Sell Your Company to Your Employees with ESOP Evangelist with Patti Plough

ABOUT THIS EPISODE

Patti Plough who is the ESOP Evangelist, CEO and Founder of Excel Legacy Group. She gives the seven amazing benefits of selling your business using an ESOP (Employee Stock Purchase Agreement)
Patti is a successful serial entrepreneur running several businesses including one which she sold using an employee stock purchase program or ESOP where she continues to serve on the board of directors.  

Welcome to the build your life podcast with John Browning. Build your life as a relaxed and unedited conversation with financial expert in number one Amazon best selling author, John Browning. John's the founder of Guardian Rock Wealth and serves clients across the United States. John's the author of the book build a life, not a portfolio, a guide to your financial future based on your personal values, which you can purchase on Amazon, or stay around to the end of today's show and I'll tell you how to get a free copy mailed right to your door. I'm Michael Delan Your House for the next few minutes as we chat with financial expert and business owner John Browning. Well everyone, and welcome to another episode of building your life with John Browning. and Michael Delan has taken a much needed, much well deserved vacation and he's not with us today, but I'm very excited to have patty blue with us today and she is what we call the EESAP evangelist. She's a president and CEO and she's actually run a very successful company before this where she used this idea of an e stop and it was very beneficial not only to her as a business owner but, more importantly, to her employees. Now I realize I may have lost a few of you even with the the acronym eesop. So Patty's going to tell us a little bit about exactly what that is and why it can be very beneficial to you if you are a business owner or if you happen to be an employee of a privately held business. And before we get started, just as a reminder, you can easily get in touch with me at Guardian Rock wealthcom and at the contact US button, and I'm happy to send you a free copy of my book build a life, not a portfolio. And you can also reach me, and this is super easy. Just text the word life to twenty one thousand and you can get all of my links and all the information that you could possibly want to have on me, and we can connect that way as well. And of course, you can call me at three one two, three, seventy two five thousand, and Patty will want to get this information from you a little bit later on as well, so people know how to contact you. But let me just ask you. What is this thing called an EASOP? And why do I care? Well, because, as far as I'm concerned, it's the absolute fully brail of exit strategies for business owners because it's a win win win. It's an a pronoun that stands for Employee Stock Ownership Plan. To basically, what you're doing is you are selling your company to your employee, but it doesn't cost them anything, it's free to them and there are so many benefits to creating an e stop that, in my opinion, there is not a better exit strategy out there. Or if you look at an estop versus another exit strategy over a ten year period, there's not another exit strategy that can can compare. So, and I just found out about this strategy a couple of years ago when I was in the process of that myself and my partners in the process of looking at a offer of thirty percent over fair market value that we had from a third party. So during that process we discovered through a financial advisor,...

...the benefits of an e stop. He had noticed that I was very concerned about what was going to happen to earn ploys in selling to a third party and asked us if we knew about estops. He felt that would be a better route for us and when I found out about these benefits. I let our other partners know, which we still had to address, that we had a offer on the table for thirty percent more, which, after the first meeting, there were they were going to allow some things and backs on the balance sheep, which then all of a sudden, loan, behold it, Lord, are their offer down to fair market vilue. So here we are with an opportunity now to look at the ESTAP, which I felt was the perfect vehicle for our exit, and all the partners agreed. So we move forward and are enjoying the these benefits from the ESOP structure. Our employees, are the people that helped us build our company, are also enjoying these benefits as well. And what they are? There's actually seven of them, John. Yeah, and number one your guaranteed fair market value for your company. So you they will not try to come in and offer you lest your guaranteed their market value. No, deal creep right now, deal creep, that's right. No, deal free. Well, if you thirty percent more, but we're not going to allow thirty percent of what should be on the balance sheeting them as part of the value of the business. So really it's either even or worse than even when you get done with the negotiations right, right, which are painful to begin with, just sitting in the meetings and negotiating down and down and down. So that's right and that's how we felt when that was reduced. How much further self are we going to go? Right? So, benefit number two is that you can actually stay on in your current position at your company for as long as you want. You can stay on indefinitely. So you're looting. You Literally Soldier Company. You're getting the money from selling your company for fair market value and you can stay on and stay employed and partaken the you stop as well, and that's up to you. That's what you want to do. That's that's what if I used dinner upt you for one second here. I talk with business owners on a regular basis and even if you're not a business owners, one of my first questions about building your life is what is this money or this asset mean to you? And with business owners I get varying responses, but one of the most common is that this is my legacy, this might baby, this is what you know. I put my life's work into this, and the idea of selling it to some third party who might do something that doesn't Mesh with my values and why I built this company is just not okay. So this is another benefit of the AESOP is you can actually stay on and in control of what happens with your company and nothing, nothing operationally changes in your company. So there's not somebody new coming in and changing the way that that you are used to doing business. Your employees are not at risk and you can stay...

