did not know a lot of the details at that point in time. <br> It was just all based on the valuation. <br> And just to step back for a moment to add further complications we were actually to individual companies at that point that we had to merge the two companies together and each company had a slightly different ownership mix so that further complicated things that we had to merge one company into the other that change the ownership percentages, and then we had to move forward you know from there. <br> But the valuation you know because everyone before they could even say yeah I'm willing to look forward needed to have some idea. <br> <br> [26:48] You know all right if I went to a third-party sale what might that look like valuation wise versus an ESOP but then the East Side gives you some opportunity on interest so in the end it probably going to end up. <br> Relatively the same and so then what's going to be good for the employees you know what's the timeline looked like you know how much is this going to cost. <br> Which which I definitely want to ask you before I go to ask you about the costs and stuff I want to ask you because doing what you've done is really is very difficult and I'd say it's difficult because you're wearing two hats. <br> You're a selling shareholder so you have the the interest of protecting what your asset is that you're selling to this to this Esau. <br> Then you also have the role of being in charge of the company you know and the company's cash flow and making sure, that all of that so you kind of they're not they're not always going to kind of have a conflict but in the sense there's there's two different roles how was that for you in terms of going through the ESOP process and did you kind of struggle at all with that or was it kind of like hey I can I can go back and forth pretty easily. <br> <br> [27:55] Um the information that was required. <br> <br> [28:00] I've me to provide in our management meeting for the trustee valuation firm bank and others, it is information that I'm already accustomed to putting together and maintaining. <br> Um I'm very. <br> Much detail oriented you know so I always have a detailed budget and forecast and expenses and updated on a routine basis and, so a lot of that was already in place, it was just a matter of extending the forecast I mean I would forecast out a year typically not 5 years. <br> I'm sure that really wasn't you know too bad, um The Challenge was trying to convey what I believe my owners I mean I'm sorry my clients my planning on doing a year from now five years from now. <br> And trying to get that information out of our client managers and get them to get it out of our clients and continually update that information that that was. <br> Probably the biggest challenge yet because I already had a strong. <br> <br> [29:20] Group of advisers around me you know to to get any Legal Information accounting information. <br> So it was just mainly that the sales revenue numbers the expense numbers. <br> <br> [29:38] You know I pretty much know what our expenses are now what I did not know is how much would those expenses be going up hmm right the way everything set up it can be quickly and easily updated. <br> You know to adjust and then provide that information so it was not. <br> <br> [29:57] To terrible I mean yeah well you did I mean honest and I said this to you before like your forecast, was the most detailed forecast I've ever seen I'm not kidding so you probably when you're done with this career you're probably can go, you know help build forecasting systems because it was down to the you know customer Revenue growth goal with the gross part margin per customer and. <br> <br> [30:20] It was just very very detail which I think really helped to because we're trying to work through, and put a lot of emphasis on cash flow normal cash flow and so what is that really going to look like and I think you close the year at pretty much close to what you budgeted in the first year right I mean you were as you were. <br> <br> [30:37] Yeah we were with it we were less than two hundred thousand dollars within our prophet and, and you are 500,000 dollars within our overall sales yeah that's insane, so so as we start thinking about some of the decisions you did make and I want to ask you this because I know people tend to struggle with this you guys decided not to do warrants on your seller know. <br> <br> [31:00] And. <br> What was the main reason behind that because some people do do warrants and some people don't do warrants and some people look at it as like why wouldn't I right but why did you guys not do warrants on yours just in general. <br> <br> [31:14] Number one we wanted to try to keep this process as simple and straightforward as possible. <br> Thinking that that would increase our. <br> You know odds of getting it done and getting it done in a timely manner and. <br> <br> [31:36] You know just yeah make a Simplicity and timing safety and you know with the warrants and just, that just added a just another layer of guesswork that I was going to have to do and maintain and just yeah, I didn't really see it worth it you know from our standpoint having the four owners now if there was just one owner. <br> <br> [32:01] Probably would have taken a different approach and maybe tried to pursue that I think that's a good that's a good point because I just I just closed and ESOP and they chose not to do warrants either it was, similar it was multiple shareholders it was very