ESOPs In Action and Establishing a Legacy

Fri, 05/12/2023 - 08:00

Written by: JDewing2

What is an ESOP?

Employee Stock Ownership Programs (ESOPs) have become increasingly popular among companies as a way to engage and retain employees while also providing a unique ownership structure. 

This exit path allows employees to own shares in the company they work for, which can result in significant benefits for both the business and the community it serves. 

In this blog post, we’ll explore two examples of ESOPs in action within the Colorado community. 

Benefits of an ESOP: 

The main benefit of an ESOP is that it incentivizes employees to work harder, stay with the company longer, and feel more invested in its success.

ESOP guru and BEI Member, Kelly Finnell had the opportunity to work with Denver Restaurant Group, Edible Beats, to create an ESOP for its employees. 

Kelly and his team at Executive Financial Services  worked to develop an ESOP for Edible Beats Founder, Justin Cucci, and his hard-working team of 325+ employees. Here’s what Kelly and his team were able to accomplish with Edible Beats through the creation and implementation of an ESOP: 

  1. Employee Benefits:  Employees earn shares based on their tenure and salaries. More responsibilities come with a higher salary, and employees in turn get more shares within the company. 

At Edible Beats, every employee regardless of tenure was eligible to be included in the plan. According to Founder, Justin Cucci, new employees must wait a year from the start of employment in order to get vested, and will earn 25% of their shares each year after.  

  1. Improved Retention: ESOPs are a powerful tool for employee retention. When employees feel like they have a stake in the success of the company, they are more likely to stay with the business for the long-term. This reduces turnover costs and ensures that the company retains valuable talent.
  2. Increased Motivation: ESOPs can be a powerful motivator for employees. When employees own a piece of the company, they are more likely to take ownership of their work and feel more invested in the success of the business.

Cucci spoke about how life changing it can be to own shares in a company. Equity provided from shares can assist in purchasing a home or a business down the road. 

“The only thing the shares can't do is be transferred or sold to another person. Shareholders who want to disinvest must sell their shares back to Edible Beats”, wrote Linnea Covington.

  1. Heightened Productivity: Companies with ESOPs often see an increase in productivity. This is because employees feel more motivated to work harder, are more invested in the company's success, and have a greater sense of ownership.

“For Cucci, creating the ESOP means he doesn't have to sell off Edible Beats in pieces, or to an owner who may dismantle the business that he built so carefully. Eventually, the idea is to have the Edible Beats restaurants completely employee owned.” 

For more details on Edible Beats and their recent ESOP strategy, check out this article from Restaurant Hospitality written by Linnea Covington: Denver Restaurant Group Offers Stock To Employees.

Building a Sense of Community: 

So, how does an ESOP positively impact the community? Let’s take a look at a long time Colorado favorite, Beau Jo’s Pizza. 

Chip Bair, the owner and founder of Beau Jo's pizza restaurant in Idaho Springs, announced at the 50th anniversary celebration that he’ll be selling the business to his employees through an Employee Stock Ownership Plan (ESOP). 

As a Colorado institution that’s served approximately three million pies over the years, Beau Jo’s move to an ESOP will ensure that the business will remain in the hands of employees who have helped make it a success over the years. 

This move demonstrates Bair's commitment to the community and his employees who have helped make Beau Jo's a beloved institution over the past half-century. Here’s how: 

  1. Community Involvement: ESOPs provide local employment opportunities to community members and support the local economy. Idaho Springs, CO, has faced an economic downturn as mines across town shut down over the years. Luckily, the newly employee owned pizza joint also calls Idaho Springs home and has been able to provide jobs for many that lost their jobs of the years, establishing Beau Jo’s as a pillar in the community. 

In an article published by Jason Blevins for The Colorado Sun on Employee Ownership and Creating a Legacy, Jason wrote about an Idaho Springs Local, “Alex Dunn worked at Beau Jo’s during college and in the summers when she was a teacher. She started working full-time at the Idaho Springs restaurant 17 years ago and now she is the general manager.” 

Leaving a Lasting Legacy

In addition to the benefits mentioned above, ESOPs are also a valuable tool for building a lasting legacy. ESOPs can help to paint the picture about: 

  1. Long-Term Perspective: When employees own a piece of the company, they tend to take a longer-term perspective. This means that decisions are made with the future in mind, rather than just short-term gains.
  2. Succession Planning: ESOPs can be an effective way to facilitate succession planning. By gradually selling shares to employees, business owners can ensure that the company stays in the hands of those who are committed to its success.
  3. Increased Value: Companies with ESOPs tend to be more valuable, as they have a committed and motivated workforce. This can result in higher profits, which can be reinvested in the business, the community, or other initiatives that support the company's long-term success.

