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Suggest questionThis episode will launch a series of ESOP feasibility episodes that bring up some relevant issues related to planning your ESOP. Are you considering a partial or 100 percent ESOP? What will work best for your goals and objectives? We are going to dig into cash flow and the connecting points to modeling a sustainable leveraged ESOP transaction. Assessing entity structure in relationship to the ESOP transaction subject to appropriate limitations. Evaluate the forecast in relationship to multiple areas to qualify the integrity of future cash flows and the company’s ability to repay the debt. These are critical steps in the ESOP planning process. Look for the next episode coming soon in this Mission Impossible series in ESOP feasibility.
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<p><!--block-->[0:11] Hey everyone this is the ESOP guy we are on a journey to an ESOP starting off the topic today with this. <br> <br> [0:20] Which means I left to be physically at the turn likes like it's much worse. <br> <br> [0:29] The terminal is in a Black Vault lockdown the only person allowed in the room has to pass through a series of Security checks William down low the first is a voice print identification and a six-digit access code. <br> <br> [0:43] Just let me get him into the outer room next you have to pass a retinal scan. <br> <br> [0:52] Music. <br> <br> [0:57] Measures are only deactivated by a double electronic key card which we won't have now inside the black vote. <br> There are three systems operating whenever the technician is out of the roof the first is sound-sensitive anything above a whisper he says enough the second system detects any increase in temperature. <br> Even the body heat of an unauthorized person to move triggered if the temperature rises just a. <br> <br> [1:26] Music. <br> <br> [1:32] At that temperature is controlled by the air conditioning coming into an overhead duct 30 feet above the floor. <br> <br> [1:38] Music. <br> <br> [1:43] That vent is guarded by a laser. <br> <br> [1:48] Now I don't know if you're picking up on what I'm going where I'm going today with this episode, now here's the deal like in this is the this is the one of the reasons why I love doing esops and I'm super passionate about. <br> Getting this out there and starting to talk about the process wherever you are in the process now the podcast is is called the, journey to an ESOP and the idea is that your you could be starting this process literally right now as this might be your first episode of even listening to anything about Aesop's like, wow that could be like that could be me like you could be, telling hey we telling you how this is going to be great for you and all the things that happen with esops and then you can be down the road already doing your ESOP and like this is so challenging and difficult. <br> <br> [2:36] This this part of Mission Impossible in this is really kind of like what I wanted to talk about today is the idea that how complex this planning sounds right I mean like oh my gosh you gotta do this you gotta do that it sounds impossible right so what we're going to is play off of that today a little bit with the idea that what, is seemingly more difficult because people make it sound so complicated and I have a lot of my own theories on why that's the case is really not that complicated and what, Tom Cruise is doing here is he's just kind of breaking down their plan, and how they're going to be successful and if you ever seen any of the Mission Impossible movies this is Mission Impossible 1 by the way which we're going to use in the in the in this episode just to kind of play off on, the idea of having a good plan and then you know and their case their plan always kind of goes a little haywire and they have to kind of improvise, which what is what makes the movie and exciting we don't want an exciting movie when we're doing an ESOP to be honest with you we want something that's super predictable. <br> <br> [3:42] We want we want Assurance like as the owner that this is the right path for you we, the Assurance are the Comfort level with your key people to say this makes sense like this is the direction you want to go so so we don't want this to be too exciting and so part of the process of doing that, is going to be under the header of ESOP feasibility and what's all entailed to that that's really going to be the topic that we're going to drive into today because I believe it is a good time for us to talk about this we've done some work, to just talk about the process itself looking at you know in the podcast we've looked at a lot of different things over this season that I think are helpful, so as we pick this up the the question that people are going to have. <br> <br> [4:28] And I'm going to go into some of the how-to's and in terms of feasibility itself like what do you actually are what are you actually trying to accomplish with feasibility but the question we really have in the very beginning is we don't necessarily want to get things rolling into a snowball of people, inactivity of you know I hate to say it like I'm there's so many, different ways that people do this at have learned and it kind of It kind of freaks me out a little bit if I'm the