...on in your role, you can stay on in a in a role of your choice, or you can do what I chose to do, and that was I step down when I found out that there wasn't enough education out there about these tremendous benefits in this tremendous exit strategy. And I'm just on the board. So I still, in essence, have a say in my company and the say and in where it's going financially by being on the board. But yet I'm freed up to tell other business owners about these great benefits and to help them if that's what they want to do, if they want to take advantage of an estup structure, I'm happy to help them implement that as well. So benefit number three. So let's say today you're you're in the normal for profit company that is paying thirty three to fourty percent taxes. Okay, but tomorrow you're in Issa and tomorrow, because you're an EESA, you become, in essence, a tax free unity. You no longer pay corporate taxes, and so you're literally thirty three to fourty percent larger the day you sign and become an Issa, and now all the money that you paid in taxes goes to the bottom of that bottom line on that balance sheet. And there are a few people out there right now that are just just their ears perked up and they're like, whoa way, just abos turned back the clock here. What's that? And while we want, well, we won't go there goes the the phone, but well, we won't go over that again. It's very important in something that we often talk about here when we're just doing the wealth management side of things right is is the sort of the tax monster eating away at your wealth and how to you want to pay your fair share. We're not talking about anything that is nefarious here, but this is a this is a way to avoid and there's there's a void, there's delay, there's all sorts of different ways to reduce your tax burden. This is yet another way to do that. So some we talked about not just with esops but with everything, and it really has to do with how you set things up. And an Estop is just one way, one tool you can use there. But there's other ways to do with how everything from how you set up your accounts, the titling of it to how you withdraw, what order you withdraw all those accounts as you enter into retirements. So don't think that you always have to pay this great big tax bill. There are ways to reduce that and this is just another one of those ways. It is. So to your point, John, I'm going to go on benefit to benefit number for benefit number four is that you can literally differ your capital gains on the total purchase price in definitely and if nothing changes with the step up and Bass your errors, once they take that money out upon you know your death that they will not have to pay capital games either as long as that step up and basis is still in place. So how that works is you you have to be a Sea Corp to take advantage of the capital gains deferral.

