April 20, 2020

How an ESOP can help your company survive a pandemic

April 20th, 2020

Kyle Coltman ESOP Advisor

Kyle Coltman, CEO of The Menke Group

On a recent episode of the Daily Social Distancing Show with Trevor Noah, special guest Mark Cuban discussed how to revive the economy in the wake of a global pandemic. Cuban relayed some of the advice he’s shared with President Trump as part of his involvement on the coronavirus task force.

“The things that I’ve recommended initially is to try to push and reward companies that offer equity in their company to their employees,” said Cuban. “The only way that you can get away from living paycheck to paycheck is by having an asset that can appreciate. Whether it’s a home, whether it’s stock in your company, whatever it may be.”

What Cuban describes is an Employee Stock Ownership Plan (ESOP). An ESOP is a qualified plan (similar to a profit-sharing plan) that creates a retirement benefit for employees. Further, it allows the company to take a tax deduction for the ESOP funding and allows shareholders to sell their stock tax-free.

I’ve spent over 40 years promoting employee ownership through ESOPs with Menke & Associates Inc., a company that is employee-owned itself. Here are three reasons I agree with Mark Cuban:

  1. Nobody washes a rental car – The idea is simple: you’re more likely to take care of something you own versus something you rent. When you own something, you have a vested interest in increasing its value – whether that’s your car, your house or your company. An ESOP links employee efforts with employee rewards.
  2. Greater productivity, higher profitability – Sharing company ownership with employees increases their productivity. Higher productivity translates to higher profitability, which in turn leads to higher company values. In some cases, a 1% increase in productivity can translate to a 25% increase in company profitability.
  3. Protect your company in a recession – A 2017 study showed that employee-owned companies weather recessions with greater stability than non-employee owned firms – and that includes maintaining a more stable workforce. Showing your employees you value them sends a message in a difficult time that you care about safeguarding their future.

The easiest and most cost-efficient way to create employee owners is to adopt an Employee Incentive ESOP.  In this case study, we examine how our client Ringland Johnson used this strategy to implement an ownership culture and mentality.

There are tremendous benefits associated with a company that is 100% owned by an ESOP, which we call the Succession ESOP.  In this case study, we show how our client Basden Steel used our strategy to achieve 100% employee ownership, which ensured their culture and legacy to live on.

 

Menke & Associates Inc. is the most active firm in the U.S. that fosters employee ownership through ESOPs. To learn more about how an ESOP can help your business, contact us today.

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Upcoming Web Seminar:

In 2024, many companies are looking for ways to minimize corporate taxes and maximize cash preservation, while also maintaining competitive employee benefits. Other companies are looking for ways to create liquidity for shareholders who wish to retire or reduce their ownership stake.

This 90-minute web seminar is free-of-charge and will show how ESOPs can be structured to accomplish these and other objectives that may be essential to the sustainability and success of your company in 2024!

Among the topics that will be covered are the following:

    • What is an ESOP and what benefits can an ESOP provide to companies and their owners?
    • What are the basic ESOP structures?
    • How are ESOPs typically structured to accomplish any one or more of seven different shareholder/company objectives?
    • What benefits can ESOPs provide for shareholders of S corporations?
    • How are ESOPs typically structured to accomplish any one or more of seven different shareholder/company objectives?
    • How are companies valued for ESOP purposes?
    • How is ESOP financing structured?
    • What is the impact of an ESOP on employee motivation and productivity?

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For a free preliminary analysis, just fill out our ESOP Feasibility Questionnaire.

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October 23, 2024
Join us for a free, 90-minute web seminar on Wednesday, November 20th, 2024, where industry experts will guide you through the essential benefits of ESOPs. You’ll learn how ESOPs can be structured to meet your specific business needs, ensuring the sustainability and success of your company in 2024 and beyond.