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Suggest questionThis episode we get the opportunity to interview Mike Keesee and Carl Brown selling shareholders of an Architect and Engineering firm out of Orlando FL. Mike and Carl have been on a journey to an esop - find out lessons learned and how they have worked through the process. The company happens to be both an EOS (traction) and Great Game of Business managed company. This episode will provide some valuable insights for those considering the ESOP from multiple angles including: succession planning, exit planning, culture, long-term flexibility, employee engagement and other important aspects of an ESOP.
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<p><!--block-->[0:11] Welcome everybody this is the ESOP guy and we are on a journey to an ESOP if you are listening for the very first time this is a podcast that's been devoted to helping. <br> Companies selling shareholders Key Management with what is an ESOP what is an employee stock ownership plan how does it work. <br> And is it right for you a lot of different things that we get into we are actually in season 4 so this has been going on for a little while this podcast has a website at journey to an ESOP calm if you have an interest in other topics please go to the website. <br> Today this is one of my favorite ways to do podcasting today we're going to get to do the ESOP experience and to do that we're going to get to interview a client who went through the entire ESOP process. <br> And in this case we went through a I would say much more of a longer process than maybe some other so there's a lot of things in here I think that will be really really helpful we're interviewing a company called total solutions group today they're out of Maitland Florida. <br> <br> [1:12] They are both an architectural and engineering firm and has gone have gone through the process and we get to interview Mike Kesey and Carl Brown who were the ship the selling shareholders, they are still with the company they're still working but at the same time enjoying the next steps of of actually completing their 100%, ESOP as of last year so with that I wanted to welcome you guys to the podcast Mike and Carl thank you guys so much for joining. <br> <br> [1:41] Thank you so. <br> Let me just start off with this because it's just always nice to get kind of something out of the way that's not just ESOP tell me real quick what was your favorite movie of all time. <br> And why it's a tough question but we do a lot of movies stuff so it's really helpful. <br> <br> [2:03] Mine is always going to Latin. <br> I mean I just love them to Jeanne roll cool Aladdin on the cartoon or Aladdin like with Will Smith. <br> <br> [2:15] Not the local not the Will Smith that's cool what about you Mike. <br> <br> [2:22] I like the one City Slickers you know back there where Billy Crystal has to learn you know. <br> Jack Palace and one thing one thing. <br> So you learned that life is good if we could just learn one thing about Aesop's today we're going to be better off. <br> <br> [2:42] Don't you agree I agree so so let's jump into your ESOP experience tell us a little bit before we get in there tell us a little bit more about the company I kind of set it up but, you guys are unique and a lot of different ways in terms of what you do so so tell us a little bit about what the total solution groups toast food solution group does for its customers. <br> <br> [3:04] Okay so the total solutions group handles mainly are large high volume production builders. <br> And being able to have both the architecture and Structural Engineering Under One Roof we're able to give our Builders a complete One-Stop shop. <br> When they start to design all the way through the structural engineering all week preparing the permit plans and even through the Reprographics and shipping so when they start here you know they leave here together. <br> <br> [3:37] Carl what would you add to that mean. <br> <br> [3:42] Yes the processes that might explain but you know overall you know why our goal is to, I would but for homes and with homes in general is to create someone's dream come true you make every country with the first American home having it you know. <br> And I dreamed of having a heading on home so that's what we're trying to kind of accomplish him and up and ready to go cool great so. <br> Let's go back to let's go back in time so you guys. <br> What year did you found the company Mike what was the beginning year for you and how did that work out like I know you founded the Key C and Associates first and then fds was kind of later. <br> <br> [4:24] So actually fill two weeks ago we celebrated our 30th year in the business so 1993 is when we got started ironically 10 years later. <br> I had a client call me up and actually was a lady by the name of Francine Miller she was the. <br> <br> [4:46] President of US homes out of Tampa and basically said Mike you'll have an engineer in your office in two months or I'm going to find somewhere else to work, I said yes ma'am hung the phone up yeah two months later we interviewed Carl and that was the creation of Florida Design Solutions or which is now known as fds engineering, so which has been existence now for 20 years yep wow. <br> Yeah that's you do what you got to do right so you know you when you when you first started the company, what was your main motivation in getting the company rolling was it just I want to make a living you had an idea to help people or what was what was going on in your head when you first started. <br> <br> [5:31] Well like most residential designers is how I started out most of them create their own business to have a job L1 wasn't long after that where, you have to start thinking about the future okay and bring it on you have TS engineering that completed another side of creating a business that would be sellable you know in the future but yes actually just started out as a job for myself and then later realizing that. <br> You can't you can't sell a job but you sell business, so that's right well I mean it's a great success story let's let's go we're