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 Browning. Build your life as a relaxed and unedited conversation with financialexpert in number one Amazon best selling author, John Browning. John's the founder ofGuardian Rock Wealth and serves clients across the United States. John's the authorof the book build a life, not a portfolio, a guide to yourfinancial 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 toget a free copy mailed right to your door. I'm Michael Delan Your Housefor the next few minutes as we chat with financial expert and business owner JohnBrowning. Well everyone, and welcome to another episode of building your life withJohn Browning. and Michael Delan has taken a much needed, much well deservedvacation and he's not with us today, but I'm very excited to have pattyblue with us today and she is what we call the EESAP evangelist. She'sa president and CEO and she's actually run a very successful company before this whereshe used this idea of an e stop and it was very beneficial not onlyto 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 theacronym eesop. So Patty's going to tell us a little bit about exactly whatthat is and why it can be very beneficial to you if you are abusiness 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 easilyget 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 alife, not a portfolio. And you can also reach me, and thisis super easy. Just text the word life to twenty one thousand and youcan get all of my links and all the information that you could possibly wantto have on me, and we can connect that way as well. Andof course, you can call me at three one two, three, seventytwo five thousand, and Patty will want to get this information from you alittle 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 awin 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 youremployee, but it doesn't cost them anything, it's free to them and there areso many benefits to creating an e stop that, in my opinion,there is not a better exit strategy out there. Or if you look atan estop versus another exit strategy over a ten year period, there's not anotherexit strategy that can can compare. So, and I just found out about thisstrategy a couple of years ago when I was in the process of thatmyself and my partners in the process of looking at a offer of thirty percentover fair market value that we had from a third party. So during thatprocess 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 toearn ploys in selling to a third party and asked us if we knew aboutestops. He felt that would be a better route for us and when Ifound out about these benefits. I let our other partners know, which westill had to address, that we had a offer on the table for thirtypercent more, which, after the first meeting, there were they were goingto allow some things and backs on the balance sheep, which then all ofa sudden, loan, behold it, Lord, are their offer down tofair market vilue. So here we are with an opportunity now to look atthe ESTAP, which I felt was the perfect vehicle for our exit, andall the partners agreed. So we move forward and are enjoying the these benefitsfrom the ESOP structure. Our employees, are the people that helped us buildour company, are also enjoying these benefits as well. And what they are? There's actually seven of them, John. Yeah, and number one your guaranteedfair market value for your company. So you they will not try tocome in and offer you lest your guaranteed their market value. No, dealcreep right now, deal creep, that's right. No, deal free.Well, if you thirty percent more, but we're not going to allow thirtypercent of what should be on the balance sheeting them as part of the valueof the business. So really it's either even or worse than even when youget done with the negotiations right, right, which are painful to begin with,just sitting in the meetings and negotiating down and down and down. Sothat's right and that's how we felt when that was reduced. How much furtherself are we going to go? Right? So, benefit number two is thatyou can actually stay on in your current position at your company for aslong 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 fairmarket value and you can stay on and stay employed and partaken the you stopas 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 abusiness owners, one of my first questions about building your life is what isthis money or this asset mean to you? And with business owners I get varyingresponses, but one of the most common is that this is my legacy, this might baby, this is what you know. I put my life'swork into this, and the idea of selling it to some third party whomight do something that doesn't Mesh with my values and why I built this companyis just not okay. So this is another benefit of the AESOP is youcan 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 inand changing the way that that you are used to doing business. Your employeesare not at risk and you can stay...

