ESOP – A to Z | What do I need to know?
ESOP – A to Z: What Do I Need to Know?
You will want your business exit strategy to provide adequately for your financial needs. An ESOP may be the right option for you. An ESOP provides many benefits, including:
- An ESOP creates a tax-sheltered private market for all or part of the shares in a closely held company when entrepreneurs and family business owners want to reduce the risk of having “all their eggs in one basket”;
- The selling shareholders can usually retain substantial control over the company, protect the legacy of the business they have built and nurtured, and maintain their business and personal philosophy, even after a company is partially or wholly owned by an ESOP;
- An ESOP can protect valued employees from potential layoffs that usually result when third parties purchase closely held companies;
- The shareholders may be able to postpone or eliminate any capital gains tax on the sale after selling to an ESOP; and
- Employees of the ESOP-owned company will have a substantial, tax-sheltered retirement benefit that will grow with the company.
What is My Business Worth?
All business ownership interests owned by individuals must ultimately transfer to another owner, and the most important factor in any transfer is price. For widely-traded public companies, the price for normal, day-to-day transfers of shares is easily attainable. For closely held companies, however, the process of determining price is much more difficult. While a professional valuation attempts to arrive at a “true value” or “fair market value” – that price at which certain property would change hands between a willing buyer and a willing seller – there are many facts that affect value. Owners can estimate fair market value in one of several ways:
- The asset approach looks at the cost to buy or create the tangible and intangible assets necessary to build a similar business;
- The market approach answers the question: “What would be the price of a similar business?”; and
- The income approach examines what income the buyer would receive from the business, when the buyer would receive the income, and how risky it is for the buyer to receive the income.
In most cases, the income approach will dominate.
When we founded Next Generation ESOP Plus, we committed ourselves to offer our clients the same quality of legal representation offered by the very best and largest law firms but without passing on the very high overhead costs and inefficiencies that many law firms pass along to their clients Our business model enables us to deliver solutions for clients in far less time and a much lower cost without sacrificing quality.
Unlike some law firms that charge you based on time or alternative fee arrangements, we believe that the value you receive from our services determines the fairness of our fees. We can reach an agreement regarding your fee arrangement with us and can bill you in many different ways, from a flat fee to an hourly rate. We do not bill you for miscellaneous internal expenses and you pay only those agreed-upon third-party expenses necessary to deliver your solution.
In all aspects of our professional relationship – including pricing and fee arrangements – we want to develop a relationship with our clients characterized by trust and satisfaction.
See these pages for more ESOP detailed information:
Benefits of an ESOP – Tax-sheltered private markets for all or part of the shares in a closely held company, for when entrepreneurs and family business owners want to reduce the risk of having “all their eggs in one basket.” ESOPs allow shareholders to retain substantial control over their company, while maintaining their business and personal philosophy. The selling shareholders can protect the legacy of the business they have built and nurtured by selling to an ESOP instead of to an absentee buyer.
Exit Planning – You Will Want Your Business Exit to Provide Adequately For Your Financial Needs.
Exit Business the Right Way – ESOP may be a solution for your business, however it is just one option.
Is an ESOP right for me? – Many of the “What if…?” questions concerning ESOP can be found here.
Should I consider an ESOP – If you are a privately held business owner considering your maximum financial advantage as you sell, look at this information about ESOPs.
Pricing – Reduced Cost is a Result of Deeper Insight and Smarter Management. ESOP Plus® provides the right solution at a minimum of personal and financial cost.
What Is My Business Worth? – Valuation of Closely Held Businesses is Complex, and Owners Can Estimate “Fair Market Value” In Many Ways. Find out which approach is best for you.