owner in that how they approached like just getting all these people together and then confusing people so so breaking down the plan, is going to be really having a plan breaking down the plan is going to be really helpful with the goal in ESOP visibility of helping, not just at the word feasibility obviously means is this feasible right but helping to to make sure that this is this is actually going to be. <br> The right type of approach to what you're trying to accomplish. <br> <br> [5:30] And that's we're going to talk about today if you have just tuned in for the first time this podcast is dedicated to what we call the journey to an ESOP witches, those people that are thinking they might want to be doing some type of ESOP transaction whether that be in a leveraged transaction a non leverage transaction so they're in the process of understanding that better and a lot of times you've picked up and done research this podcast is to really try to break down things much easier for people to understand. <br> <br> [5:58] As we go into that so this might be brand new to this podcast me beat by a aunt brand new to you and thank you so much too, join us today if it's not thank you guys for continuing to be on this journey with us, and we're so excited about what's happening with the podcast and also just kind of the connections that have been created over the last four seasons it's just been very exciting, if you do like the podcasting you believe it's really helpful please share it with a friend and somebody you know that might be helpful you know they're thinking about these shops and you're you're like you're trying to gather information they're trying to gather information I think it's helpful to share it if you have this part of your of your platform that you're listening to it please like the podcast, if you do like it subscribe to the podcast, and then rate the podcast a 5-star rating because that's super helpful for people to have some validation of hey this is this is a good resource for them. <br> So having said all that we also have a website called journey to an ESOP.com and if you're interested in other episodes please go to the website or if you have a question just fill out on that on that form we do get some questions from time to time that we'll use to base some of the topics on that I think are helpful for other people. <br> <br> [7:10] As we go into this topic today I wanted to start off with just idea and frame this out a little bit in again we're kind of thinking a little bit about how the, how the movie Works in terms of Mission Impossible they they have to go do something in this situation they've got to break in to the CIA CIA headquarters at Langley which, is beyond impossible right I mean there's just no possible way that's why this type of thing is so kind of fun to think about, for our purposes our goal is at this step. <br> Is to really identify the possibility of how this is really going to work for, a specific company with. <br> <br> [7:52] One shareholder or multiple shareholders with with multiple approaches to the way that to kind of structure this so, one of the one of the calls I had today with a client that we're working with is. <br> They may go like a partially so they may go and use the ESOP and in an another way they might use the management buyout maybe as a means to affect the succession plan of the key owner and the other, you know plan of succession of bringing people up into the organization. <br> So the first thing about that I would say about feasibility that we have to think about is in this is always something interesting to me when I when I get to talk to somebody. <br> Before they done any planning at all they already have like this is what we're going to do we're going to have this type of ESOP or this this type of ownership it's going to be, an s-corporation we're going to sell 30, and this is what we're going to do and I think that's okay kind of because it's good to have some kind of starting point but the thing I the first thing I would share is that. <br> <br> [8:58] We as we go through a lot of the modeling as we go through the planning side. <br> There's going to be things that you may not know that will help to shape out what is these what the Aesop's going to actually look like as you go and so. <br> Without doing the work it's kind of I think it's impossible for anybody to say oh that's what we're going to do and just jump to into the trustee world and ask a trustee to give you an offer and then go through that, site visit and go through the due diligence process and you know suddenly you get an offer or you make an offer and and you don't even know like at the deepest part of that, there's a couple things that we want to stop and ask the question about, way before we get there and so that's part of the process today is to really Identify some of those key areas that we're going to want to really think about and develop and shape into a very successful ESOP. <br> So set off will activate an automatic. <br> Now believe me when I tell you gentlemen all three systems are state-of-the-art. <br> <br> [10:07] Can you really think we can do this we're going to do it. <br> <br> [10:17] All right so that should get a super excited for what we're talking about I think that idea behind we're going