going to go back in time a little bit and when I when I came into the picture we were it was just me and my kind of talking through an ESOP for just Ka which is the architectural piece this is before you guys did the merger, and the way I recall it and I think it was five years ago was it maybe more than that. <br> More than that yeah more than that we had already gotten through the first part of the ESOP process so we had a trustee. <br> They've started due diligence and in the middle of all of it both Mike and I looked at each other and we kind of agreed hey wheat. <br> Well it's really your idea I just kind of agreed with you but hey we need to kind of think about fds what am I going to do with fds which is this the engineering company that Mike and car loans so Mike owned 100% of Kesey and Associates, and then Mike and Carl both owned fds together. <br> <br> [7:01] And so we put the brakes on the ESOP which honestly was the it was the right decision was it a difficult decision for you at the time because we've done all that work to get it moving. <br> No air because you know the Cassis I could not be in place and have the success of had without the engineering. <br> And so we want to make sure that both the companies were going to be successful in the future we don't want to we don't want to lose that togetherness that we had, you want that time so that's why we kind of put the brakes on it and then decided to, stop and create the parent company which is now the total solutions group. <br> Yeah and so it was it was the right decision you know from your perspective and I'll ask kind of un Carl but, because when we first started working out what was your original motivation to pursue an ESOP and then. <br> For you and Carly how because we then we change the whole thing we weren't an ESOP but then we'll talk about this non leveraged step in a second because I think that's a big part of this story of how you guys went through the process but when you guys first kind of you thought about it Mike and then Mike and Carl combined what was the motivation of actually doing ESOP why did you even want to do one. <br> <br> [8:20] My main goal was to take care of the people who got us to where we're at. <br> That's that's that's just about life as I've said it over and over again because neither one of us could be what one with each other where we're at today and then with the employees that have stuck it out with us I mean just for SSO we want we went to 100% a soft white in August okay and because the way that we set up our vesting schedule of where we have nine employees that are 100% vested, because of their time served with us so so mostly mostly it's about the people what about you Carl what was your thoughts. <br> <br> [8:58] Very similar I mean because of the universe looking at the long-term picture of an exit strategy for both Mike and I am down the road that you went most important. <br> Thing you know on the agenda was we are keeping keeping these people here keeping them engaged and helping them, K be able to take over and maintain Legacy after you know after we decide to the park. <br> Now I mean and that's a very top I mean most people we talked to them that's going to be in the top you know three or four reasons why people want to do an ESOP is there thinking about the people. <br> When you get down to I do talk to people and part of the podcast mission that we're honest to help people. <br> Decide make that decision before you jump in and make some expensive decisions with an ESOP. <br> Which we'll talk about cost in a second but if you can avoid that if your motivation is I would say generally if it's not about the people at some level, then it's probably not all right thing for you because there is a there's a big aspect of this that when we think through whether it's. <br> Total solution group story or somebody else's story is an ESOP, the people are always going to factor into the equation and of course having a good Exit Plan is nice and when I'm with you guys I mean you're still working so you're not technically exiting yet right so how does that how does that feel. <br> <br> [10:24] Mommy out of stuff that you know which is basically been status quo I mean my role changed here a little bit but we have a part of them or management and that was doing engineering, mama before so, Fang but you know we're still here we're still making sure the company succeeding but he's growing and so we can get those goals that we need for everybody to succeed. <br> <br> [10:48] And for you to Mike I mean I know you've been able to work less but same time you're not completely out. <br> <br> [10:55] Nice job you're taking a Friday's out now so I'm working a four-day work week because we've done a lot of good things around here as far as you know working with our leadership team you know as you know we're practicing the EOS. <br> Partner operating system and when we're building that culture and team behind us so that we can actually have a exit Target date, in the future so yeah yeah and what so it's cool about in the ESOP is that you're not they're not going to force you out once you sell so some people aren't ready to leave but they are ready to transition their ownership which is really kind of your story. <br> <br> [11:30] And so you do get the opportunity now if somebody's looking to like I got to get out of here like this is it and I want to do my final exit it's difficult. <br> To do it as an ESOP and it's difficult because you're going to have this, this long-term obligation typically from the company to pay your note back so you're not going to want to just completely, walk away you at least they're going to want to be on the board of directors which of course is something we're going to talk about a little bit in terms of the reality of being on the board and what that looks like. <br> For real but, but I think that for the most part you know in your story you guys it kind of you're in that still in that zone of accomplishing the goals that you set out to do the first part was hey we want to get our employees, involved we want them to know that they're part of this