similar like they just didn't want to. <br> You know make it so because it can be it can feel so complicated or it can feel like it's overwhelming, and we don't know what that warrants going to be in the future you know so you have to deal with that cash flow and figuring out what's what it's going to have to get paid out at so, it is not right or wrong it's understanding the benefits of some of these things and figuring out whether or not you know it's going to be it's going to work into what you want, this thing look at the end of the day so so I think that's helpful because some people are you know wondering how the decision process goes you know because there, and with that you know it's a mechanism that can give you further rewards but then you're not going to get that without the same mechanism that could possibly take some of it back that's right yeah yeah you know so it goes both ways you can't just do what if I could just do warrants and not do the other that that would be fine yeah it's all it's all holistic yeah it's all calm it's all-consuming II yeah. <br> Quickly gathered that you weren't going to get the one without the other than that was going to introduce another unforeseen possibility down the road that was uncomfortable to the owners thinking all right we're going to do this but then there could be the possibility that nope it's actually going to end up less because of this so. <br> <br> [33:30] Simplicity and kept getting more confidence in what we negotiated and get her done you know going into the cost when we first started talking about the cost of an ESOP. <br> You know first off what was your thought on the cost you know general just kind of your good business person so you were just doing what every business person would do what's the cost benefit how do I do this as you go as you went through the whole process. <br> Like how would you help people explain the cost of an ESOP and what you've learned kind of from beginning to now end. <br> <br> [34:07] Well I learned that there is a wide range. <br> <br> [34:13] Of what an ESOP could potentially cost and a lot of it. <br> <br> [34:19] Seems to be you know. <br> <br> [34:25] The group The the advisors that you put together and what their motivation is and then. <br> <br> [34:33] You know where you want that valuation to possibly come in at and. <br> <br> [34:41] Who you used to be focused on promoting the company to increase the valuation which is going to put then more. <br> Brain in pressure on performance once the Aesop's in place moving forward. <br> Or you can try to just I just wanted to maintain a very conservative approach so I did not. <br> <br> [35:06] You know and with someone that's going to try to promote a higher valuation you're going to have a higher cost associated with that to have them on board sure, and in our research I knew what firms were kind of in that category and. <br> Um which ones were not and in fortunately I learned of you and being an advisor. <br> And you know I like doing things more hands on it. <br> You know kind of a more detailed level working with the individuals and and I like being part of the process so I always try to do things as efficiently as possible and not just give it to someone and say hi. <br> <br> [35:51] Go to go out there and get as much as you can that is never been the objective the objective was tried to make this ESOP. <br> As successful for the remaining employees down the road so and that's and that's a very I think it's a good point too because I think sometimes it's an ESOP transaction, is not the same as selling your business to a strategic buyer you're still around like you're still there right. <br> You're doing it because you care about the not just for what you want to do but you also equally care about what the company's future is going to be. <br> And so you have to fit those together and I do agree with you I think that so much Focus could be on hey how can I maximize value, but at the end of the day I think the main thing I would I would say and I think this applies to your business in any business is the centerpiece of all of it is the cash flow. <br> And so really thinking about the cash flow valuation because it's the cash flow that's going to pay the debt off its the cash flow is going to pay out your seller notes and your interest in all it is the company's cash flow that we should be concerned about the. <br> Now if I try to maximize evaluation what am I doing I'm trying to inflate cash flow in a forecast that's artificial. <br> All I've done up all I've done in that maybe I got paid more to do it but all I've done is to set this up for failure. <br> <br> [37:16] Right which is a scary concept because you're in a people are going to be there like okay why is this thing not able to function well because you know it's kind of simple if you think about the variables right if it's too high, or if I've structured my schedule debt scheduled to short or whatever then I'm going to run out of money, and that's not a good feeling if you've ever been through that nobody likes that right so, right I am very comfortable with the amount we spent I mean I've only done this one nice up I don't know where it falls I've heard of. <br> Once costing a lot more. <br> <br> [37:52] But yeah I I'm happy with how it all worked out good good so and it's hard that's I'm going to say cost is always a difficult question in ESOP in the ESOP world, um and I think there's still in my opinion this is why I asked the question and