EP7 - ESOPs for contractors - discussion with Michael Strahan of KPS Bonds out of San Diego CA.

Thank you so much for joining today. I'm the ESOP guy, and we are on this journey to an ESOP. So if you are just joining for the very first time, this podcast was really produced and designed to help those individuals that are thinking that they might want to consider an employee stock ownership plan as a possible succession or exit strategy. If you have an interest in other episodes, please go to our website at journey to an ESOP.com so you can find all of the episodes. And as we start today, I wanted to say today, I'm super excited as we've been going through a, a discussion on contractors, and I'm excited to have the privilege of interviewing Michael Strand with KPS Bonding from San Diego, California. Um, Michael, Michael's background is, it really includes, he started out in surety in 1994. Um, he's been working with KPS since 2006. Um, lots of experience from the bonding surety standpoint, um, works specifically with ESOP companies. So, as we, as we do this, we're gonna discuss the impact of a construction company going through the process of becoming an ESOP company. Um, this, as I said, is, is a continuation of some of our podcast episodes where we've been industry-specific, so that we can really look at the applicability of how ESOPs work for, um, different industries, but specifically today for contractors. Also wanted to, to let you know and, and give you a heads up on the ESOP Guy live webinar coming out. Our date is selected for March 31st, so please look at, look at our website journey to an ESOP.com for that as well. Again, if you like what you hear on the podcast, please subscribe and share it with a friend. So with that, I wanted to welcome Michael to the podcast today. Thanks, Phil. Thanks for having me today. Great. Thank you. So, as we, as we get into this issue with contractors, I, I think from our standpoint and, in my professional background, we as a CPA firm have worked with contractors. Um, really probably for the last 30+ years, we have a, a very large uh niche within our, within our firm where we've helped contractors with, you know, what you would see as a surety as, you know, one of the, one of the areas where we add value as we do, of course, the audits and we help them make sure that they, they understand contract accounting and all the kind of um basics there when, when it comes to taxation as well. Um, helping clients get ready for, you know, some of them that, that start out as contractors to get ready to get their first bond, um, and all of those things have been such a big part of our, our experience with this specifically with this industry. As we work into the other phases of, of a contractor's life, we're gonna get into now more of the, the best options related to their succession and exit planning. So when we think about specifically ESOPs, from your perspective, Michael, um, how do you consider, you know, that an ESOP as an option for a contractor when they're thinking about their succession and exit plan? Thanks. I think ESOPs that you have the proper management team and structure in place, I think it's probably the best exit strategy I've come across. The first one we did was back in that I was involved with, I should say, probably back in 2000, so we've seen these mature and involved over time for the last 20 years, but they are a great exit strategy to me, it's a strong tax strategy, a continuity plan, and it's a it's a real beneficial reward to employees as well. That's great, and when, so a comment I would make on that is, is I think a lot of times, um, contractors when they're, you know, they're thinking about this as an exit strategy, um, they're not exactly sure how the bonding company is going to take it. And so, Um, one of the things I've experienced in just dealing with ESOPs kind of all over the country is not all bonding professionals really understand, um, ESOPs very well sometimes, and it's, it's partly because I think there's maybe a lack of education in certain markets where ESOPs are not as prevalent, but I really don't know the answer. But so one of the things I wanted to kind of throw out in that. Um, it is a great strategy in my in my perspective as well. Um, but I think when we talk about the bonding relationship, it's gonna be really a critical element, and that's one of the reasons I wanted to do this, this episode with Michael today is to make sure we plug in that piece of the planning because without the bond, um, working out in the future, it's really difficult to know exactly how the contractor is gonna obviously continue to do business. So, um, so I, I appreciate that, that perspective from you, Michael. Yeah, no, absolutely. And you know, one of the key aspects surety to look at whether you're a startup company or someone that your owners are saying, you know, in the later stages of their career is continuity, you know, whether you talk about the quote unquote Mack truck theory, you know, anyone can die on the highway to a termed out strategized continuity plan. um surety do focus in on it, and especially as companies mature in age. So putting