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Ten ESOP Fables – Debunked – Part VI

This is the sixth – and last – in a series of articles that will attempt to dispel ten common misconceptions, or fables, about ESOPs.

ESOP Fable #10: An ESOP will remedy all of my company’s problems.

While the Employee Stock Ownership Plan is a powerful financing vehicle, it is not a panacea.  If your company has fundamental financial, organizational, or operational problems, an ESOP may not be appropriate.  ESOPs work best in healthy companies or in companies demonstrating potential for future success.

Likewise, installing an ESOP in a healthy company does not ensure improved performance.  In order to realize the greatest performance improvement from an ESOP, the employees must be educated about the benefits offered; and this education process must be reinforced regularly.  Otherwise, skeptical employees will consider the plan as just another management scheme.

The Employee Stock Ownership Plan has become one of the most powerful vehicles of corporate finance available to owners of privately held businesses.  Accordingly, its success can be measured by the rapid growth in the number of plans established, from less than 200 in 1974, to more than 6,900 today.  By dispelling some of the most commonly held ESOP misconceptions, and by studying the opportunities offered by such plans, business owners may find that creating an ESOP offers some significant advantages over selling a business to a third party.

If you would like to receive a copy of the complete white paper with all ten ESOP fables, please contact me directly.

As ever, if you know of a business owner who’s thinking of selling or buying a business and who might benefit from a free, confidential, consultation with us, have them contact me directly.

By: Mike Ertel, Transworld M&A Advisors