to do this guys we're going to do this we're going to put together this Esau. <br> Planning feasibility playing we're going to touch on some things that are really important categorically, the first thing that we're going to touch on is this idea of cash flow like cash flow. <br> From beginning of the ESOP plan to the end of the ESOP plan I will say. <br> <br> [10:51] Without a doubt is going to be one of the most important features. <br> Connects to everything so cash flow first off obviously as you've gone through some of the other episodes maybe and maybe you have it valuation which this is not about business valuation today, but it is about valuation in the sense of our starting point because when we're starting the feasibility model we're starting with what we estimate the valuation to be, which is going to be primarily based on the cash flow of the company. <br> <br> [11:27] When I Look Backwards in cash flow time history, for five years and I see a normalized stream of cash flow that is like a roller coaster ride right moving up and down some years, peeking up to you know 5 million 6 million eight million 10 million of Eva and then it's cruising down at like the next year down into the lower like not just the like, low end but the loss loss is like two million dollars lost you know lost cash flow or negative cash flow then peeking back up like a roller coaster cash flow that's kind of scary right. <br> So initially that cash flow type of environment is going to alarm everybody to be honest and if your advisor didn't get alarmed when they looked at it you need to ask some questions about that because. <br> Something needs to happen to smooth out the cash flow for this process to work really really the way it's supposed to. <br> <br> [12:27] Why is that going to why is that so important well when you think about the feasibility of an ESOP Where is the. <br> Money coming from to buy out the shareholders it's coming from the company's cash flow. <br> <br> [12:46] And if it's a leveraged transaction that means of course Leverage is debt we are putting debt on the balance sheet and if you have ever had a company with a lot of debt on the balance sheet what do you know is that. <br> Those payments just don't go away and they don't get adjusted as easily as you might want them in the event that your cash flow goes through a roller coaster, and suddenly this year we don't have so much cash flow as we need a we may have we may have had a company that has historically crazy rollercoaster cash flow but they Bank when they're high, and we're setting that average cash flow something lower so the valuation is set lower and not like, going into the forecasted cash flow and saying well even though he had roller coaster Cashflow historically we now know that we will never have that ever again so we're setting the valuation at these higher forecasted cash flow levels so cash flow as we conceptualize this part of the process we really will want to. <br> Experience a calm when it comes to yeah the company has has the ability to adjust now. <br> I know that some advisers will come back and just be like don't worry about it your company is going to be tax-free so you know you're going to get cash flow as time goes on. <br> <br> [14:05] My question is how much taxes are you saving in a year that the company had a loss. <br> Can I pay any taxes there anyways right so so cash flow as we as we talk about it is going to be categorically one of the most important elements of of our conversation when it comes to feasibility. <br> And the second the second category is just thinking about, the way that the company is looking at the structure of of the ESOP itself so tax the tax environment at this point is going to be very important. <br> So <br> <br> [14:44] In this is going to obviously connect back to cash flow because the way that we go about this is going to be going to depend on what we end up with at the end of the day and so where I'm going with this is is the, all the all the people that talk a lot about tax benefits of being an ESOP company so. <br> As it stands right now we need to take a step back and ask the question first in feasibility and maybe you know before feasibility really to be honest with you, what type of entity do we have before we even start if the entity that you have when I say entity I mean the tax. <br> Entity if I am. <br> For instance if I'm an LLC a legal liability company and I'm taxed as an s-corporation that's one type of entity if I'm an entity that is taxed as a partnership. <br> If I'm taxed as a c-corporation all of these are going to be important starting points for us because when we start thinking about the possibilities and feasibility. <br> Of whether or not I can use certain tax benefits I need to know what my starting place is because they're going to going to be. <br> Dictating in the ESOP plan how we're going to adjust for, what actually is going to be our most likely scenario so let me give you a couple thoughts before we get too deep into this just from a categorically The Entity side of things. <br> <br> [16:14] If my company is is getting a 1065 tax return that's the form on the 10 on the tax form. <br> It's a partnership and if it's taxed that way. <br> Or it's taxed as and I had this before I had a company