company and so you're you're doing that and you're in the process of doing that so, going into the process the ESOP process a little bit in terms of actually executing let's just go through the first part was I kind of alluded to this Mike and I were doing it on the ESOP side we were putting together we stopped we just put a merger together with with his other company. <br> We kind of talked about why we did that it was going to be better to put both of these together now and then go back and sell it later as an ESOP. <br> <br> [12:47] There was some things that happen in that story just to kind of to get make sure we integrate it at all I mean it took some it took some time you know and it's going to take time if you're going to do you know whether it's at, at closely-held merger or it's an external merger or something before a nice out and some people always ask me like should I do an acquisition should I do this before an ESOP and I'm like it, you just have to kind of account for the numbers and you have to make sure that that the the implementation because it does take a lot of focus and on your case. <br> You know it was good but it took a lot of focus to get the integration correct right in terms of your merger. <br> Anything in there that you learn from that or would you have done anything differently in the merger. <br> <br> [13:32] Well the bad merger was got tough and instill. <br> <br> [13:36] We won't everybody notices the total solutions group but you know we had 30 and 20 years respectively of marketing, yossi Associates and fds Engineering so we're still using that as part of our marketing while we're out there alongside of the total solutions group that's probably I think in the toughest thing but, our employees all know us now is total solutions group because we have brought the teams together and it made it so that, they understanding relationships now we're not two separate companies that we're one company what was supposed to go Carlos. <br> <br> [14:15] One goal One Vision one team one is our motto and it's good putting that full so yeah. <br> I'll tell you one thing about you guys and I'll just say it because I know you well and we've talked we've done it we spent a lot of time together at your culture is phenomenal you guys have a great culture and and they didn't say this is part of the motivations but to to do what you're doing, part of it I know was I want to keep my culture which is a big thing that most companies struggle with I don't want to give up what we've built. <br> And I've been to some of your meetings internally have been some of your I didn't get to go to the party for the 30 years because I had to go to an ESOP site visit but, I would imagine there's just a good atmosphere of people and with what you guys have built do you see that do you see the goal of keeping the culture intact you know I know we just closed in August so it's not a ton of time but you still see that kind of happening. <br> <br> [15:10] Go yeah I mean definitely keeping the culture intact is a big thing for us and we want to make sure that, you know everybody it was feeling integrated as far as you know total solutions group and that what we do they're different section different departments that work all together to create one selling product overall for our clients, yo culture is a big part of that dip one long became a business has been a wonderful tool for that. <br> Many games and huddle of everybody going our financial results every week, farm jobs being a great way to keep everybody involved in processing Where We Are. <br> <br> [15:54] Well one thing I like about you guys as you guys have the great game of business. <br> <br> [16:00] And you have the EOS model that you guys have used with traction you know so so people like I'm just throwing that out to people culturally like. <br> Some people like I should do this or she do that you guys are doing both and is it complicated is it difficult to pull off both of those types of programs because they there are complementary in a sense but there's a lot of work to be done to to put that, in place but they are complementary but you know you have the great game of business which is all about yo, teaching your employees to financial literacy in the finances of the company and opening that up tool. <br> And then the EOS is to structure on how management runs the company, this is two different things there but I think that if anyone is considering going to an ESOP they need to be thinking about open-book management early I think that was a key to our success, rolling this out to everybody because they knew what the numbers were they see them every Tuesday at 11:00, you know so you they understand the whole process where so they're not scared to understand that, Carl and I don't back up the truck every Friday you know and fill it up with cash I mean you know because they've learned those lessons through the likes of the financial literacy classes that were given you know and like I said we understand the numbers so. <br> <br> [17:27] Now and that's and that's. <br> Honestly difficult for some people to do Bo open-book management the same time you know it's part of who you guys were in it's in at the beauty of all of these Ops office is going to be the continuation of who you are in the future and. <br> And that is one of the main benefits of being an ESOP company as you get to do that. <br> Can it with the ESOP you got to have a transparency anyway so why not have it before going into it so it's not a total shock to the whole team so yeah. <br> And that's and that's one honestly one of the I mean I want to talk about Aesop's but one of the things I really want to talk today about was that because I think there's a lot of companies that could really benefit from those, that type of input but they're just kind of not there yet or whatever so. <br> It's going so going into the process itself let's talk about that we're going to go into like the the first step in the ESOP process so one thing that we did with you guys as we did a non leveraged Esau. <br> <br> [18:22] So we finished this was in 2000, 20 set correct any so we