this is why podcast on it, is that they're there isn't a very good strong and you know an unbiased answer I think in the in the industry because people are going to say Well it costs more because you're getting more and you know so I just think people need to do the research like you did honestly and and ask a lot of questions and my advice is don't take the first you know thing that you hear if you go to a conference or whatever because that's not always going to be a whole picture of what what the actual true cost is going to be. <br> All right yeah. <br> <br> [38:45] So now we're kind of getting to that place where I want to ask a couple questions and kind of start closing out but as you as you went through the whole process were there anything that you were surprised about or there anything that you would have done maybe, differently had you known what you know now because you are an ESOP transaction veteran you've gone through the process. <br> <br> [39:12] I could not see the processes being overly complicated it was fairly straightforward. <br> Um I guess the one I wouldn't say it was a surprise it was just I opening the whole management meeting and when the management meeting needs to happen in the fact that. <br> That management meeting is what kicks off the process so. <br> <br> [39:41] If you need the nail it yeah in order for good things to happen afterwards because if you don't things pretty much won't go any further than that so the importance of. <br> <br> [39:53] And I knew there would be discussions but you know having a formal management meeting and all the players there and that happening right at the beginning of the process was probably the main oh okay. <br> <br> [40:07] Yeah that's let me let me speak to that too because when Nina is saying management meeting he's talking about the trustee valuation meeting everybody comes to their office. <br> And we and we spent what four hours right in that room unfortunately the funny part of the story is I actually broke my foot that week and I had to fly up with a broken foot, so it was just like oh boy this is going to even be harder but we did nail it and and I think that did set the tone, for the rest of the the process even though the process starts we didn't really did like two years of planning before we even got to that point. <br> But when we did get to that point it was I think we did a phenomenal job your team did a phenomenal job and just like your forecast the presentation itself was, I'm very very detailed and what do you think about that presentation I wanted to point out which I thought was super helpful, is what Nino's company did is they took videos of each of the project managers that had customer responsibilities. <br> And I got a sense everybody got a sensor this is how the company really works and then the depth of the people that you guys have I think really came across because we did that and I think that was very helpful for the trustee and the valuation firm. <br> And to me you're not just trying to convey. <br> You know Financial details of the past as well as the future but you also need to try to convey. <br> <br> [41:32] At that meeting the culture of the company. <br> You know and you know what that relationship is between your company and your clients and your employees and the management. <br> And and I think that has a lot of impact to others. <br> Willingness to accept and understand and have confidence in the information and the company and that's why you know. <br> <br> [42:02] Bringing individuals in the meeting to speak I certainly could have done but they might have been a little more nervous. <br> Where is doing it in the video I mean they could you know be more confident and convey their information and maybe having to do a couple retakes until they were confident and. <br> And I think that was very powerful and then that same presentation provided. <br> A lot of very good information that I was then able to use with the lenders is well that's true that's right that presentation also helped me with the lender and their credit committee who with through and viewed that as well so it was used you know for both purposes yeah yeah and and just the valuation point to make is that if it's just Nino and he and his, top-level leaders leading the company, that's one thing but if there's a depth of people that our leadership throughout the rank-and-file that's a whole nother situation so I think that came across very strong and and helped us. <br> <br> [43:08] It was very clear that the numbers that I had in my forecast was coming from the client manager. <br> And Communications with the client so it was not just Nino creating these numbers and backing into a number that he thought was what it needed to be no I mean it was. <br> The other way around and I'll say one to one thing to that one thing that came across in your presentation is Youth and youth is important because, you know it's like what's the future of this business right if everybody was 60 years old and we would be, we would be like okay well now we're going to do right but I think that was, one of those obvious things that come out in those types of things when you do a video or I had another client that would just do like every single major person was able to present, that's a really very helpful thing so I think that's a nice take away for people to be thinking about. <br> <br> [44:05] And I think it was fun wasn't it I mean I thought it was a blast really good it was intense yeah I