...on in your role, you canstay on in a in a role of your choice, or you can dowhat I chose to do, and that was I step down when I foundout that there wasn't enough education out there about these tremendous benefits in this tremendousexit strategy. And I'm just on the board. So I still, inessence, have a say in my company and the say and in where it'sgoing financially by being on the board. But yet I'm freed up to tellother business owners about these great benefits and to help them if that's what theywant 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 payingthirty three to fourty percent taxes. Okay, but tomorrow you're in Issa and tomorrow, because you're an EESA, you become, in essence, a taxfree unity. You no longer pay corporate taxes, and so you're literally thirtythree to fourty percent larger the day you sign and become an Issa, andnow all the money that you paid in taxes goes to the bottom of thatbottom line on that balance sheet. And there are a few people out thereright now that are just just their ears perked up and they're like, whoaway, just abos turned back the clock here. What's that? And whilewe want, well, we won't go there goes the the phone, butwell, we won't go over that again. It's very important in something that weoften talk about here when we're just doing the wealth management side of thingsright is is the sort of the tax monster eating away at your wealth andhow to you want to pay your fair share. We're not talking about anythingthat is nefarious here, but this is a this is a way to avoidand there's there's a void, there's delay, there's all sorts of different ways toreduce your tax burden. This is yet another way to do that.So some we talked about not just with esops but with everything, and itreally has to do with how you set things up. And an Estop isjust one way, one tool you can use there. But there's other waysto do with how everything from how you set up your accounts, the titlingof it to how you withdraw, what order you withdraw all those accounts asyou enter into retirements. So don't think that you always have to pay thisgreat big tax bill. There are ways to reduce that and this is justanother 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 isthat you can literally differ your capital gains on the total purchase price in definitelyand if nothing changes with the step up and Bass your errors, once theytake that money out upon you know your death that they will not have topay capital games either as long as that step up and basis is still inplace. So how that works is you you have to be a Sea Corpto take advantage of the capital gains deferral.

Okay, and so the way thisis 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 twentypercent investment into US stocks and bonds. And then right after that we switchthe corporate structure over to an s fort because, as you know, withan s corp the taxes flow through and then the shareholders pay those on theirpersonal taxes. Well, when the taxes flow through and you have an estopsetup, which is a retirement fund and it's non taxable, the entire corporationbecomes a tax free entity. So basically your corporation becomes the tax free entityand the money you've made on the East stop is you can defer the capitalgains on that. So it's a win for the corporation and it's a winfor you as the shareholder. And before anybody dance, knows this, whichis us off. I'm not a Sea Corp. I could never be aSea 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 anLLC 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 justneed 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 ofattorneys and CPA's that do just that. That's what we specialize in. Wespecialize in making this effortless for you, and that's key. So that's ahundred percent right. Now. Number five. Number five is to remember I saidI 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, Icould do that. If my partner wanted to sell one hundred percent of theirshares, they could do that as well. But I will tell you that thereare the most to maximize the benefits that you will garner. You onehundred percent sale to the east up and staying in control of Your Company andstaying on is the best route. That is the hundred percent sale gives youthe most benefits, and that's what once I set up the meeting for allof 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 percentsale to the east up. It was a no brainer for all of us, right. Yeah, so benefit numbers, you know, that's good. Thenumber 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 thatis buying the shareholders out and taking on the debt. So your employeesare given this free gift of a retirement benefit windfall. Remember when I saidthat? 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 asa 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 skinin the game, which which changes their outwalk. They're no longer and employthey're now a business owner, and there are statistics out there that show thatin downturn economies, including the pandemic, esops have fared better because you havea group of owners now, not employees, and they take pride in what they'redoing. So now benefit number six, and set note seven, which hasconcerns. Benefit number seven. That has two parts, okay, iscalled the second fight of the Apple, and I've actually left the best forlast. 