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 podcastwith john brown, build your life as a relaxed and unedited conversation withfinancial export in number one amazon, best solon author, john browning jones,the founder of guardian rock well and serves clients across the united states.Johns the author of the book build a line, not a portfolio a guide to yourfinancial future, based on your personal values, which you can purchaseon amazon or stay round to the end of today. Show and i'll. Tell you how toget free copy mild right to your. Do i might in a lon your house for the nextfew minutes, as we chat with financial experts and business owner john brownie everyone and welcome to another episodeof building your life with john browning and michael delan has taken amuch 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 esop evangelist she's apresident and ceo and she's actually run a very successful company beforethis, where she used this idea of an esop and it was very beneficial. Anononly to her as a business owner, but, more importantly, to her employees. Nowi realize we have lost a few of you, even with the acronym esop, so patty's,going to tell us a little bit about exactly what that is and why it can bevery beneficial to you if you are a business owner for if you happen to bean employee of a privately held business and before we get started justas a reminder, you can easily get in touch with me at guardian rock welthamand if to contact us button and i'm happy to send you a free copy of mybook, build a life, not a port folio, and you can also reach me- and this issuper easy, just text the word life to twenty one thousand and you can get allmy links and all the information that you could possibly want to have on meand we can connect that way as well. And, of course you can call me a threehundred and two three seven, two five thousand and patio want to get thisinformation from you a little bit later on as well. So people know how tocontact you, but let me just ask you: what is this thing called in esop andwhy do i care? Well because, as far as i'm concerned,it's the solute, fully grail of exit strategies for business goes becauseit's a wind when, when it's an acronym that stands for employ stock foreshipplan. So basically what you're doing, if you are selling your company to youremployees, but it doesn't cost them anything, it's free to them, and there are so many benefits to creatinga esta that, in my opinion, there is not a better exit strategy out there or if you look at an i sap.First, is another exit strategy over a ten year period. There is not anotherexit strategy that can can compare so, and i just found out of out thisstrategy a couple years ago, when i was in the process of that myself and mypartners in the process of looking at a offer of thirty percent over fairmarket value that we had for the third party.

So during that process we discovered through a financialadviser of the benefits of a isa. He had noticed that i was very concernedabout what was going to happen to our boys in selling to a third party and asked us if we knew about u sobs, hefelt that would be a better route for us and when i found out aboutthese benefits, i let our other partners know which we still had to address, that wehad an offer on the table for thirty percent, more which, after the first meeting therewere they weren't going to allow some things and back on the balance sheet,which then all of a sudden long behold, if lord or their offer down to fairmarket value. So here we are with an opportunity now to look at thee sat, which i felt was the perfect vehicle for our exit and all a partnersare greed. So we move forward and are enjoying these benefits from thesapsucker. Our employees are the people that helped us build. Our company arealso enjoying these benefits as well and what they are there's actually seven ofthem. John yeah and number one you're guaranteed fair market value foryour company, so you they will not. Try to come in and offer you last you're, guaranteed fairmarket value, no deal creep right, o deal creep. That's right! No deal greatlot, your thirty percent more, but we're not going to allow thirtypercent of what should be on the balance sheet and as part of the valueof the business. So really it's either, even or worse than even when you getdone with the negotiations right, a right which are painful to begin withjust sitting in the meetings and negosha ing down and down and down. Sothat's right and that's how we felt when that was reduced. How much further sellare we going to go right so benefit? Number two is that you canactually stay on in your curt position at your company or as long as you want,you can stay on indefinitely, stole you're loaning, you literally soldiercompany you're, getting the money from selling your company for fair marketvalues, and you can stay on and stay in floy and partaken the esop as well, andthat's up to you that's what you want to do that? That's what? If i justinterrupt you for one? Second, here i talk with business owners on a regularbasis and even if you're, not a business owners. One of my firstquestions about building your life is: what is this money, or this asset meanto you and with business owners? I get varying responses, but one of the mostcommon is that this is my legacy. This is my baby. This is what you know. Iput my life's work into this and the idea of selling it to some third party,who might do something that doesn't mess with my values and why i builtthis company is just not okay, so this is another benefit of the esop. Is youcan actually stay on and in control of what happens with your company andnothing? Nothing operationally changes in your company.So there's not somebody new coming in and changing the way that that you wereused to doing business. Your employers are not at risk and you can stay on inyour role. You can stay on in a in a...