something in place in ESOPs, you know, they don't happen overnight. They take time, they take a lot of time, effort, and money to put it together, but it works incredibly well to me as opposed to pretty much any other strategy I've seen outside of, you know, passing it off to your children. There's, it's hard to get your money out of a construction company and to me an ESOP satisfies the continuity plan, gives you the money exit strategy, and uh. Um, give some assurances to the surety company that you know there's a plan in place. Absolutely. Uh, as we, as we think about putting together the very first steps of the planning process, I'm gonna start with, you know, where we get involved with the company is to help them build their valuation and to try, try to determine what they're going to transact for. That's gonna always include building out a forecast, at least a 5-year forecast for the future. Um, this is difficult because it's very difficult for that type of industry where you have cyclical patterns, um, sometimes they're higher or lower, um, definitely. One of the things I always look for in this is, you know, historically, if there, if there's been a lot of volatility, that's going to be more of an issue than when I, when I have a contractor who has more of a a smoother type of historical, um, financial statement where everything kind of has worked out. But, um, either way, it, it creating a forecast for a cyclical company is, is difficult. Um, and it really is a key part of doing the planning. Um, well, so with respect to that and getting comfortable with the client going through an ESOP. What are some areas um you are keying in on as risk factors for an exit plan, you know, when you start looking at their, the owners and what they're looking for? With the news specifically, one of the biggest issues we look at, as you said, you do a evaluation on the firm, and usually it's a multiple of something over the company's current equity position. Um, the biggest thing that surety tends to focus in on is whether how much hard debt are we going to have to secure, you know, bank debt versus shareholder debt in placing an ESO in place. So that's where it comes into that whole time element to me is it takes a while to get the evaluation proper. And then how are we structuring that uh that buyout? Is it, you know, how much hard debt that we need to bring to the table versus the shareholder debt? What's the payoff term and the flexibility of those terms, um, you know, as you said, construction can be a little volatile, and, um, you know, is there some uh leeway with construction with the payback terms? Um, sorry about that. Yeah, um, yeah, those are, those are definitely key, you know, those are areas where when we get into feasibility where we're kind of like gonna model out the cash flow and the, the debt itself, if it's seller financing and bank debt, how did that, how does that really play into Um, their cash flow, and then we're gonna end up doing a pro forma balance sheet too to try to determine what's, what's the true impact of the debt on the balance sheet from where they are and um I was just actually doing one of these today um with a client that's um a contractor, and one of the things I was doing is I compared the, the combination, they have a management buyout program for some key, key owners and like in this client has, you know, ownership, different ages of ownership, which is very common with a lot of companies. And so some people are ready to get out, some people aren't ready to get out. And so you have this combination of a management buyout with an ESOP or compared to just an ESOP. But what, what I always see is, you know, and this is just simply because of the tax benefits of an ESOP is the cash flow from an ESOP um on the buyout is always gonna be superior to the cash flow of a management buyout because I'm using aftertax. Um, cash flow for management buyouts and I'm using, you know, basically a tax exemption on the S corporation to, um, to, you know, pay the payments for the other. So, so when I look at those two things, they, it always seems to kind of come up and, and it should be that the ESOP is gonna be in a, in a more advantageous position. So when you look at the hard debt versus the bank debt, do you, how do you work that into your analysis in terms of evaluating is that gonna be a good good thing for the bonding company? Sure, yeah, most surety companies, the ones that understand ESOPs, understand shareholder debt, isn't we call it soft debt because we subordinate it and we know there's flexibility on those payment terms as opposed to the hard bank debt which we know has a set repayment term. So when we look at it, um, because naturally a new soft balance sheet, when you just look at the financials, it looks like a negative equity position, but then when you subordinate back the shareholder debt. which we do and we count it toward equity. It takes the situation and puts it in a much better light, presuming a majority of the purchase was done through shareholder debt, not debt. Yeah, that's, I think that's a lot of times it's going to be the or the shareholder debt. When you