that the whole company was taxes a sole proprietorship and showed up on the individuals Schedule C. <br> You might say that that was probably a small company it wasn't it was like 100 million dollar company Revenue I so wasn't a small company but that's why it's so important to really dig into, yeah what is the tach what is a type of tax entity that we're dealing with now in both of those cases. <br> From a tax standpoint there is going to be a requirement to convert that to an S corp or a C corporation, in order for us to affect a transaction for an ESOP because the the ESOP trust can't purchase anything but an S corp or a c chord. <br> <br> [17:16] So we've got to convert those two types of entities into either one of those categories now. <br> <br> [17:21] In looking at that what you should know is that there is a one-year hold period. <br> To avoid short-term capital gains tax rates on. <br> Something that's got some entity that's going from partnership to S Corp or C Corps. <br> Or sole proprietorship to S Corp or C Corp both in both those situations there is going to be a one-year hold period to get to a long-term capital gains rate which will which will definitely matter unless we could convert over to a see. <br> But if we were not a see then then that that is going to be problematic because this a c-corporation we needed to have that held as C corporation for three years, and so it's not as simple as just converting my partnership to a c in order to do to use the 1042. <br> <br> [18:15] I'm so getting into that what we're really not going we're not yet talking about 1042 or capital gains a we're going to get to that in a second for feasibility purposes but we do want to make sure we've outlined any problems that. <br> Potentially be pushing us out in the timeline and so, the timeline would be pushed out if we had to convert from a partnership to or an L sole proprietorship to an S corp or C Corp now the analysis we can still go back as we go back and look at the analysis as the tax benefits, exist for the s or the C we just want to understand now that in this case in feasibility, when we're putting down the plan we know that an s-corporation whatever the ESOP owns the ESOP is the, whatever percentage of the company they own as an es that percentage is going to be tax. <br> <br> [19:07] And we're going to build that into the feasibility model because we're going to want to understand, how they are going to have what effect in cash flow that's going to have so that we can understand the ability of the company to pay back the debt payments. <br> Adequately and so back to our predictable cash flow idea we if we know if we're going to have this much in cash much much in net income, we can then reasonably predict on a fiscal year basis in the in the go forward forecast how much cash is going to be left over, after we have serviced the debt obligation so let's go back a step for a second so the debt obligation when we talk about the debt. <br> The debt in the feasibility model needs to be nailed down as as best as you possibly can and. <br> In Aesop's an ESOP transaction that is going to come about from having Bank financing and. <br> Or an seller financing in a combination of those two things typically exist or we just have 100% seller financing. <br> <br> [20:14] All right so what do I mean by that, well the company is going to borrow from a potential lender that could be a bank that they're dealing with that could be a bank that they're not dealing with, and the seller who becomes in a sense the bank to the company and lend lending them the money to borrow the money to buy the stock okay so from a feasibility perspective what's happening is we've got to know what the terms. <br> Of the borrowing will actually be and so what we're going to be doing is making sure that we have properly estimated the right amortization schedules. <br> And guess what the right interest rate schedules even though. <br> Right now rates have gone up so much and so one of the things that have come up you know and this is just kind of helping to stay really current. <br> What's happening in the times is that the rates that people are paying Banks. <br> You know are in the 88 and a quarter rate type of environment on a normal normal borrowing type of situation so. <br> <br> [21:17] Some of the sellers are looking at that and saying well my company my company then I'm selling my stock at right now we're changing our minds a little bit in this becoming the trust the ESOP company as it's owned by the trust but, the money that's going out to the bank's there thinking well I could just have that come to me as the, selling shareholder and take a maybe a bigger piece of seller note or maybe more you know more than that. <br> So we're having these kind of conversations so it does matter about the current terms of the what the bank is going to charge, and it's and it does matter really because also the bank depending on the deal is going to add some complexity to the deal just like we're talking about the complexity of the plan when we add in whole nother element, to the deal then at terms from the bank's perspective it can include Financial loan covenants it will include Financial loan covenants it will include, some type of debt recapture excess cash flow feature it could