Okay, and so the way this is structured is when we set this up, you're a Sea Corp, so you can take advantage of the capital gains deferral with basically ten to twenty percent investment into US stocks and bonds. And then right after that we switch the corporate structure over to an s fort because, as you know, with an s corp the taxes flow through and then the shareholders pay those on their personal taxes. Well, when the taxes flow through and you have an estop setup, which is a retirement fund and it's non taxable, the entire corporation becomes a tax free entity. So basically your corporation becomes the tax free entity and the money you've made on the East stop is you can defer the capital gains on that. So it's a win for the corporation and it's a win for you as the shareholder. And before anybody dance, knows this, which is us off. I'm not a Sea Corp. I could never be a Sea Corp. For All you LLC's or sole proprietors out there, yes, you can. Oh, yeah, it sounds scary and it sounds difficult, but there are folks out there who specialize in exactly that and switching from an LLC or sold proprietorship to a Sea Corp and then back to the S Corp. All that can be done and people, there are people in place that. No, you don't have to learn how to do that, you just need good people like Patty and her team that can walk you through those things. That's right and and actually that is exactly one hundred percent right, John. You don't have to worry about a thing. We have a team of attorneys and CPA's that do just that. That's what we specialize in. We specialize in making this effortless for you, and that's key. So that's a hundred percent right. Now. Number five. Number five is to remember I said I had five other partner you can actually customize this deal for each shareholder. So if I only wanted to sell thirty percent of my shares, I could do that. If my partner wanted to sell one hundred percent of their shares, they could do that as well. But I will tell you that there are the most to maximize the benefits that you will garner. You one hundred percent sale to the east up and staying in control of Your Company and staying on is the best route. That is the hundred percent sale gives you the most benefits, and that's what once I set up the meeting for all of our partners to hear about these tremendous benefits that I had heard about, every single one of them agreed that they wanted to do a one hundred percent sale to the east up. It was a no brainer for all of us, right. Yeah, so benefit numbers, you know, that's good. The number six that I want to hear all of it. Number six. This is a free gift to your employees, because the company is the one that is buying the shareholders out and taking on the debt. So your employees are given this free gift of a retirement benefit windfall. Remember when I said that? You become a tax free entity,...

...so you're no longer paying corporate taxes, thirty three to forty percent, and it could be going higher. In the first order of business for the company is to pay you out as a shareholder, and then the company can grow exponentially by purchasing other businesses, by expanding the company and also by contributing to the retirement fund for your employees, who are now the new owners and shareholders. So they literally have skin in the game, which which changes their outwalk. They're no longer and employ they're now a business owner, and there are statistics out there that show that in downturn economies, including the pandemic, esops have fared better because you have a group of owners now, not employees, and they take pride in what they're doing. So now benefit number six, and set note seven, which has concerns. Benefit number seven. That has two parts, okay, is called the second fight of the Apple, and I've actually left the best for last. Okay, not now that it could get any better, right. I mean, if you're looking at this thinking that it's too good to be true, I just went through it and it's not. Everything I'm telling you is the truth and these are the benefits. So it's called the second by the Apple. And what I've been asked before is what are the downsides to esops? Okay, there's got to be downsides. So one of them is that a bank isn't going to loan the company up to one hundred percent of the fair market value. So you're only going to be allowed to take a portion of the cash off the table and the other portion is going to be have to be older financed or, let's say let's say two to five years, is going to have to be owner financed. That's looked at as that is a negative when it comes to estups. I personally, as a business owner that did this transaction, I look at this as a benefit, and I will tell you why. Because you did a portion of owner financing and bank financing. You are allowed what you are given an exchange for doing older financing lawrants and those more urrance during the time of the owner financing period before you're paid, offering that time any shares in the company, any attrition in the company. Those shares come back to the original owners up to forty nine point nine percent. I will tell you that. The average that a shareholder realizes is thirty to thirty five percent. Come back. At the end of that loan period, you can sell those back to the company a second time. So the second by the Apple, the first Bucketbel the second by the apple for the shareholder is you literally can sell your company twice. So, and I'll give you an example after I tell you about bucket number two. Bucket number two, you have a management...