subordinate that, the question I have is, is, is it that they are allowed to continue to make the payments or is it they can't make the payments until you approve those? Is that how do you work your subordination? Generally they're written to you can continue to make the payments for the terms of the note. So however that's written out, so it doesn't give you handcuffs to where you can't touch it, but you have to, if you want to go in excess, say it's a great year and you want to pay off more of that shareholder debt. That's when the surety just ask for its input to make sure that the numbers still all make sense. OK. Yeah, I've had, I've had people ask me that question before and honestly, I was like, I don't really. I don't really know. I think it's from a banking standpoint, they don't do that either, but they just know they have the right to to have you stop payments in the event that there's a problem um with the cash flow or whatever happens, you know, again, we're in a cyclical business model. So, um, going through, like, you know, in your experience of working with contractors, um, going through like a business transition, um, the major area depending on their bonding requirements is to really continue their bond program. And what, what do you see as issues that might come up in trans in the transition planning that could jeopardize their future bonding capacity, you know, specifically with the transition plan itself of I'm gonna sell off my company to an ESOP or MBO or whatever. Sure, um, basically, I kind of go back to the basics around bonding, you know, the major, the three Cs as they always call it, are still in play, you know, your character, your capacity, and capital. So nothing in terms of what this looks at whether you're doing an ESOP, an MBO or anything else changes with that regard. Um, ESOPs generally my experience has been the owner that's selling or the owners that are selling it to the ESOP. They're still generally heavily involved in the business. So that's one thing that sure is going to look at is, you know, who are the people that were running it, are they still there? or they turned into absentee? Um, they're going to look up at the makeup of the financial, the, you know, post ESO transaction, again, going back to the hard and soft debt. And as we talked about already, you know, generally speaking, the balance sheet flips negative, but with the shareholder debt subordinated, any surety that has experience with ESOPs can get on board with that pretty easily. So from an overall bonding strategy or bonding position change for the company post ESOP, there's not a lot of difference. You're still looking at who's running the company, you know, what kind of capacity they have to manage work, and then are the financials there to support the, you know. The working capital and equity requirements. Mhm. Right. And as long as those things are, are in the lane of what you guys say are, are pretty um well within your, your boundaries or whatever, you're not gonna have an issue. And so, and kind of in in in conjunction with what you said, I think the key that that I see is that you should be able to have your advisor. Put together what this thing's gonna look like afterwards, so that you can then take that to the bonding company and say, hey guys, what does this look like? Where would I have a problem if we went, if we went with this structure? And then you can go back and look at your amortization schedule. Um, maybe that needs to be a longer period to give more cash back to the business. Um, maybe, you know, you sell a little less in that first year, you do a little smaller transaction as opposed to 100%. So I think there's a lot of that, you know, getting, getting into the, the, the, the deep waters of a transaction and then coming back and saying, hey guys, I'm closing the ESOP deal next week. Um, are you OK with this? I don't think that's a good, a good planning item or a good planning, um, uh, you know. You know, I guess opportunity or whatever they're going to do to try to come back and say, so I don't know if you guys have ever seen that before, but at least that's in my mind that's really going to be important for them to give you heads up. I agree that's critical and that's one thing we just we just went with a contractor of mine in January 1st. Um, but we had spent 2 years on the ESOP process, one prefunding the ESOP, so we didn't need as much bank debt. But then secondly, the first valuation came back with a very the payment restructure term was too short and aggressive. So the surety company looking at the financials and how it all panned out was aggressive. So we made it a little softer, a little bit longer. making it very easy for the company to pay back the debt structure while still having our subordinated debt, so we were able to get the surety company on board with. really minimal, um, minimal concern because they had been actively involved for the last 1.5, 2 years, seeing the numbers, knowing we're doing it, how being structured. So when we pulled the trigger and effectively when ESOP, it was. Yeah, that's uh that's a great story, honestly, because I think that like people