Journey to an ESOP & Beyond

This episode we get to review what is important about third party administration of an ESOP plan.  Scott Freund is an absolute expert at the nuances of how benefit testing as it incorporates IRS limitations related to ESOP Plan design.  For instance, IRS code section 404 that generally allows for a contribution to the ESOP plan up to 25 percent of the payroll and IRS code section 409(p) related to S-corporation ESOPs to test related to disqualified persons.  This is an essential step to understand for planning your ESOP and for staying on top of an existing ESOP plan.

In this episode, we discuss the other parts of the presentation as it relates to the company overview getting into other aspects of the presentation for the trustee and the valuation firm.  The value of having a solid presentation, regarding how the company operates, the leadership team, the business processes that are repeatable, and provide a functional mitigation towards the business.  This is the one opportunity that we have to put a factual, solid understanding of the way the company operates, including how the strength of the company provide a sustainable long-term ESOP.

This episode we are following up on the August IRS notification entitled “IRS cautions plan sponsors to be alert to compliance issues associated with ESOPs” Allison Wilkerson is a frequent speaker at ESOP conferences and works at McDermott Will and Emery out of Texas.  She has a very strong background in working through complex IRS and DOL issues related specifically to ESOPs.  She offers some insight into what this notification means as it relates to ESOPs.  The highlights of this episode are going to help folks not be overly concerned with this notification by the IRS, however, Allison does point out areas that you should be aware of in putting together your ESOP and possible IRS exposure issues.

In this episode we explore another very important section of the ESOP site visit presentation - “The Customer Overview.”  Along the Journey to an ESOP, sell-side advisor with the the company’s team are presenting the company to the trustee and valuation firm.

This episode is helpful to better understand how the banker is thinking about the ESOP deal.  Chris Cucci is Chief of Staff at a unique bank - they are a B-Corp that understand the social impact that ESOPs play in many areas - the good that can come from selling your business to an ESOP.  Chris is a veteran banker and has used his skillset to direct their efforts to be a strong resource for companies considering ESOPs.

In this episode - we are celebrating football season by kicking off with “Rudy” one of the most inspirational football movies of all time about the underdog…The episode starts a series to cover preparation for the inevitable ESOP site visit whereby the buy-side team congregate typically at the company’s office.  The focal point to this episode is to help prepare for the site visit - detailing the industry of the business, its business model, the customer base, geography and other important factors to where the business operates and relevant business trends.  We will follow up with other episodes detailing other aspects of the site visit.

This episode is super helpful for those that want to learn from someone who has taken his own “Journey to an ESOP” Mark Stevens is the founder of Georgia Spa out of the Atlanta area.   Mark’s company went 100 percent ESOP.   He shares on the podcast his experience with the ESOP process.

This is part 3 of a series on ESOP feasibility.  One of the big questions on people’s minds is when should I pull the trigger for my ESOP transaction as far as timing goes.  We get to dial into the dramatic scene in Mission Impossible 3 where Ethan Hunt is tied to a chair and is given 10 seconds to tell where the Rabbit’s foot is which is some kind of weapon of mass destruction.  Drama to not drama - the decision as to the timing of your transaction can include different variables that we explore to determine the optimal date of an ESOP transaction.  Some of these items include how the interim financial performance of the company is going in comparison to the year end forecast.  Consider this and other variables to best determine the transaction date then work backwards.  Advice related to timing the ESOP transaction is an important step on your journey to an ESOP.

On this episode - Corley and I discuss the approach to an ESOP transaction to establish the valuation through an arm’s length negotiation with Trustee.  Corley explains the particular requirements and approach to supporting the transaction trustee on the business valuation that will helpful to better understand what you should consider in planning your ESOP transaction.

On this episode - we evaluate the idea of taking the “mask off” - what is actually going on with the new IRS Article related to the IRS commissioner investigating ESOP transactions and how do you build your ESOP plan to not be concerned with an IRS issue? Meanwhile utilizing the available tax benefits.  This is a critical part of the feasibility Al that you need to thoroughly review with your advisors for short and long term consequences.