ESOPs: 4 Keys to Success

“Paychecks can’t buy passion.” -Brad Federman

ESOPs have been called the most tax efficient way to transition a business in the history of the world.

You’ll have to consult your tax pro to determine if that statement is accurate for your brewery. Regardless, Employee Stock Ownership Plans (ESOPs) are a hot topic these days.

Owners want a chance to give back to employees to create a culture of ownership. Employees want a stake in the outcome, and equity in the business they are helping to create and to grow.

An ESOP can help deliver on all of these wants.

ESOPs work when there is:

  • Cash Flow
  • Business Value
  • Motivated Employees
  • Strong leadership

Cash flow must be sufficient to service the debt associated with the ESOP transaction. The business value must be high enough to allow for financing of the deal.

Employees must be motivated to want to be owners. ESOPs never really work well unless employees buy-in to the concept of employee ownership. Employees may say they want the rewards of being an owner, but do they also want the risks? Do they know what the risks are?

Strong leadership is a critical component of a successful ESOP. Nobody wants a Lord of the Flies scenario at the brewery. ESOPs can create employee ownership and improved engagement. However, without strong leadership the whole deal can go terribly wrong.

There’s lots to consider with an ESOP. Talk to your fellow brewers that have made the leap and ask for advice. Talk to your CPA or lawyer to understand the options and considerations.

There’s a lot at stake. Do your research and find out if an ESOP is right for your brewery.

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