think, well, 2 years, you know, and it does take people get, it does take people to get comfortable. And in 2 years, things change too. I mean, you could have, you know, we went through a crazy year last year with COVID. Um, who knows what's gonna come. So, you know, everybody's got to get comfortable with the idea of of what's happening and um I think that, that's a great story, honestly. Um, so it kind of segues into This idea of like when you do talk to your clients, you know, what do you kind of like, how do you see um in terms of how long they should take before they even start their succession plan. So you have, you know, a company that, that maybe the person's not ready to retire obviously tomorrow. Um, what would you advise for companies in looking out in, in terms of a uh a number of years before they really get, get serious about a plan? You know, I'm not sure if I have a year in mind how long it would take, but from a shorty perspective, what I would say is even if you, let's say your ESOP is in your future, but it's not happening tomorrow, you should still have some sort of a plan or continuity plan in place for your business because again it comes back to something could happen to anyone at any given time. And it's not just to protect the surety from their exposure, but we're trying to protect your estate and everything else for your family. So there should be a plan in place, whether that's just a buy sell with life insurance or just life insurance payable to the company with a key man to help wind it down, whatever the case may be, knowing that you may have a long term strategy of an ESOP that needs more time to evolve and get put in place, so. That's, I mean, the big picture, I say everyone should look at continuity from day one, starting their business, um, but most farms don't. I mean, honestly, it's, I have a lot of contractors that have no plan and they're getting up in their 60s or even early 70s and If it's not a family transition, you know, selling a construction company is not the easiest thing to do, um, because, you know, if you're a low bid contractor, what are you really selling? Um, you're selling your marketing people and your estimators, so it's hard to get the value out of your company. Yeah. I think, I think it's a good point, and I, and I, and I think we don't want to be, and I don't want to ever be like this is like, hey, you know, try to tell people to panic or do something like don't just start planning your ESO now because we're telling you to. However, um, at the same time, I think it does make sense to start the conversation and, and I think what Michael brought up too is your continuity plan, sometimes I get into situations with clients and And they don't have, like, we're gonna plan an ESOP that's maybe a year out or 2 years out, but they haven't done any continuity planning. So we end up focusing on that first and saying, all right, well, if this were to happen in the next, cause we can't, typically it takes about 6 months to do an ESOP. So, um, even if we get everything moving in the right direction, you know, something could happen in 6 months. So I think the idea of having a continuity plan is gonna be really important. And I think that you alluded to this, and I think the big thing that I think about with contractors is, is how do you capture the value of your company now when the economy is good? And don't be so short-sighted and thinking everything's always gonna be the way it's going to be. Um, wouldn't it be nice to get some chips off the table when everything is going up as opposed to, you know, when things are going down, and I don't know if, if you're, if you get into this part of it, but I do. Um, if I put a forecast together for a client. And we're going through um an ESOP transaction and we go through the interim financials or the monthly financials with the trustee and their evaluation firm. And we're going, we're continually exceeding the forecast. Well, that negotiation is a lot easier, right? Because the trustee is like, hey, everything looks good, you guys are on track. But if you're going negative against the forecast, then it's like, hey, well, this happened, this happened, that happened. It's not gonna go as well and you're probably gonna have deal terms and the, there's gonna be an erosion of value. So part of that is advice on planning. Early on, I always tell people, try to plan 5 years out, you know, at least get some of this initial stuff started, build your models, see what it looks like, compare the, the options. Um, and then when you get into it, make sure if you're going into the, a transaction you, you know, that you kind of are timing it the right, the right way. So, um, those, so those are just some of my thoughts on it. I think, you know, it's really important, I think, to not put it off and, um, and make sure again, like you're, you're dealing with the right type of um advisors that, that can help you do that, so. I agree, and the timing of it, I couldn't agree more with you is that example I was giving you of say in taking 2 years, part of the delay was we knew the 2nd year of the process was actually going to be a stronger year