...the role of their choice or you can dowhat i chose to do and that was i steppeddown when i found out that there wasn't enough education out there about thesetremendous 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 state and in where it's going financially by beingout the boar, but yet a fredo to tell other business solvers about thesegreat benefits and to help them. If that's what they want to do if theywant to take advantage of an ease up structure, i'm happy to help theminfluence that as well so benefit number three. So let's say today your your you're, the normal forprofit company that is paying thirty three to forty percent taxes: okay, but to morrow your these stuff and to morrow because you're a thusa you become in essence a tax for aentity. You no longer pay corporate taxes and so you're, literally thirty, three toforty percent larger the day. You sign and become an isa, and now all the money that you paid intaxes goes to the bottom of that bottom line on that balance, and there are afew people out there right now that are just just their ears, perked up andthey're, like whoa, just a most turn back the clock here. What's that andwhile we have no, we won't. Oh, there goes the the phone, but well, we won'tgo over that again. It's very important in something that we often talk abouthere when we're just doing the wealth management sign of things right is: isthe sort of the tax monster eating away at your wealth? And how do you want toput your fear share? We're not talking about anything that is nefarious here,but this is a this is a way to avoid and there there's a void. There's delay,there's all sorts of different ways to reduce your tax burden. This is yet another way todo that. So some we talk about not just with esops but with everything, and itreally has to do with how you set things up, and then he sopis just one way: one tool you can use there, but there's other ways to withhow everything from how you set up your accounts, the titling of it to how you withdraw and what order youwith draw those accounts as you enter into retirement. So don't think thatyou 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 of john i'mgoing to go on benefit to benefit number four benefit. Number four is that you canliterally defer your capital gains on the total purchase price in definitely and if nothing changes with the step upand vases your errs once they take that money out upon. You know your death that they will not have topay capital games either as long as thatstuff up in basis is still in place. So how that works is you? You have to be asea corp to take advantage of the capital games, deferral, okay, and sothe way this is structure is when we...

...set this up your estate corp. So youcan take advantage of the capital gains deferral with basicallyten to twenty percent investment into us stocks and ballads, and then right after that, away switchthe corporate structure over to an escort because, as you know, with anescort, the taxes flow through and then the shareholders pay those on theirpersonal taxes. Well, when the taxes flow through and you have an esop set up, which is aretirement fun and it's not taxable, the entire corporation becomes a tactgreat entity. So basically, your corporation becomes a tax bra entityand the money you've made on the east stuff is you can defer the couple of canes onthis? So it's a win for the corporation and it's a win for you as the shareholder and before anybody gets. You know just switches us off, i'm not asea corp. I could never be a sea court for all you llcious out there. Yes, youcan't oh yeah, it sounds scary and it sounds difficult, but there are folksout there who specialize in exactly that and switching from an lls or soldthe priorship to a c corp and then back to the escort. All that can be done andpeople there are people in place. That know you don't have to learn how to dothat. You c just need good people like patty and her team that can walk youthrough those things. That's right and, and actually that is exactly one under percent right,john, you don't have to worry about a thing. We have a team of attorneys andc pas that do just that. That's what we specialize in. We specialize in makingthis effortless for you and that's key. So that's a hundredpercent right now, number five number five! Is you remember? I said ihad a five other partners. You can actually customize this deal for each shareholder. So if i onlywanted to sell thirty percent of my shares, i could do that if my partner wanted tosell one other percent of their shares, theycould do that as well. But i will tell you that there are themost to to maximize the benefits that you gar use. One hundred percent sale to the estuffs and staying in control of your company as staying on is the bestwealth that gives a hundred percent sale. Gives you themost benefits and that's what once i set up the meeting for all of ourpartners to hear about these tremendous benefits that i had heard about everysingle one of them afreed that they wanted to do a one hundred percent saleto the use. It was a no verander for all of us right yep, so i benefit numbers. You know that'sgood to number six. I want to hear on number six. This is a fregit to youremployee, because the company is the one that is fying the showhouse selfand taking on the debt. So your employees are given this free gift ofher retirement benefit. Win bow!...

Remember when i said that you become atax free entity, so you're no lover pain, corporate taxes, thirty three toforty percent and it could be going higher in the first order of business. For thecompany is to pay you out as the share over and then the company can grow expotentials by purchasingother businesses by expanding the company and also by contributing to the retirement fund foryour employees, who are now the new owners and shareholders, so theyliterally have skin in the game which which changes there out walk they're,no long for an employe. There are now a business over, and there are statisticsout there that show that in down turn economies, including the pandemic,these sobs have fared better because you have a group of owners now notemployed and they take pride in what they're doing so now benefit number six, an seven o seven, which is on starbenefit number seven, that is to parts okay, it's called the second fight ofthe apple and i've actually left the best for last. Okay. Now now that i could get adding betterright, i mean it you're. Looking at this thinking that it's too good to betrue, i just went through it and it's not everything, i'm telling you is thetruth, and these are the benefits. So it's called the second bite apple,and what i've been asked before is what are the downsides to e sups? Okay,there's got to be downside, so one of them is that a bank isn't going to loanthe company up to one hundred percent of the fair market value, so you're only going to be allowed to takea portion of the cash off the table and the other portion is going to behave to be owner financed for but say, let's say two to five years is going tohave to be on her finance. That's looked at as that is a negative when itcomes to ese, i personally, as a business owner thatdid this transaction. I look at this as a benefit, and i will tell you why, because you did a portion of honorfinancing and bank financing. You are aloud what you are given anexchange for doing over financing wars and those morris during the time of the owner financing period before you'repaid, offering that time any shares in the company any attritionin the company. Those shares come back to the original orders. Up to fortynine point: nine percent- i will tell you that the average that a shareholder realizes is thirty to thirty fivepercent. Come back at the end of that long period, you can sell gos back to the company a second time, so the second fit of the apple. Thefirst buckets of the second. By of the apple for the shareholders, is youliterally can sell your company twice so and i'll give you an example. Afteri tell you about bucket number twobuck...