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 betrue, I just went through it and it's not. Everything I'm telling youis the truth and these are the benefits. So it's called the second by theApple. And what I've been asked before is what are the downsides toesops? Okay, there's got to be downsides. So one of them isthat a bank isn't going to loan the company up to one hundred percent ofthe fair market value. So you're only going to be allowed to take aportion of the cash off the table and the other portion is going to behave 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 thatis a negative when it comes to estups. I personally, as a business ownerthat did this transaction, I look at this as a benefit, andI will tell you why. Because you did a portion of owner financing andbank financing. You are allowed what you are given an exchange for doing olderfinancing lawrants and those more urrance during the time of the owner financing period beforeyou're paid, offering that time any shares in the company, any attrition inthe company. Those shares come back to the original owners up to forty ninepoint nine percent. I will tell you that. The average that a shareholderrealizes is thirty to thirty five percent. Come back. At the end ofthat 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 theapple 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 youhave 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 buildyour company, and there's a bucket for them. So now you have theowner bucket and you have your key employing bucket. Excuse me, nice inthe owner bucket, let's say. Let's say, lets you use the thirtypercent. You're getting thirty percent back and you put twenty percent in the ownerbucket. You put ten percent in your key employee bucket and let's say youhave five key employees. Now I'm going to tell you a real life storyabout a company that was sold to an Estop, sold to their employees fortwenty five million, and in that time period of the initial sale and thesecond fight, the company invested in other businesses and those other business is ifthe value now of the company is a hundred million. Yeah, the originalsale was twenty five. Now they're worth a hundred. Now let's go backto that thirty percent. The owner bucket has twenty percent and the key employee, the management and scented bucket, has ten percent. So you just bytrading in those warrants, you just realize an additional twenty million dollars for yourcompany by being patient and doing owner financing with the east up. Now let'smove over to the management incentive. In your five key employee there's ten milliondollars in that bucket. You just made five of your employees that helped youbuild 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 youremployee, because I'm sure all of you code of management and sentive programs andthe tax bite right. Same member, when you sold your company to theESAP, you've taken it down to almost zero because there's one hundred percent Deppon the books. That's when you set up your management in sentive program soliterally, the tax bite is essentially nothing. So I'm a I'm a business ownerand 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 tohear this, this is just invaluable information and I can tell you that it'snot common knowledge. It is this is just not common knowledge. But whatwe're about out of time. Can you give us the best way to contactyou 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 justplaying. 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 Groupcomor you can text Esa to twenty Onezero, and my digital business card with avideo with these points, these benefits, will come into your text messages.In addition to that, if you want to get ahold of me toset up a deeper dive for your company, you can also reach me at onefour seven, five, zero, two nine zero one, and Iwould be happy, more than happy, to walk you through these tremendous benefitsand do a deeper dive with my legal team and and just like, justlike Guardian Rock, we do businesses in any all over the United States andPatty will as well. She has offices in Florida and Wisconsin, but thatdoesn't mean she only does businesses business in those states, and the same waywith Guardian Rock, wherever you happen to be, we can likely help youwith your financial planning, your wealth management, and if you have questions about whatis exactly does that mean, we'd love to have a chat with youas well. So I really like that digital business card, Patty. Thatis so valuable because there are links on there, there's a video on thereand, like Patti said, it's just typing the word into your textsop towhat was the number? Twenty Onezero, twenty one thou, and at theWhile you're at that, you can type in the Word Life Lafe to twentyOnezero as well, and you get my digital business card and all the linksto all that information also. And there's a lot of free material out thereif you just exploring and just curious. There's there's things there that can giveyou even more information than you got today. But, Patty, thanks so muchfor being a guest here on the building your life podcast that we doweekly and just really happy we had you on. Thank you. John itwas such a pleasure to be here. All right, we'll see you soon. All right, bubby. The money really is a big part of ourlives, and John Browning can help you and your family learn how to keepmoney in the proper perspective. It's important, but it's only a tool that canhelp you build the life that you want. If you like, JohnEmeil 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 toUS link and send your request. John Will Mell a copy of his bookright to your door absolutely free. Thanks for listening to building your life podcastwith John Browning. Be Sure to subscribe to this podcast so each new episodewill 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 performanceis no guarantee of future results. Investing is not appropriate for everyone. Thereis a risk of loss associated with investing in the markets. No representation orimplication is being made that using any methodology or system will generate profits or insurefreedom from losses. Please remember that investing carries risk. Guardian Rock Wealth LLCand it's affiliates are fiduciary investment advisors. Please consult with US or another experiencedqualified investment advisor before making any investment decisions and or trying to implement any ofthe strategies and tactics we may discuss in any of our publications or podcasts.

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