finished the year and we said you know we want to get this rolling but we're not ready to do the transaction yet, and yet we had multiple reasons but the reasons are as important as what we did because I did I do find that this doesn't get talked about at all in conferences for whatever reason maybe because people don't make a lot of money I don't know but it's not very expensive to do, but essentially what happens is the owners decide hey we're going to contribute this much of our stock into an ESOP so we have to create the ESOP plan, the trust document the summary plan description with an ESOP attorney we had to do a valuation to document what that what those shares were worth. <br> On the benefit side for the selling shareholders were able to deduct the amount of that contribution from the ordinary income taxes as a retirement contribution. <br> The employees got the full and your case you did five percent right so they got the full 5% in that year and so, let's walk out a little bit what were the motivations to do the non leverage and just be able to kind of I mean first off you know people are like are you crazy you just gave five percent of your stock to your employees what was going through your heads at that. <br> <br> [19:38] Well I think that we've been talking about it for so many years because you know we first started hearing about the ESOP, you're like way back in 2014 when we started practicing near the great game of business and we talked about it all the time and and I think it was just kind of our way of saying, okay it's really coming. <br> To the team so they so they could see that that's really what's happening you know and it also gave Carl and I you know I quit learning experience you know on he saw five it was it was like a. <br> Okay a whirlwind there 101 everything you should know about the ESOP of afraid to ask you know that's we're still asking every day yeah this is yeah. <br> So that was really the main reason because we talked about it so much if we wanted the employees to actually understand that it is coming and that was our way of providing that form so. <br> Now I think it I think it was a very good move but I will say one of the things I think about when we talk about it is is. <br> <br> [20:42] Prepare yourself and be in the mindset that you're going to go to the next step because if you do if you do a non leverage ESOP and then you you're going to feel some pressure to, to do the next tranche if it's going to be a leveraged and you don't have to do 100 going from five percent to 100 percent in your case we did, but you don't have to you could do a truant but you do need to be seriously thinking that the ESOP is going to be a good good fit because then, five percent of the stock is released and then you're like people are like okay now what happens because people always get used to whatever you give them it's like your kids right they always get used to you know, well I'm now I should get that because that's what I've gotten before so you know so that was I think for you guys that was true you guys were like alright we know we're going to move on to the next step we just want to get this thing rolling so. <br> <br> [21:33] Yeah so go ahead car. <br> Yeah I mean it did start process and get everybody thinking in the right fashion and understanding the steps and it's always a challenge when it comes to that because it's all brand-new and like you said with kids like you know. <br> <br> [21:50] What are we getting now is again kind of a scenario it's really it's a long-term scenario not not at the media and media plan so exactly like to you know get it integrated and understood. <br> <br> [22:05] Yeah and I think that you guys are probably a great case study to look at the way it worked because then the next thing and then the next thing and the next thing all those things kind of lined up. <br> To where people the company started to really understand it. <br> And I would say the ESOP education isn't one event it's an ongoing just like great game a business. <br> Just like EOS just like anything else you're going to apply culturally it's an ongoing learning process new people are going to arrive and you know and what you get to use is enhancing a your culture with that but it's going to be a continuous education for everybody. <br> So in an inn now we're into the like The Leverage deal so we get all that done and then you go back and you guys work really hard when we come back to the table and say right now we're going to we're going to do the 95 percent transaction. <br> <br> [22:54] Now in that situation of course now it's a different situation because now we are really going to the trustee marketplace now this point because with a non leveraged ESOP we don't have to deal with that Rusty now we have to deal with a trustee. <br> And where you're going to negotiate So In This Moment, in the end I say this kind of like the longer moment of we have to negotiate you have her you have the responsibility of selling shareholder. <br> <br> [23:18] That's your stock and you want to sell it for a fair market value but you also have the responsibility of being you know really responsible for the company and so you do end up wearing these two hats. <br> How did that you know did that stress you out did you have any kind of you know anxiety related to having to do kind of think on this side and think on the other side and I know we had conversations about this when we went through the process. <br> <br> [23:43] Well of course you have because I mean you have in your mind, you know what you feel the company's worth okay and of course during that time you do we don't get to see the valuators numbers. <br> It's also the trustee gets to see those, an evaluator and so it's kind of a going back and forth you know blindly their butt, Billy in the end I think that your numbers that we came up to after like you said it is very stressful. <br> I think we got to a number that makes it worthwhile for both Carl and I for our exit strategies. <br> <br> [24:21] It's good when we were going through that you know it's like, yes you are thinking about two sides you