...at number two, you have a managementthan a leadership team that you have in place that is going to orhas been helping. You grow your company, those he employs that you want to havea folden, attractor, okay, something that is going to attract people that are going to help. You build yourcompany and there's a bucket for this. So nowyou have the older bucket and you have your pm ploying a bucket. Excuse me less you in the order bucket. Let's say: let'ssay: let you, the thirty percent you're getting thirty percent bat and you put twenty percent in the ownerbucket. You put ten percent in your key, employ a bucket and let's say you havefive pempo. Now i'm going to tell you a real lifestory about a company that was sold to a soft soul to theirvoice for twenty five million and in that time, period of theofficial sale and the second fight the company invested in other businessesand those other businesses. If the value now of the company is ahundred million yeah, the original sale was twenty five now they're worth ahundred. Now, let's go back to that. Thirty percent. The owner bucket, has twenty percentand the kanpo that management and septic bucket has ten percent. So you just by trading in thosewarrants, you just realized an additional twentymillion dollars for your company by being patient and doing owner financingwith the esa. Now, let's move over to the management sent i and you fivekanpo, there's ten million dollars in that bucket. You just make five of your employeesthat help you build your comb ex. Potentially you just paid them twomillion dollars a piece yeah. So now it gets even better than thatfor your for your employee, because i'm sure all of you ve heard of managementand septic programs and the task bite right string member whenyou sold your company to the east of you've, taken it down to almost cyril,because there's one hundred percent t on the books. That's when you set upyour management incentive program. So literally the tax fight is essentiallynothing. So i'm a i'm a business owner andyou've just made me like totally excited but you've also given me- andthis is for the building your life podcast. This got really technical,which is which is fine because for the people who who need tohear this, this is just inviable information, and i can tellyou that it's not common knowledge. It is i this is just not commonknowledge, but we're about out of time kin. You giveus the best way to contact you if you're interested in more, but becausethere's so much more to it, i mean you gave us kind of all the the big steps right, but people need toknow a heck of a lot more in order to really you know, make a decision and toactually implement next cut it, because the one thing with any plan right asyou have to not just plain, but you have to execute the plan and you cantell eerht. So that's what we do. How...

...do we in touch with you, so i am patty at excel legacy,groupcast grupo or you can text asa to twenty onethousand and my digital business car with a video. With these points, thesebenefits will come into your text messages. In addition to that, if you want to geta hold of me to set up a deeper dive for your company, you can also reach meat four o one, four. Seventy five zero two nine zero one and i would be happymore than happy to walk you through these tremendous benefits and do adeeper dive with my legal team and just like just like girty rock, wedo businesses in the all over the united states and patty will as well.She has offices in florida and wisconsin, but that doesn't mean sheonly does businesses business in those states and the sameway with gerdy and rock. Wherever you happen to be, we can likely help youwith your financial planning, your wealth management, and if you havequestions about what is exactly, does that mean we'd love to have a chat with you aswell? So i really like that digital business card patty that is so valuablebecause there are links on there. There's a video on there and, likepatty, said it's just typing the word into your text: e s o p to what was thenumber twenty one hound, twenty one sand and ate, while you're at that youcan type in the word life life to twenty one thousand as well, and to getmy digital business card and all the links to all that information. Also,there's a lot of free material out there. If you just exploring and justcurious the' there's things there that can give you even more information thanyou got today, but daddy thanks, so much for being a guest here on thebuilding, your life podcast that we do weekly and just really happy. We had you on. Thank you, john. It was such a pleasureto be here all right, we'll see you soon all right by bye by bye. Money really is a big part of our lives,and john browning can help you and your family learn how to keep money in theproper perspective, it's important, but it's only a tool that can help youbuild the life that you want. If you like, john, a mill you freak copy inhis book, build a life, not a portfolio, go to john's website, guardian rockwealth com and click. The contact to us link and send your request. John- willmellow copy of his book right to your door. Absolutely free thanks forlistening to building your life, podcast with john brownie be sure tosubscribe 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 beconstrued as personal investment advice and past performance is no guarantee offuture results. Investing is not appropriate for everyone. There is arisk of loss associated with investing in the markets. No representation orimplication, is being made that using any methodology or system will generateprofits or inter freedom from losses. Please remember that investing carriesrisk guardian rock well, l, l c and its affiliates are fiduciary investmentadvisers. Please consult with us for another experienced qualifiedinvestment adviser before making any investment decisions and or trying toimplement any of the strategies and tactics we may discuss in any of ourpublications or podcasts t.

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