include hey we don't have enough collateral and we don't feel super comfortable so we might want to have some type of personal guarantee and sometimes it doesn't include that, and in other things that will. <br> Kind of get people thinking about do I really want to go down this road how important is the liquidity event at the closing going to be to me as we start thinking about that so we're. <br> <br> [22:38] As we move past like you know we know we're in S Corp so from that perspective we can look at the bank financing and the seller financing and start to underwrite, the amortization of that cash going out of the company and make sure that the strength of that cash flow is there which we're going to talk about, in second as far as you know the strength the ability the predictability with all the benefits of being an ESOP. <br> <br> [23:05] Now to make it a little more complicated if we do have a partially sup that's an s-corporation. <br> We're going to look and isolate the portion of the company that is tax-exempt so. <br> Just keeping your head like if it's a 40% ESOP that means that 40% now is owned by the trust once the transaction is completed and a K1 is being generated by the company. <br> Each year for an s-corporation that goes to the trust and is exempt now in addition to that were also going to pick up a tax. <br> <br> [23:37] Benefit of being able to deduct the principal and interest portion of the inside note the contribution made so what we have to do in the cash flow modeling for the feasibility as we have to estimate, all of the potential benefits as it from a tax perspective so that we can predict the total tax that the company is going to 0 whether that's. <br> Because it's an S corp the company technically doesn't owe the taxes it goes flows through to the individual shareholder so in our 40 percent example there's going to be a 60% K1 going out to the individual shareholder or shareholders. <br> And then the 40% is going to come over to the ESOP and that will be exempt so that's going to need to be properly evaluated which is going to be in feasibility it's going to be we're going to have to estimate, what we believe that principal and interest is going to be for the inside know. <br> That would be the note between the the trust in the company that will allocate will be the means of allocating shares on an annual basis to the employees. <br> So we get a credit we get a deduction for that so without knowing that we won't properly estimate the net cash flows available to service the debt. <br> <br> [24:51] The other thing that we need to do as we think about it from. <br> Whether it's an S corp or C Corp is we're going to need to add an estimate the budget of expenses that includes the potential. <br> <br> [25:05] Trustee if we have one I'm going trustee, it'll include for expenses about an annual business valuation it'll include for the expenses fiduciary Insurance in. <br> <br> [25:17] Third party administrator as well so we're going to want to make sure we've properly estimated those costs into the cash flow model. <br> Now if we're a c-corporation for feasibility purposes what we are also going to do is Max out we want to max out the payroll limitation on to on the 25% portion. <br> And basically use that as our primary means of a deduction. <br> For the reducing the taxable income down to have more cash flow available so we're going to we're going to look at if we look at both of those scenarios being an s or c. <br> Then we're going to want to then build cash flow models around both of those for the company and now the purpose of that, is now we're going to go back and evaluate the strength of the cash flow now some of this happened, for the way we do it in the valuation model because we were really going through very intentionally and beating up the forecast because the forecast is really our picture of what we believe, to be the reasonable source of cash going forward the cash flow going forward now if you break down the forecast and you start thinking about what is the strength of cash flow going forward. <br> We're also looking at what is the potential. <br> Aggressive perception of that forecast which means basically how are people pushing if they are pushing the envelope on Revenue. <br> <br> [26:38] So let's start with growth now before we get into growth itself we really want to understand. <br> In terms of the strength of the cash flow we really want to understand the the composition of customer Revenue. <br> In whether or not that's broken down of course the first thing out of the out of everybody's mouth is concentration like what is the concentration of Revenue pie customer. <br> If it's more than 10% if it's more than 20% if it's more than 40% is it more than 80% so we're getting like those like things start to we start to wince when we get higher and higher in terms of the concentration of Revenue. <br> <br> [27:17] As we look at the customers are they. <br> Really strong is the AR aging report revealing to us that we have really good payers as customers because that's obviously a. <br> Doesn't matter what we've built our customers if they're not going to pay it or there if there's a big a our problem we want to we want to evaluate that as part of really looking at the strength of our cash