Ready to unlock the equity you’ve built?
We specialize in guiding contractors through the ESOP process, ensuring the most value for you and your team.
At ESOP for Contractors, we understand right where you are (we’ve been there ourselves). And we can help.
You’ve worked hard and built something special, and now it’s time to think about what comes next. On one hand, you could liquidate and close your doors. Or, you could sell to a competitor, a strategic buyer, or a private equity firm, but what impact would that have on your team and the culture you’ve developed? This process also opens the door to invasive due diligence by the prospective buyer, putting you and your team in a vulnerable position.
If none of the above feels like the right next step, an ESOP (Employee Stock Ownership Plan) may be the answer. This strategic approach allows you to unlock wealth that is currently tied up in your business by essentially creating your own buyer, and including your team as shareholders. They won’t incur any personal risk, but will gain significant financial advantages, incentivization, and sense of ownership by having “skin in the game.” As an additional benefit, you retain control during the succession planning process, orchestrating an exit strategy on your own terms.
What sets our approach apart?
We know the General Contracting business and the Specialty Contractor business, and we know how to structure Contractor ESOP transactions.
Our leadership has built successful contracting businesses and exited in a way that secured ongoing value for everyone, from the owners to the team members who helped make that success possible.
Let’s answer your questions and see if an ESOP makes sense for your situation. If it does, our team can help you every step of the way.
What an ESOP will do for you and your contracting business
An ESOP allows you to enjoy a sale that benefits both you and your employees by design, offering significant advantages:
- Protect your culture and team, ensuring your legacy outlives the name on the door
- Retain control post-closing until you’re ready to turn over responsibility
- Highly favorable tax treatment for the business and the shareholders
- Qualified retirement plan that also takes care of the team you’ve built
- Guaranteed fair market value for shareholders
- Flexible and customizable
- An opportunity to build incentive plans for future leaders
- Give your employees the gift of ownership without personal risk, and the ability to affect the value through their efforts on the job or in the office
Here’s how it works
It all starts with a conversation. We can explore the possibilities together and see if an ESOP is the right move before progressing to the next stage.
1.
Modeling and Analysis
As we begin, we’ll model the financial aspects of the transaction, including the tax benefits. We’ll explore your business’ valuation, financing, and compare to other exit strategies. This is also an opportunity to explore the objectives of everyone involved, on both the buying and selling side, making sure we personalize the transaction to best meet your shared goals.
2.
Due Diligence
3.
Closing Phase/Finance Raise
ESOP FAQ's
What is an ESOP?
An ESOP is a qualified retire plan that invests solely in the stock of the sponsoring company. Over time, employees accumulate shares, which they can cash out upon retirement, departure, or under other circumstances defined by the plan.
How does an ESOP work?
- Formation of the ESOP Trust: A company sets up an ESOP trust, which will purchase the shares on behalf of employees. The company typically funds this trust through future earnings.
- Financing the ESOP: The ESOP trust can buy shares solely through future earnings or by borrowing money. The company then repays the loan, with tax-deductible contributions, over time.
- Allocation to Employees: Shares in the ESOP trust are allocated to individual employee accounts, based on total employee compensation.
- Vesting Schedule: Employees earn the right to the shares over a vesting period, which can range from three to six years or more, incentivizing them to stay with the company.
- Exit and Distribution: When employees leave the company, retire, or otherwise separate, the company buys their shares back at fair market value, providing them with a significant retirement benefit.
Why should I consider an ESOP for my business?
- Succession Planning: ESOPs provide an orderly and flexible exit strategy for business owners who want to retire without selling to outside buyers.
- Tax Advantages: ESOPs offer substantial tax benefits. Contributions used to repay the ESOP loan are tax-deductible, and owners selling to an ESOP in a C corporation can defer capital gains taxes under certain conditions. An S-Corp ESOP structure offers substantial tax advantages, including the ability to eliminate or greatly reduce federal income taxes, make deductible contributions to the ESOP, and potentially defer capital gains tax on stock sales through certain strategies.
- Employee Motivation and Retention: ESOPs can boost employee morale, productivity, and loyalty because employees have a direct stake in the company’s success.
- Preservation of Company Culture: Selling to an ESOP ensures that the business remains in the hands of those who understand and value its culture, which is often a key concern for founders.
- Access to Financing: ESOP-owned companies may have better access to financing due to tax advantages, which improve cash flow and make loan repayment more manageable.
What's the role of consultants for an ESOP?
Determining if an ESOP is a Good Fit
- Initial Feasibility Analysis: Consultants will conduct a feasibility study to determine if an ESOP is viable for the business. This includes reviewing the company's financial health, valuation, and assessing the impact on cash flow.
- Understanding Objectives: Consultants work closely with business owners to understand their goals, whether they are focused on succession planning, employee engagement, or tax efficiency.
- Employee and Cultural Fit Assessment: Consultants evaluate if the company's culture and employee base are well-suited for an ESOP. Employee education and buy-in are critical for ESOP success.
Setting Up the ESOP
- Structuring the ESOP: Consultants help design the ESOP structure, including defining eligibility, vesting schedules, and financing methods.
- Valuation and Financing: Consultants coordinate the valuation of the company’s stock and arrange financing options if the ESOP requires external funding, such as bank loans or seller financing.
- Legal and Compliance Guidance: Setting up an ESOP involves navigating complex legal landscapes. Consultants work with legal advisors to draft the ESOP plan documents and ensure compliance with regulations.
- Communication and Employee Education: Consultants help communicate the ESOP to employees, explaining how it works and the benefits, fostering a sense of ownership and engagement.
- Ongoing Management and Monitoring: After the ESOP is established, consultants can assist with ongoing administration, including annual valuations, compliance checks, and managing the repurchase obligation.
Have a different question?
Your Point Of Contact
Gary Gray
ESOP for Contractors was founded by Gary Gray, an experienced ESOP CEO who has firsthand experience in navigating the post-transaction landscape, maximizing the value of an Employee Ownership Culture and ultimately achieving nearly 3x growth in five years following the ESOP transaction. At ESOP for Contractors, we have helped owners craft the perfect kickoff message to announce the new business structure, facilitated the formation of effective boards with independent directors, provided the quick resource to answering the tactical questions that quickly emerge in the new ESOP environment and successfully executed succession plans on the selling shareholders' timeline.
"I talk contractor language, I know contracting business and I can talk the technical accountant/lawyer talk to get a deal done."
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