mean there was a lot of preparation and. <br> You know the staff was first time they've ever conducted videos of themselves for a lot of people so yeah that was a. <br> Pretty pretty cool you guys are up Rose to the challenge okay so I guess they'll let the very last question I would ask you is kind of what, in a now this is all done this was last year what's on what's on the future Horizon now you are 100% ESOP so congratulations on that what are your what's on your mind now in terms of the future of the company. <br> <br> [44:44] My you've mentioned it a few times cash flow and monitoring your cash flow. <br> And doing a much closer job to where you're evaluating your monthly financial performance against the plan. <br> And in the past I would not you know map out and forecast. <br> My cash flow I would map out you know in forecast what my sales or my expenses you know the profitability but as far as you know mapping out where cash flow should be and then constantly updating that five-year forecasts because like I mentioned earlier. <br> You know just I'm always focused about the next 12 months the rolling 12 month moving forward not five years that's a little new and different so I always got to try. <br> Yeah. <br> The next 12 months is the most accurate then the next 24 a little bit less next 36 and the ESOP trust he's always wanting to look out farther than I'm accustomed to so. <br> <br> [45:55] Free Dino's processes and procedures in place to where that information is always being you know monitored and updated and yet it's not becoming. <br> So time-consuming to do that and yet there's always new information being added to that from the client managers and your, you know clients is very important so I'm that's what I'm just trying to put that all together so. <br> It can happen without me driving it no that's that's the other piece. <br> Is getting more responsibilities you know in the next level of management that one day is going to be very much involved moving this thing and maintaining it. <br> So you got and you're doing well with that and obviously it's not been even a whole year yet so you're making a lot of progress with that. <br> With every year that goes by E start you're going to start to feel more and more at ease with with those things so yeah it having an independent directors new, but you know choosing that individual is very important and you want someone that you can work well with and understands how you do things and. <br> And likes that so there's no friction or it is between not is very important because that's a valuable resource in my mind to help. <br> <br> [47:15] And it hopefully enhances your leadership. <br> And in the cohesive leadership there will continue to translate to a good culture which which is really what this is all about in the beginning is keeping a good culture so. <br> <br> [47:28] Yeah and and. <br> The last thing that is the challenge is developing that culture amongst the employees and business was very new. <br> <br> [47:40] Out of our 50 employees only two of them really had any experience whatsoever with an ESOP the vast majority had no clue what it was mmm, you know so now trying to build that culture understanding where we're starting having a means of being able to evaluate, how well the culture is growing throughout the organization and what employee behaviors, good and bad do you start noticing are happening you know is really the next Main, priority that I have mmm yep you got it definitely focus on it yeah and maybe in a year or two we do another one of these and just see where that that is because I think that's a that's a huge we could do another whole topic on just that and that's a huge question mark for people is how do we really get this, moving with all the things that we know about an ESOP but how do we actually use it now so that's kind of your next adventure and there are these out process. <br> You know and I'm looking forward to putting all that together and you know working through that so I think that would be a great topic yeah for sure alright well we are out of time but thank you so much Nina for your wisdom for your experience, and it was truly a fun fun ride for me to just be part of it with you guys. <br> <br> [48:58] Well and I do want to add that you know we didn't talk much about the selection process but. <br> I was extremely fortunate to have a very good group and it started with you Phil being an advisor. <br> I mean if it wasn't for you I would have been kind of lost. <br> Appreciate I wouldn't have known what pieces I needed to bring together but I mean that Clarity was enough to. <br> Be able to put together that that group of advisors and to me that's why we succeeded because of the people we were able to put together and move forward so thank you thank you for that compliment we appreciate it and like I said it's a good relationship so I, in the friendship that we've been able to build out of it so great. <br> So so thank you guys so much thank you for listening today and we will see you guys on our next step on this journey to an ESOP. </p>
About Journey to an ESOP & Beyond
ESOPs are gaining traction. In the "Journey to an ESOP & Beyond” podcast, Phillip Hayes explains the process of the ESOP transaction and addresses ESOPs from a business owner’s perspective. The "ESOP Guy" illuminates the simplicity of ESOPs as he debunks common misconceptions that ESOPs are immensely costly and complicated.
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