The Blueprint for ESOP Success: Planning, Patience, and Clear Communication

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Employee Stock Ownership Plans (ESOPs) are a topic many construction companies consider when planning their business transitions. ESOPs are a proven strategy that allows owners to leverage the wealth they’ve built through hard work and dedication.

Kelly Finnell, J.D., CLU, AIF, is one of the nation’s premier Employee Stock Ownership Plan (ESOP) consultants. For over four decades, he has been assisting business owners in creating and implementing ESOPs. He has spent decades discussing ESOPs with corporations and groups, giving presentations at over 300 conferences and meetings in the United States and internationally in London and Sydney. His company, Executive Financial Services, is a national ESOP consulting firm founded in 1981 and headquartered in Memphis, Tennessee. Their diverse team of experienced professionals is focused on utilizing Employee Stock Ownership Plans (ESOPs) for Ownership Succession Planning and possesses deep expertise in this specialized area. He joined us today to talk about the process of building a successful ESOP.

We start the conversation with Kelly explaining the biggest challenge in ESOPs: understanding what an ESOP is. Kelly further shares that business owners, especially in the construction industry, need to be patient and prepared for a steep learning curve. An ESOP serves both as a qualified retirement plan and as a liquidity strategy for current owners. Kelly then explains who would best fit ESOPS, saying that it is typically best suited for business owners seeking a gradual exit over five to eight years. For owners wanting to walk away and not look back, a third-party sale would be more appropriate. We then pay attention to the cultural transition that comes with an ESOP. Kelly shares that companies that prioritize maintaining their culture after a sale are ideal candidates for an employee stock ownership plan. Unlike third-party sales, which often lead to cultural shifts that can alienate both employees and customers, an ESOP facilitates an internal transition that helps preserve the existing culture.

Further into the conversation, we cover the following topics regarding building a successful foundation for ESOP: ESOP failures and how to avoid them, the initial steps of getting familiar with ESOP, how to address the challenges that come with active and inactive children in a family-owned business, how to navigate personal guarantees.

 

EPISODE HIGHLIGHTS

[02.01] Understanding what an ESOP is. 

[06.21] Risks to be aware of when building a foundation for ESOP.

[08.39] The standard time frame for exiting a company. 

[10.50] The importance of effective communication when implementing an ESOP.

[15.15] How to keep employees engaged in the ESOP process during the early years?

[18.03] Cultural transition and ESOP. 

[25.08] Avoiding ESOP failure. 

[27.26] The first steps of getting familiar with ESOP.

[31.11] Retirement planning. 

[33.48] Addressing challenges regarding active and inactive children in a family-owned business. 

[38.17] Navigating personal guarantees.

 

KEY TAKEAWAYS

1. Consider your desired level of involvement post-sale when choosing an exit strategy.

2. Effective communication and education are crucial when implementing an ESOP.

3. Celebrate and Educate

4. Prioritize Company Culture

5. Start with Education and Expert Guidance

 

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Is an executive or leader in your company struggling? Reach out to Eric to discuss how his transformative executive coaching approach can help. Schedule a 10 minute call with Eric today to learn more: 10minuteswitheric.youcanbook.me

 

RESOURCES

Connect with Kelly

LinkedIn – linkedin.com/in/esopcoach/ 

Website - execfin.com/

Book: The ESOP Coach - Using ESOPs in Ownership Succession Planning

National Center for Employee Ownership