for the contractor, so it just made sense to hold back one prefund the ESOP to get a higher valuation. So as you said, timing is timing is important. Timing is important. Um, so going, so going into like more uh the underwriting on the, on the bond side which, which we talked, talked about this a little bit, um, and I, some of my background included being in commercial banking, so I did a lot of underwriting in my first part of my career. Um, in, in underwriting, what you do for a bank is you underwrite the risk rating of a credit and that helps us to determine. You know, how much you're gonna lend, what are you gonna price it at? And I, I think it's probably similar, you know, when you look at um the bonding, the bonding world, you're underwriting like a, a credit at the same time. Um, when you, when you're looking at this comparative to um an ESOP comparative to that when you're underwriting, um, the bond credit that they're gonna have going forward, um, what comes into play in your underwriting in terms of, of how do you actually look at that? You know, proposed ESOP company now that they're gonna have that transaction debt and other things are gonna change. Sure, it goes back to the three major things surety companies tend to look at. It's going to be the equity in your business, your working capital, and your debt to equity structure. So obviously when you when you flip to an ESOP before you do any massaging of the financials, obviously your debt to equity is through the roof, your equity is negative and your working capital frankly looks good. Um, so that's where the hard debt versus shareholder debt comes into play. So once we can maneuver, you know, the example I can give you is the one we just did. The company was worth $17 million on an ESOP. So we ended up actually I take that back, it was worth $20 million and we ended up doing $17 million of it as shareholder debt. So that entire amount we just put into um we sold off enough for tax strategies and then the rest went into shareholder debt. So the company balance sheet, you know, when you look at it, it looks like it's negative $11 million. In reality, it's when you get all done and said, we're sitting there close to, you know, 6 to $7 million of real equity once we subordinate that debt. Yeah, so that put us in a position from an equity working capital and debt to equity to be easily supported for bonding. Yeah, that actually just was a question I had just recently on a on a client and they looked at it and like, hey, we're gonna have a negative. Equity on our balance sheet once we throw this and I, and I kind of said the same thing, but I just, I, I appreciate you throwing that out there because I think that becomes a, an immediate concern. And it really, you know, if you're comparing to having a, a management buyout debt, um, it's not gonna be any different, you know, it might be the management buyout debt structured off the balance sheet, but still there's being debt being serviced by the company through the, the personal. So I think that's a really good point. Um, when I get into the, the working capital issues, I'm curious on your side, like how, because what happens on an ESOP transaction is we're, we're going to negotiate the working capital with the trustee as part of his job, his or her job is to make sure the company, whether it's a contractor or not, make sure the company has enough working capital. To continue to do business like they, they were doing before. And there's different models to, to, you know, financial models that we use to, to kind of try to estimate what those working capital requirements are gonna be. So early on in the process, what I do is I just look at some models, I, and I always ask the client like, what is your, what is your bonding company telling you to have in working capital and they usually kind of have that number because that's gonna be a usually as you, as you pointed out. When you guys are looking at that, um, you know, is there anything different in your working capital requirements that you would have going into a transition or is it kind of similar to what you would have historically? Uh, similar to what you would have historically, but you know, again, that's where I'm a big believer of upfront and open honest communication with your surety company. You know, to me, if you're a surety agent and contractor don't have open honest communication, there's going to be a problem, big or small, who knows, but sooner or later something will be a hiccup. So when you're going through whether you're going through an ESOP or you're just planning your business coming into year end, you know, we always do preyend planning meetings with our clients and the surety and the banker and the CPA and we sit down and talk or Zoom unfortunately this year. Um, and talk about, OK, what's the year end going to look like, what are you doing for tax strategies, and what are you going to need for surety credit entering a new year, and then we can back into what the working capital and equity requirements are and then especially when the CPA is there, we can also sit. bless the statement and know that we're all on a plan. So when