The ESOP option in selling a business describes how ESOPs can be used to address the challenge of obtaining a fair price when selling a business:
"Most successful businesses are worth considerably more than the value of their assets alone. Yet it's difficult for owners to get the value they seek in exchange for a lifetime of work, since banks generally will not lend money on good will.
Therefore, a third-party purchaser is often interested only in the value of a company's hard assets. The result: most businesses are sold at a reduced price, with better than nine out of 10 owners financing at least some of the transaction, frequently at least 50 percent of the selling price.
So what are your options?
Your most favorable avenue may be an employee stock ownership plan, or ESOP. With an ESOP, a business owner will receive fair-market for his or her shares, and the deal can close in as little as 120 days. A business owner also will enjoy powerful tax advantages, allowing deferral or even avoidance of taxation on the sale."
The article also discusses how ESOPs can benefit the company and society:
"Richard Duffy, chapter development officer for the ESOP Association and president of Ownership Vision Inc., a Salem, N.H., consulting firm providing communications and ownership culture services to ESOP companies, explains that "an ESOP gives a company the opportunity to create a competitive advantage that can increase profitability from 3 to 13 percent."
According to Duffy, ESOPs are a vehicle for "broadening the distribution of wealth. We have a very small percentage of people who control the wealth and capital in this country. I believe strongly in spreading employee ownership so the people who helped create the wealth and capital share in the benefits of it.""
Cranston Print Works Company (Webster, MA)
The article mentions Cranston Print Works Company, one of the oldest ESOPs in the nation. Their company website describes how their ESOP helps them address the keys for survival in the manufacturing industry:
"Competitive products and competitive pricing are the only keys to survival for any manufacturer. Because our employees believe in the ESOP, we stay focused on improving our technology and being innovative. The ESOP concept empowers every Cranston employee owner to perform their job with skill. At Cranston, the ESOP means a guaranteed high level of service and outstanding quality of product."
It also provides quotes from their employees about how they felt about working for an employee-owned company:
- "This company cares about its employees and customers.
- A sense of pride and satisfaction in our product and company.
- … the concept of employee ownership fosters a culture of strong employee enthusiasm towards making Cranston successful.
- My actions at work have a direct impact on results.
- … this is my company and by working my hardest and demanding my co-workers work to their potential, … I can directly impact our success and prosperity.
- I own a piece of this company -- that allows me to make it a better place to work.
- We share in overcoming our challenges, and if we do, we will share in the rewards.
- I have to work harder because it is my responsibility as an owner.
- My efforts impact the … stock price which impacts the return of the stock.
- What a great benefit it is to have [an] ESOP. It increases my pride/interest in the company.
- How well we all perform determines how well our company does.
- Makes me proud to be a part of this company.
- To make the company successful so I can share in the profits.
- We all work smarter and better because we know we are helping ourselves.
- A good and trusting company to work for … I am in a position in life that I can truly say -- this is the best job I have ever had and hopefully will be my job until I retire.
- I am proud to work for this company -- in this incredibly tough industry. Our focus toward staying in business through tough times is extremely important."
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