...team, a leadership team that you have in place that is going to or has been helping you grow your company, those key employees that you want to have a bolden attractor, okay, something that is going to attract people there that are going to help you build your company, and there's a bucket for them. So now you have the owner bucket and you have your key employing bucket. Excuse me, nice in the owner bucket, let's say. Let's say, lets you use the thirty percent. You're getting thirty percent back and you put twenty percent in the owner bucket. You put ten percent in your key employee bucket and let's say you have five key employees. Now I'm going to tell you a real life story about a company that was sold to an Estop, sold to their employees for twenty five million, and in that time period of the initial sale and the second fight, the company invested in other businesses and those other business is if the value now of the company is a hundred million. Yeah, the original sale was twenty five. Now they're worth a hundred. Now let's go back to that thirty percent. The owner bucket has twenty percent and the key employee, the management and scented bucket, has ten percent. So you just by trading in those warrants, you just realize an additional twenty million dollars for your company by being patient and doing owner financing with the east up. Now let's move over to the management incentive. In your five key employee there's ten million dollars in that bucket. You just made five of your employees that helped you build your company exponentially. You just paid them two million dollars a piece. Yeah, so now it can see even better than that for your for your employee, because I'm sure all of you code of management and sentive programs and the tax bite right. Same member, when you sold your company to the ESAP, you've taken it down to almost zero because there's one hundred percent Depp on the books. That's when you set up your management in sentive program so literally, the tax bite is essentially nothing. So I'm a I'm a business owner and you've just made me like totally excited. But you've also given me, and this is for the building your life podcast. This got really technical, which is which is fine, because for the people who who need to hear this, this is just invaluable information and I can tell you that it's not common knowledge. It is this is just not common knowledge. But what we're about out of time. Can you give us the best way to contact you if you're interested in more, because there's so much more to it. I mean, you gave us kind of all the big steps, right, but people need to know a heck of a lot more in order to really, you know, make a decision and to actually implement next cute that, because there one thing with any plan, right as you have to not just playing. We have to execute the plan and you can tell them you that. So that's what we do. How do we in touch with you? So I am Patty at Excel, like...

...a sea groupcom or excel legacy Groupcom or you can text Esa to twenty Onezero, and my digital business card with a video with these points, these benefits, will come into your text messages. In addition to that, if you want to get ahold of me to set up a deeper dive for your company, you can also reach me at one four seven, five, zero, two nine zero one, and I would be happy, more than happy, to walk you through these tremendous benefits and do a deeper dive with my legal team and and just like, just like Guardian Rock, we do businesses in any all over the United States and Patty will as well. She has offices in Florida and Wisconsin, but that doesn't mean she only does businesses business in those states, and the same way with Guardian Rock, wherever you happen to be, we can likely help you with your financial planning, your wealth management, and if you have questions about what is exactly does that mean, we'd love to have a chat with you as well. So I really like that digital business card, Patty. That is so valuable because there are links on there, there's a video on there and, like Patti said, it's just typing the word into your textsop to what was the number? Twenty Onezero, twenty one thou, and at the While you're at that, you can type in the Word Life Lafe to twenty Onezero as well, and you get my digital business card and all the links to all that information also. And there's a lot of free material out there if you just exploring and just curious. There's there's things there that can give you even more information than you got today. But, Patty, thanks so much for being a guest here on the building your life podcast that we do weekly and just really happy we had you on. Thank you. John it was such a pleasure to be here. All right, we'll see you soon. All right, bubby. The money really is a big part of our lives, and John Browning can help you and your family learn how to keep money in the proper perspective. It's important, but it's only a tool that can help you build the life that you want. If you like, John Emeil you a free copy of his book build a life, not a portfolio. Go to John's website, Guardian Rock wealthcom, and click the contact to US link and send your request. John Will Mell a copy of his book right to your door absolutely free. Thanks for listening to building your life podcast with John Browning. Be Sure to subscribe to this podcast so each new episode will be sent to you automagically when it's released. Have a terrific day. Nothing in this podcast should be construed as personal investment advice, and past performance is no guarantee of future results. Investing is not appropriate for everyone. There is a risk of loss associated with investing in the markets. No representation or implication is being made that using any methodology or system will generate profits or insure freedom from losses. Please remember that investing carries risk. Guardian Rock Wealth LLC and it's affiliates are fiduciary investment advisors. Please consult with US or another experienced qualified investment advisor before making any investment decisions and or trying to implement any of the strategies and tactics we may discuss in any of our publications or podcasts.

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