the CRN statement comes out, unless there's been a material change, your bond program just continues to run. So, you know, not only is it a dollar figure or a ratio, but having those upfront communication, um, conversations with your surety just makes life easy. Yeah, yeah, um, one part of that, what happens for an S corporation. is we usually estimate um what we call the tax retained earnings, which is called AAA accumulated adjustment account. So what we're doing in that is we're, we're taking a company that, and, and this is very classic with a contractor because usually they leave a lot of, of cash back in the company because they are keeping their balance sheet, you know, fairly, um, fairly large in order to have more binding or, you know, capabilities. What we try to do in the transaction is we're gonna try to normalize that balance sheet and, and do a AAA distribution as part of the ESOP transaction. And so that's why when we look at that, we don't do is we don't take all that cash off the business out of the balance sheet. What we usually do is do a A AAA note, um, and spread that out over a number of years of an amortization in addition to the normal, normal debt. And so what that does is it allows the company to keep, keep its balance sheet, but we're using that to, because the company has, um, the owner has put all that AAA or left all that AAA in the company over all these years, so we want to get that out of there as well. So, Um, I, I say all that kind of in comment as well, but in terms of how does that, it, it shouldn't collide with the working capital issue because what it's doing is it's keeping what you have there in the balance sheet for the most part. There might be a, a, a distribution or some type of prepayment of, of the AAA note as part of a way to, to do some tax planning. But other than that, I mean, it shouldn't be a, a major impact. Have you seen that being an issue with some of the ESOPs you've dealt with? I haven't seen it being an issue, and again this goes back to, you know, communication, you know, if there's going to be some advanced payments on stuff. We're in business to support our personal life, so there is some advance payments it can be done, but again, I just I always confer and say it makes sense to have your surety and your agent and everyone just be on the same page so that if we're doing something you know above and beyond that we know it's not going to cause you a hiccup. So, um, talk about, let's talk about the personal identity. I think that as we, as we kind of close out the podcast, what, tell me a little bit about like going into issues that you've seen on that and um in some cases, I have clients where they're not, they no longer have a personal indemnity um because they've hit that certain threshold of, of creditworthiness. But where they do have an an indemnity or, or an issue with their, the personal, and they're trying to exit the business. Have you run into some issues with that or how do you get around? That in terms of trying to help through the transition process. Right, yeah, we also have some clients that don't personally guarantee, and they're usually the ones in that mature part of their business cycle. Um, they're financially strong relative to what they want and, you know, they're not looking to grow significantly so they can easily, you know, get off personal indemnity. Um, other scenarios, you know, a lot of our clients do still personally guarantee, and when they go ESOP or any sort of buyout specifically in ESOP, the cases I've been involved with, generally the owners initially sell, you know, they get paid for what call it 30% of the business, and they're still owning 70% and getting bought out over time. Generally speaking, those scenarios, the owner of the company still is personally guaranteeing until he's completely bought out. And at that point, presuming the ESOP, the company now owned by the ESOP, is financially strong, it won't need personal indemnity. Worst case scenario is, let's say it's not as strong as you know, the sure you would like it to be. It might need to be a key management person or some people that are truly running the company may need to step up. But in my experience so far, out of all the ESOPs I have, all have started with personal indemnity and have subsequently had them released. Yeah, over, yeah, after things get kind of normalized or get, they get the debt paid down then it just starts to get released. Um, I, I think my comment with that with that is similar on the banking side if the bank is requiring the personal guarantee. That you as a selling shareholder, um, could be compensated for that additional credit or the additional um risk that you're taking in the transaction where, you know, I'm assuming like if you don't have any ownership left, so that, that would be where that would come into play. But with it, if it's a partial lease up, then it wouldn't be that big of a deal, so. Um, so yeah, I think that's just something people think about immediately, like what's gonna happen, how do we get out of the, the guarantee, you know, and moving on, and I think it has to be done as we kind of hit on some