flow. <br> One thing I would look at typically in this is because I was a banker a long time ago is. <br> What's the you know the the strength of the cash flow really gets represented to and that company's ability to pay off a pee, accounts payable so if I have an AP aging and there's a lot of old stuff on there you're like hey what's happening why is the company not able to pay their there, current liabilities adequately on time this would be a flag for us, to talk about like a what's happening what's changing why is this happening what if you have a big problem when your AR aging side what's happening why are we are we getting into customers that don't that are not quality customers because that's, part of that identifying the strengths of Revenue is to really identify you know quality customers in quality, the first vacation in those customers. <br> <br> [28:33] Now one thing I also look at is if we get like a you know if the company is Contracting or they have a lot of contracts you know what are they, terms of those contracts like is it easy for them to get out if there is an issue or are they pretty sticky type of contracts the word sticky gets thrown around a lot when we talk about Revenue just, what we want is we Finance people we want sticky Revenue we want Revenue that's not going to show up today and then be gone tomorrow. <br> We also talked about recurring sources of revenue versus non-recurring sources of revenue. <br> So it's kind of important to to think about when we start to isolate the types of Revenue we're going to get now into the business model itself. <br> Now your business model one thing I will tell you and this is really kind of important to think about every company has a unique a certain unique way of doing things now in some cases everybody kind of likes to. <br> Go back and label a hear a contractor you're a general contractor this is how you do things this is the way you know you're tracking your. <br> Your cost and accessibility is your building 6 in excess of cost or you know you're the way your company approaches a certain type of, industry where you're kind of globbed into a bunch of other companies and so what you want to do if it's true. <br> <br> [29:56] Is point out anything that's very unique in the billing and collection process as far as cash flow goes because if yours is so much more. <br> <br> [30:05] Not necessarily like it's just so much more advanced and maybe using technology for instance or, you know I've seen companies some companies start to kind of really wipe out a lot of their AR because they're able to collect so much more on the front end of a contracts and so they take less and less. <br> They're able to reduce a lot of the Reliance on inventory and so one of the things that you start looking at is the strength of how not just the customer Revenue but the way the company approaches their business model. <br> And that could be unique not necessarily just you know one, company does it always the same right and so that's kind of the exciting part about really being able to analyze and look at how companies do certain things you know differently. <br> <br> [30:53] In and there's a there's an innovation to that that I think is kind of interesting and so as we cycle through that the more. <br> You know the thing I always tell people when I do review the forecast for strength purposes. <br> I'm always kind of putting them in the room with me and I'm saying to them hey we're if we're sitting in the room with the trustee and the valuation firm you know the independent people that are looking at your business, super cold how are we going to explain the strength of your cash flows. <br> As we go through each of these items now the next section in the forecast is going to really be how you know what are the direct costs what are the things that they're dealing with you know and creating the revenue so there. <br> Obviously your labor costs your supply cost if there's certain cost of goods sold that are very unique to the kind of business model that you have what are those what are they have been trending at over the last 5 years. <br> What's changed when covid happened what changed with those. <br> Cost what's happening with with inflation with those costs now and what's going to happen going forward. <br> <br> [32:01] Instead of saying my gross profit percentage was this every year my gross profit is going to be the same as we go forward we want to understand the the reasons why the gross profit is going to be whatever the number is. <br> And gross profit let's just say it's going up positively every year like okay. <br> What that means is if our if everything's kind of seeing the same you're becoming more and more cost efficient within your cost of goods sold are you paying people less. <br> Are you able to go procure or find supplies materials what you know at more reasonable rates or where do you do that like in what's the what's the potential of risk when it comes to those kind of things so. <br> You know as weak as we go into the feasibility stuff I want to kind of point out that this is a very organic process and even though we've done some valuation work and that moves us into the feasibility side, we may come back to that and kind of go back and forth on this a little bit it's not like, it'll