bring you a one think this is money that you know just for my future that you know as a payout scenario but you're also thinking about what is that you know, that going to do to the company the company of got to be able to maintain that kind of got to be able to pay that off, in order for it to grow so then there was a business I am personal site that decision, yeah you know and like the three of us just kind of going back to the history of this the three of us in talking about this will wear the in this the moment of the sell-side advisory part kicks in we're negotiating. <br> I'm you know my role is like I want to negotiate the most amount that I can get for you because that's that's what what I do it's like a the defendant or the plaintiff attorney like that's why I got to get this job done right and so, coming back and forth we're going through for an ESOP Transaction what happens if you negotiate with the trustee, we make an offer they make a counteroffer and so that that offer counter-offer process goes back and forth, and what's going on in my mind is like I just want to get you guys the most amount of money that we can get and whether that's the purchase price. <br> The least amount of Target working capital the highest interest rate on your seller note all of those things are going through in your situation. <br> <br> [25:46] We got to that point where we got. <br> Probably more than you needed right I mean more than you were really looking and now you could have come back and said all right we'll take all of it or in your case you guys decided we don't want that much right so that's how, you know so for some people that's going to sound kind of weird right you know I'm selling my company but I'm. <br> I only want this much money walk through that a little bit because I think sometimes people get caught up with that whole thing but I think there is a balance between the company and the selling shareholders need to get paid well for the transaction. <br> <br> [26:24] Right in and that was a big thing because like curl mentioned earlier is that you were setting this up for a legacy. <br> So why would we want to have an amount of money out there that we knew that or know that the company wouldn't be able to maintain that yes you know. <br> Going forward so. <br> <br> [26:45] By put that down to a what we thought was a fair her number you know we can sleep better at night it's just what we know as we continue that Legacy will continue as well. <br> <br> [26:57] Yeah I mean I agree I completely agree with you and it's a matter of balance it's like a finesse thing where you're you want to get at least two what this one Baseline number is anything above that maybe is just Judgment at that point, you know to make sure the company has the ability and in your case we didn't do warrants you know and I know people always ask me like. <br> You know why shouldn't I do a warrant you know and so for those that don't know what a warrant is just real quick it's on the seller know you can attach a warrant synthetic equity share, to increase the the compensation for the risk that you take as a selling shareholder to take the note back or the company to pay you back so you can get an interest rate. <br> Plus you can get a number of Warrant shares so in your case you guys decided not to do the warrants what was the reasoning behind that for you. <br> <br> [27:45] From my perspective I mean when we did the transaction we were still able to participate in the chemists like on ourselves so, accountant and I believe the other scenario but he felt transfer a transaction that the owner is that they sell their out there who do not able to participate we are still participating, you know in these that with the chairs and helping to continue to grow so that's our benefit that's our. <br> Yeah our warrant we will satisfaction that we keep company growing and profiting then we're going to grow along with it. <br> <br> [28:26] I think I think that makes sense and I think kind of comes back to you've already said it a couple times like we want the company to have the ability to pay all this debt off we want the company to have the ability to be sustainable and you just looking to that you want the rewards to be there for the employees at the end of the day. <br> Moving on we kind of want to talk a little bit about the the way I guess just kind of look at the cost second for a second because I think cost is always. <br> Something people talk about but they don't want to talk about it from a. <br> You know going like you know and I know we spent a lot of time going through this before but what's your thought process on the cost of Aesop's just in general now that you've been through this whole process. <br> <br> [29:07] Well I mean we could yo because we're that we'd heard saw so let me let me plug the ESOP guy okay okay so yeah we had heard you know what some of these other costs were of course you know we met you feel years back, and yo having a relationship with you and you bringing everything together was far more financially beneficial for us. <br> Then going with one of the large asset companies that have taught Aesop's all the time you know so from there and, the other calls I think was probably lying you kind of kept us a broad of what those costs should be and where they should be in line with and I think overall we feel, feel under W you know an asset company would be charging to do that sort of same sort of thing so like I said plug in the ESOP guy, we were very very happy with our relationship with you moving forward doing this process so I appreciate that. <br> Yeah I mean it's just it's a big question people like look at it and I think there's a lot of confusing information unfortunately out there because a lot of the information that people get our. <br> You know probably from more the investment banking Community than it is from other types of sources of putting a deal together but you're going to have the cost and the transaction you're going to have the cost of a sell-side advisor. <br> <br> [30:32] And they're either going to charge you a success fee which is going to be more or