of this in the, in the, in this podcast episode, it has to be done in your early on planning in your conversations with the bonding company. So, Um, with, I would say my, my best approach to this is, you know, within the first couple phases of planning, which for me includes, you know, doing a valuation on the company, so that'll help us be a transaction valuation of estimating what the value. And then the second phase would be putting together a feasibility model that helps us to determine how does this all gonna work, what actually are you selling, what you're in that feasibility model, what's your, what's your cash flow in that transaction, um, with the transaction over that forecasted period? What is your, what that debt obligation? What is your balance sheet gonna look like? Um, if we're using any kind of vehicles like a warrants or SARS, we're gonna include all that in the, in that modeling. At that point, we're ready, once the client says, hey, I think that works for us, we're ready then to um meet with the bonding agent and the bonding company and say, look, this is what we want to try to accomplish. So, um, so kind of summarizing a lot of what we just talked about, I think that kind of planning, I think is very important. Um, Michael, what are your thoughts and kind of some wrap up points that you think would be helpful? Two important things one with the comment you just made, I agree with, you know, getting your bonding agent involved, but again, keep in mind, definitely get your surety involved because you know, as important as I think I am, you know, I'm a bond I'm a bond agent. The ultimate decision maker and the ultimate person that's going to say, yeah, this whole thing flies and it looks great is the surety no matter what I say. so. As much as I think I know all the right answers, I definitely want to get it from the people that are going to say yes and no to your bonds. So it's important to make sure that Shirley's involved in the conversation. The second thing I would bring up is, and this is one where it gets a little tricky, and I wanted to bring this up before we end it was pre-qualifications. So we've seen it when you go for an ESOP, you know, it changes your balance sheet. Um, and there are certain owners and or general contractors that require their subs or their GCs to be pre-qualified to bid their work. And if they don't know what they're looking at and all of a sudden they see a financial statement that has been flipped upside down and it shows negative equity, it doesn't fit the quote unquote box that they're checking off and it may impact your ability to prequalify on certain things. So we've been able to work around it a little bit with Um, having the CPA or someone write almost a cover letter so that when we do submit financials that look different than they have in the past, it doesn't impact the contractor negatively as much or at all because there's a cover letter coming with it explaining the transaction so that someone who doesn't know what an ESOP is doesn't think the company just all of a sudden has negative equity. Yeah, well, that's a good point because like if you do business with the, the government and like the Department of Transportation or something, they're getting your financials and they see that um your, your experience is that you can get like a letter from the CPA or somebody documenting and this is what happened and this is really considered more like equity than it is debt um under that like subordination. Yes, and I would, I would recommend doing something like that because every owner is different, right? Some are sophisticated, some aren't. And the ones that are less sophisticated or less willing to understand what's happening, you know, you need to kind of give them a roadmap. Cool. I think that's a great, that's a great piece of advice cause I think that the concerns, um, some of the things I think on the ESOP is the concerns sometimes don't get addressed like that, or they, they become, you know, my mind, they become not necessarily true, like you can't get around those. So sometimes companies don't even consider this as an option because they're gonna have those kind of issues. Um, but it's helpful and refreshing to say, hey, you know, we, with the right people around you, you can work through those issues. And still plan your transition very successfully. So I think that's a very good way to kind of end the whole topic, but um I think that's, there's a lot of value in that, in having people that know what they do. And, and frankly, one of the reasons I wanted to interview Michael is cause you, you guys do ESOP work as a bonding agent. I think that's really valuable and, and I don't have a problem, you know, plugging you guys and saying, hey, this is a, um a, a valued advisor in, in the marketplace. So I, I do appreciate your time and helping us today. Absolutely, and I appreciate you having me on. Cool. All right, so with that, I just wanted to remind you, if you like the podcast, please subscribe, share it with a friend if you think they need some um ESOP advice. Have a great day and we'll look forward to our next step on this journey to an ESOP.