Once you’ve made the decision to sell your small business and your business is ready to sell, its time to find a buyer for your business. Not just any buyer – the right buyer for your business. There are many ways to find a buyer for your business. An employee stock ownership plan (ESOP) is is an employee benefit plan that is established as a trust fund to buy the owner’s stock and hold it for employees until they retire or leave. ESOPs and other forms of employee stock ownership can be funded by companies putting newly issued shares into the fund, using cash to buy existing company shares, or borrowing money through the entity to buy company shares. An ESOP has the advantage that the employees of the company are also owners of the company, and want to do what is in the best interest of the company to protect their investment.
How to Set Up an ESOP
Setting up an ESOP is can be complicated, but not necessarily more complicated than other ways to sell a business. It’s a smart idea to sell your business to people who care about and want to protect and to grow the company. You will likely need the services of a financial advisor or business broker or attorney to help with valuations and appraisals, feasibility studies, prepare legal documents and oversee the sales transaction.
According to the National Center for Employee Ownership (NCEO) to set up an ESOP you need to:
- Determine Whether Other Owners Are Amenable
- Conduct a Feasibility Study
- Conduct a Valuation
- Hire an ESOP Attorney
- Obtain Funding for the Plan
An ESOP has many advantages to both the seller of a small business and to the employee-owners. According to the NCEO, roughly half of ESOPs are set up at companies with 100 or fewer employee participants.
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