they're going to charge you more of an advisory fee and, you know over the last four years of doing this in terms of the podcast I've run into a lot of people that do it the way I do it they may not you know they may have a couple different ways to do it but there's, you know so it seems like the way that people look at this is that that only option is to go to Investment Banking firm so I just want to say that that's not. <br> The other cost you're going to run into are going to be fairly close because you're gonna have a transaction trustee you're going to have. <br> An attorney may be for the trustee you're going to have the valuation firm for the trustee so that's your by side. <br> And then you're going to have an attorney on the sell side and that's pretty much it so you have to kind of nail down, that may be a potential budget as you get into the process to make sure that you're okay with those costs and and I'm not saying like somebody shouldn't. <br> Be no higher an investment banking firm I'm just saying I don't understand why they would because because we're not dealing with a straight-up strategic sale, where you're you know like in this case we had the whole story like we didn't need to make more money out of it so the what is an investment banking firm trying to pitch. <br> <br> [31:44] You know adding more multiple right so so in a lot of cases it's the same thing so you know and in our case you can't push it too far anyways because the trustee, by virtue of the Department of Labor regulations can't pay more than fair market value so, so my opinion in this is why I stopped with this because I really want to educate people on this topic you're better off going with somebody that's more advisory than they are, success fee oriented because that's really the main variable in terms of changing and costs so. <br> <br> [32:18] Yeah and you guys I mean I think you're you would agree with that I know we've you know going through the beginning to the end and even now it's like you look back and you learn a lot from the whole thing but they're really you know this not lot to I mean. <br> I don't think there's a lot of variance between this type of transaction and what a you know another Investment Banking firm would do so that's kind of to nail that down. <br> <br> [32:45] So so go back let's go back through it I think just kind of on a highlight standpoint what would you say the most beneficial, part of the actual process so we're not at your not yet into the post ESOP world yet the but the process what did you feel like you learn the most orbit most beneficial thing that came out of going through the ESOP process. <br> <br> [33:07] Well I mean we did we did learn a lot there are a lot of steps and a lot of professionals involved. <br> My decisions to be made it to where we are you know the. <br> Fact that we did finally complete the ESOP and it is intended to be a benefit for our team and our people the guys where we are is the most beneficial. <br> And one piece of advice feel that thing that we did not do properly was. <br> Have someone come in and really explain to the employees what their role is okay we did do that probably three months afterwards we actually had our trustees marketing person. <br> <br> [33:57] Phil come to one of our meetings and talk to the employees on what exactly their role or even though you know we sent out, you'll notice that not notice but do publication after publication to them, field that was like that was coming from Daddy and daddy you know but hearing it from outside source. <br> Like she did and have a good good PowerPoint presentation for made a big difference on really where their roles was because. <br> Oh I'm a homeowner now hey what are we doing with this what are you doing that's not your job you know so you know your job stays the same you do just that you get a benefit that you would normally have so yeah they have have have somebody come in and really speak to your employees, on what their rule what their roles really are you would be very beneficial early early early in the process yeah so that's a good point and I. <br> I think that there's a lot of like. <br> Questions about that about when right so in your case I think we announced the ESOP a long time ago right so one question people have is like, when should you announce it because some people don't want to do that until the deals done. <br> <br> [35:14] And then you do your rollout meeting and then you know you go through those steps of education so what's your advice on that when is a good time for people to roll it out to get everybody you know. <br> Up to speed on it. <br> <br> [35:30] That's a fine line he's wanting to be a little bit more prepared its Vision afterwards made and when the process is completed but you know. <br> They don't really need to know all the front-end stuff that happens there either yep it's a challenge to know with when's the right time yeah I think that's probably the right answer it's hard I mean everybody's got a different situation right and part of its culture. <br> But my biggest concern in that when I go through deal is like I just don't if something blows up like for whatever reason and it doesn't happen. <br> Now you've got you've kind of got that sense of like when you as a leader say something and you don't follow through on it you got that sense like my can my people trust me that's my biggest concern when people want to do an early roll out, which is what I call it like able to announce this before we close now if it's too you know if it's pretty close to the end we've already negotiated and we're just doing docks that's different, but when we're still going through a lot of the next you know the beginning steps that it's probably better to my opinion to hold off but, ultimately I agree like they need to understand and I think there needs to be a lot more work in our industry that, that there's more people that do that type of work and so that's definitely something honestly that's something we're working on right now for some new ones that we're doing and we've gotten some new people involved in our processes that will, that