An event to remember
I attended the Employee Ownership Conference presented by NCEO (National Center for Employee Ownership) in Pittsburgh on April 9-11. On a scale of 1 to 10 this program and venue was a 11-or 12. Wow, what a program in terms of a learning experience, presented in Pittsburgh’s downtown convention center, attended by 1,900 people that fell into one of three categories:
- People interested in learning about ESOPS
- Employees of both recent and long-term ESOP entities
- All the professionals you need to answer any question you may have
What really impressed me were the number of concurrent sessions made available to participants each day. There were at least 50 concurrent sessions per day covering everything from ESOP basics for those trying to decide if they should explore an ESOP, to the more sophisticated topics like funding methods to fund future payouts. Quite frankly, it was tough to fill your dance card because the number of options were overwhelming. And when you finally decided where you were going you had to fight your way in with a stick to get a seat.
Some of the neat features of the program centered around your ability to meet one on one with an expert to explain an issue or answer a question. I thought this was a great tool to have available.
In addition, during lunch on Day 2……there were 50 tables set aside with an expert assigned to discuss a specific topic during lunch. I picked the table that would be discussing “HOW ESOPS CAN MAKE ACQUISITIONS”. The table was full of people from companies that were doing just that, using the ESOP structure to make acquisitions. Very interesting and very complicated, but well worth it if they work out.
In terms of the speakers, and there had to be 100 of them, all were well prepared and well versed on ESOP procedures, full of suggestions how to avoid problems should you make the decision to proceed with an ESOP structure. Many programs were presented by a panel of speakers, normally a trustee, an attorney and a valuation expert who calculates the initial value of the ESOP and then annual valuations to value the shares going forward. There was not one poor speaker in the bunch….at least in the sessions I attended. And to make all the programs available to participants, every program was recorded and available on the NCEO website.
So, there were 1,900 in attendance, with programs, lunch and breaks executed to perfection. It was tough to find someone there who didn’t say they would return on an annual basis because of what they learn in the sessions as well as what they learn from conversations with other attendees.
And when they introduced the NCEO staff, I believe there were about 5-7 people introduced, and I am sitting there thinking “How do they do that?” You had to be there to believe it.
I am telling you this because I believe every dealer with a rental fleet needs to see if an ESOP could fit their needs. In other words, any dealer with a large recapture balance, personal guarantees they would love to get rid of and a ton of liabilities they would have to pay off if they sold assets REALLY HAVE TO EXPLORE THIS OPTION. Just call NCEO or check out their website and you will find all you need to do this review.
Just so you understand, if you sell assets you pay ordinary tax on the recapture and capital gain on the balance, pay off all liabilities and get to keep what is left. Not much left, I assure you.
But on the ESOP side you sell your shares (no recapture). Depending on your structure your tax is 20% or 0% if you can defer the gain. Just think about it, defer the gain for maybe 40 years if your children inherit the securities. You could double or triple your money in that time frame before any tax is due. And to top it off ESOP’s do not pay income taxes of any kind. More cash flow to run the business and pay off shareholders.
Many owners think they must do a 100% sale to make an ESOP work. Not true. You can sell 10% to 100% to the ESOP. Only difference is the shares in the ESOP pay no income tax, but the remaining shareholders would, or the company would be depending on tax structure. A lot of owners start with low % and sell off additional shares as they desire, while keeping their job with the company.
One great benefit I received from attending the meeting is that I met quite a few experts who had ways to complete an ESOP transaction for very reasonable fees. It was interesting to see the spread in the cost of completing a transaction.
Do yourself a favor and have your CFO go to the NCEO website and get some information of how ESOPs work and the steps required to make it work. And if you have questions you can give me a call and we can discuss the transaction process. As I have said in the past, do not make a heavy investment in this process until you have a pretty good idea you have a deal that can fly.
Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail [email protected] to contact Garry.