The Bottom Line

An ESOP can provide significant benefits for both the business and the community it serves. They can improve employee retention, motivation, and productivity, while also stimulating economic growth and community involvement. Additionally, ESOPs are a valuable tool for building a lasting legacy.


 

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Employee Stock Ownership Plan (ESOP)

Exit Planning Process: Overcoming Fee Apprehension

Fri, 03/24/2023 - 08:00

Written by: JDewing2

                                                                                  

Check this month's promotions!

You nailed the Discovery Meeting and breezed through the Engagement Meeting with your client. 

Now it’s time to discuss fees. 

As a financial or business advisor, you must be prepared for the inevitable question, "How much will this cost me?" Simply quoting a price will not suffice. You need to set the stage for the conversation by explaining the value and benefits of Exit Planning. 

Before we dive in, be sure to check out the first two blogs in this series: The Discovery Meeting  and The Engagement Meeting are essential to the Exit Planning Process!

Benefits of an Exit Plan

An Exit Plan is not just about selling the business for the highest price possible. It’s about creating a roadmap for the future of the business, its employees, and its owner. An Exit Plan helps business owners: 

  • Identify their goals, objectives, and concerns, and then develop a strategy to achieve those goals while minimizing risks.
  • Create a sustainable business that can continue to operate even without them. 
  • Create a succession plan, which ensures that the business continues to thrive even after the owner retires or leaves.
  • Maximize the value of their business. By identifying the business's strengths and weaknesses, an Exit Plan helps the owner create a strategy to maximize the business's value, making it more attractive to potential buyers or investors.
  • Protect their assets and reduce risks. By creating a comprehensive estate plan, business owners can ensure that their assets are protected and passed down to their heirs without any issues. 
  • Identify potential risks and develop strategies to mitigate them, ensuring the long-term success of the business.

Overcoming Advisor Apprehension

One of the major concerns that advisors have when it comes to Exit Planning is naming the price. Charging $2,500 for a financial plan, estate plan, or a tax return is one thing, but asking for $10,000 to $50,000 for an Exit Plan can be quite intimidating for both the advisor and the business owner.

It’s understandable why advisors might be apprehensive about quoting value-based fees when they’ve never done it before. Moreover, newly minted advisors might expect business owners to be shocked at the price, making them even more apprehensive.

However, it is essential to remember that creating an Exit Plan is a complex and time-consuming process that requires a lot of expertise, knowledge, and experience. It is not just about filling out forms or providing generic advice. Instead, it involves a deep understanding of the business, its owner's goals, and the current market conditions.

Therefore, charging a premium for such a service is justifiable. Properly explain to the business owner that the benefits of planning far outweigh the costs. Advisors must help their clients understand that the financial and emotional rewards that they will receive from an Exit Plan far exceed the fees for creating one.

Pricing Strategies

There are a number of different pricing strategies that you can use when quoting the price of an Exit Plan. Determining a fee structure will depend on the owner's unique situation and needs. Let's take a closer look at some of these pricing strategies.

Exit Planning Advisors use different strategies to offer their services to business owners: 

  • The All-In Strategy quotes a single price for expertise, advice, and counsel for plans costing $3,000 or less. 
  • The 50/50 Strategy requires 50% of the fee upfront for plans costing between $7,500 to $12,500. 
  • The Monthly-Retainer Strategy involves small monthly payments for a specified period, usually one year.
  • The Phased Exit Plan Strategy breaks down the planning process into manageable stages. 
  • The Hourly Pricing Strategy is not recommended for Exit Planning since pricing based on the overall value of the plan helps owners understand its true cost and benefits.

 

For a more in depth overview of various pricing strategies, check out our blog post: Exit Planning Fees: Strategies and Tips for Advisors!

The Bottom Line

Creating an Exit Plan is a vital process for any business owner looking to retire or transition out of their business. While the cost of an Exit Plan might seem hefty, the benefits that business owners will receive far outweigh the costs.

Advisors must understand that charging a premium for such a service is justifiable, given the complex and time-consuming nature of the process. Moreover, advisors must help their clients understand the benefits of an Exit Plan, which include creating a sustainable business, maximizing the business's value, protecting assets, and reducing risks.

Advisors new to Exit Planning are likely to be more concerned with the cost of the planning than their owner-clients. Therefore, it is essential to properly educate both the advisors and the business owners on the benefits of an Exit Plan, ensuring a smooth transition and a successful future for the business.

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Exit Planning Process: Overcoming Fee Apprehension