will kind of start to facilitate that because I do I do agree I think that's a really important step. <br> <br> [36:59] That he'll feel I think you know when we met we were up at the NCO conference in Atlanta and when root beer from Orlando that was up there and learning what an ESOP was because it was thrown on them, the owners that we're going to do an ESOP then opens up a mean said by the way you guys now are employee-owned company. <br> And team members of the team had no idea what that was and I just hope that that would you know yeah. <br> Yeah be the opposite right you don't want to create anxiety you know yeah and I totally agree I think you're right on I think that would be that is a very good piece of advice for people to start thinking about that. <br> Early in the process. <br> You know one thing I like to ask because you know people are like and it was a good deal and I appreciate all the things you guys have said about the process what would be one thing that in terms I know we talked about the employees but, what would you kind of categorize as the most difficult maybe or most disappointing step that we get we went through. <br> That you if we could have changed it what would you have done differently other than the educating the employees. <br> <br> [38:12] Wow that's it that's a tough question you know yeah well you know when you get to attorneys involved, you know fighting over one word that is that's kind of frustrating you know and that's why but I know I know yeah that actually happened yeah, yeah yeah did have it yet yeah I don't think there's any one thing that really, pulled out because it was it was a process you know and you says up good for the process so yeah you know that gay thing was thrown at us that really spun our head you have that much. <br> Yeah yeah I mean I mean it's in it's okay that that happened it's just like some people you know I was at a conference in this question God asked and I thought it was a pretty honest question they were like look what what can go wrong I mean what are the things that people, do you know that don't end up closing what do they end up going through or what happens and I think that people are thinking that like when you. <br> <br> [39:13] You know just the reality of it and your case I did I agree I think it went pretty well I think you know you could have been it could have been quicker through the attorney thing. <br> You know well but you know what but you know what happened to us here at the end you know we we were we did have you our bank. <br> All the sudden told whoa that's right if you know that's right look you have we were going to finance this thing for you without. <br> You know what you call it personal guarantee, you know but you've been in the Housing Industry that you guys are and the FEDS raising the rates right now we want to kind of pull that back and feel we're going to have personal guarantees and and Caroline already said way back early that, We're not gonna do personal guarantees if we're going to be personal guarantees we're going to hold the note ourselves and so that threw us back for quarter right they're going back through yeah redoing all paperwork and that sort of stuff so, yeah just got to make sure that your financial institute that you have is on board regardless of what's going on and. <br> That that was that was that those back a good quarter medical was supposed to close in June we end up closing in August so yeah. <br> <br> [40:27] That was stressful at that point that was stressful and there's nothing you didn't do anything wrong nobody did anything wrong it just they got they got a sour taste in their mouth for the deal. <br> And unfortunately that that can happen in our industry you know afterwards our I thought about it is that. <br> If if things go south we can still protect the company the banks not going to protect the company so we would be able to okay. <br> That's hope payments on the notes will put them to the back end will do something differently to protect the company which is our that's been our whole goal anyway with the ESOP is to have that protection of legacy, Ford so why would we want to call the note, which is exactly what the bank would have done if you know if the industry fell down so they would have for sure now I agree that one part is important and I've had this conversation with a lot of people. <br> <br> [41:21] Where it's a little bit like that like you know you're the banks kind of not really all in and you're in there like in the gray area and the bottom line is why not just keep the interest you know if you don't need the cash on liquidity, why not just keep the interest income for yourselves. <br> Because you're going to take the risk anyways you know so it's it's a pretty I think a pretty good decision overall it it saves some some. <br> Time and expense to because the bank's going to charge. <br> Fee they're going to charge at legal fee you know that's going to add to the transaction and you're going to have full flexibility you know if things do change down the road and, you know so I think that was a good decision but it wasn't one we were planning on for sure right yeah. <br> Um kind of going into a couple things I know we're early in the process but so so this is probably you know if we were three or four years down the road but tell me a little bit about how their employees, embracing the concept of the ESOP now you did your you talked about the trustee coming in and talking to the employees what's the current status of people, understanding the ESOP. <br> <br> [42:27] Well in that regard I mean we had some reason conversations with our leadership team members and you know the whole process and our personal goals here, over the next year or so is and start to develop that more as the Future Leaders of our company and we have more buy-in we get from them in order to help promote the ESOP through it I mean it's not always. <br> You know these are from self-esteem how do you do the job more efficiently, about there to be more profitable happening you know wind when that happens so that's been our number one goal is trying to