work we're doing is not as specific to like we do this and then we do this it's not very it's not like that it's more about disclosing information in the people that we talked through as we go through that. <br> <br> [33:12] Understand more about like what we're trying to accomplish because when we think about the success of our plan our ESOP plan we really want to nail down. <br> <br> [33:23] In this feasibility not just that the numbers but we want to nail down the the the actual realistic nature of creating this sustainable process as plan so in as we get through the gross margin then the next pieces are going to be really dealing digging into the GNA piece. <br> <br> [33:40] And that's going to be have we estimated things correctly you know right, today we had a meeting where the company was like look we think we're going to have rate which so hard for us to keep people we think we're going to have more raises and for the next couple of years but we think it's going to start to normalize so let's come up with a little bit of a higher percentage for raises, for the forecast and then come back down as if as things hopefully normalize in the future but if we don't do that then we could overstate the cash flow. <br> That overstates the valuation potentially and that puts us into a very difficult position of predicting the sustainability of the ESOP as we start thinking again about, the cash flow related to the debt that we're going to have, so so we're really kind of stepping in today as we go through this into the mission of really understanding how this is going to connect it's going to take this is going to take us several, episodes because I want to connect the dots between the starting point of why we're doing this. <br> Into some of the details of what we're doing you know again conceptually and the value I believe the value of doing it this way is going to help you, to start to really understand things that you don't want to get too down like say to down the road. <br> <br> [35:00] So to speak in the ESOP process Without Really dealing with some of these things where you just you don't feel like you've gone through this pain may be enough to really understand. <br> The worst thing you could do is put the whole deal together and at the end start thinking oh crap I don't I don't know if we're going to be able to pay for all this I mean how is this all going to happen. <br> <br> [35:21] So so we're going to come back to this with more discussions on feasibility and it's going to be a lot of fun that I think we're going to build more Mission Impossible, types of stuff in it because I think it's just a fun fun way to go about it the thing I'll leave you with is this one of the one of the things I picked up on over the last couple weeks and talking to some people. <br> About their deal I had a company that we're going to we're talking to you about helping them with their ESOP. <br> And they had been approached with this idea and they're relatively small company but this idea of what we would call a capital stack. <br> In order to maximize the amount of cash coming out of the deal and at the end of the conversation with them and I was asking him because I know he, he didn't feel like that was a good approach for them and I and we kind of talked about it back and forth a little bit about the idea that hey. <br> <br> [36:10] You know I think today the companies got to pay for this right, and if the company is not if you're going to lever up the company with so much so much debt so you got means you have seen your debt you have Mezzanine Financing of all these all these institutions are getting paid all this money for fees and everything else in. <br> At the end of the day is that make sense I mean do you want to put the company in that kind of position where where you've cleaned all the. <br> In all the Leverage is coming on the balance sheet and you're so you know balancing that is going to help everybody sleep at night better so I'm I always kind of like ask the question why would anybody really do that kind of crazy amount of. <br> <br> [36:53] Capital I mean there might be a situation why they would but in general speaking of the bell curve for an ESOP I think what we're getting to is, is you need to structure the debt side and feasibility to really match the appetite of the company. <br> And then being part of the company going forward as a selling shareholder to feel like you as a board of director have done a good job, of managing the company's position to where you haven't put them In Harm's Way and I think that's really one of the reasons I wanted to do this as well as because I've been, you know he's here different stories about how people put these deals together. <br> And it just kind of raise my eyebrows a little bit and said hey you know let's just let's just stop and talk about it so again with all of that I think you guys for listening today. <br> Please go to our website at journey to an ESOP cam if you have a question for us please like And subscribe share this with a friend and do the five star rating on whatever platform that you use I think that will really help, and with all that have a wonderful day and enjoy your 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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