develop a future leader. <br> Yeah and that's and that's going to be I know more of a process over over more of a period of time and you know you're still kind of in that first year of the leverage transaction so, when you sell let's go to the control question when you sell a hundred percent of the company you have sold controlling interest to the trustee. <br> <br> [43:27] What is that like for you and I we just we had a conversation quickly before we started about, getting an independent board member what has changed what is that like for you do you feel like you're giving up control of the company in a sense technically or do you feel like it's just more of a pain paper deal. <br> <br> [43:48] As I used to spend more on paper for right now yeah. <br> In a week yeah we used to trust if we have a question like in regards for looking for the independent board member you know do they have any questionnaire that we should normally use what you would look for, you know in do they have any names of Trustees that they had used in the past and that's where stuff but at this point I mean we, we're still controlling the company as we normally would we're having to get used to have a board meeting instead of just, conversation yeah for sure yeah that's what you think but yeah, yeah I think that's that's kind of the general sense of things and I don't say it like of course technically speaking and I said on paper but technically speaking you have sold a controlling interest in the trustees. <br> Negotiated part of that deal was that you would have an independent board member and have an independent say so and what's happening in the direction of the company and so that's going to play out again over a period of time but, um it's not like oh you've got somebody telling you what to do today. <br> <br> [44:56] You know in certainly the trustees not calling you up and saying hey we think you guys should cut expenses by 10% you know whatever so. <br> I just think that's an important point because there's a lot of misconceptions when it comes to these kind of things when people think control sale. <br> A controlling interest cell it's like their their minds kind of start to go all over the place and this is a fear factor for some companies. <br> Some selling shareholders at think hey I don't want to do this because I'm going to give up my. <br> <br> [45:23] You know some of you can't tell me what to do right nobody you know one of the one of the reasons we have our own companies is we don't want to be may be told what to do so. <br> Um so I think that's a good part let me I overall could work and I'm almost out of time to anything that you kind of overall that you would just kind of give if we're just. <br> <br> [45:41] People are listening from where you guys were sitting years ago to now again you talk about the employee thing up that that was really good anything else that you might ask or advise people on that are thinking about going into this process for their companies. <br> <br> [45:58] There's a lot of business owners out there who developed you know things themselves and your own benefit. <br> And I really don't have any good viable options for you know their exit strategy. <br> I feel fat and he's from being so straight out sale and then you don't know what's going to happen with new owners coming in with the people, develop the company and the ESOP there's more control over that in order to make sure that we're protecting of that and our people. <br> <br> [46:36] Thanks Carl absolutely well that you might. <br> <br> [46:39] I agree with Carl me just you know they need to be looking at the future now and learning as much as possible as they can if they think about ESOP I mean they don't have to start announcement through the company like. <br> Earlier but to start learning about it and getting involved with someone like you and in CEO and. <br> In learning about everything they can before they really start making that thought process but, it's like Carl said you know you only have two ways you sell to somebody else or what you actually got three ways you sell to somebody else. <br> <br> [47:14] Sell to an ESOP or just shut the door you know yeah shut the door is not a good Equitable Venture so now he's not a good businessman lat, not a good business but for sure you know it you know for they could sell you to the employees, yo with another group or something like that but oh there's nothing so it makes it makes a good route there because there's nothing like the tax benefits which we can get into today but I mean we're financing the purchase they're subsidizing by the IRS so thank you, IRS for helping out total solutions group you know not having because you guys are a hundred percent tax free right now and, you know I was just thinking about like because now it's tax time. <br> And how you know of course I'm writing those checks and it's like you know and I know they're just like. <br> <br> [48:11] Anyway I don't be political but the point is that your tax exempt that's beautiful and there's nothing like it so you can't touch that without an ESOP you can't do that and so your payments are being subsidized by the Internal Revenue Service. <br> Of this great country so well congratulations on your ESOP. <br> I want to say thank you guys for taking the time to do this I think it's super super helpful and and I do get feedback from people and this is one of the kind of topics that people love because they like to hear from people that have actually done it. <br> And so for all that I really appreciate your time today to help us. <br> <br> [48:46] And thank you for all the help that you did for us we appreciate it my pleasure for sure. <br> All right for everybody else thank you guys for listening today and we encourage you to keep going on your, you know your journey to an ESOP and you know as we go through the next step we just ask the share with a friend if you think it's helpful as a podcast check out our website at journey to an ESOP.com so thanks guys have a great day. </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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