By now, most of us have adjusted to the official start of Daylight Saving Time. Some see this transition as a loss, namely the loss of an hour of sleep on a weekend. I, however, view it as a time of renewal, a time to refresh.
The grass is starting to turn green and trees are budding out. Financial professionals can use this time of renewal and growth as an opportunity to refresh their practices for growth.
Employee Stock Ownership Plans (ESOPs) can be a vehicle to spring ahead for financial professionals. An ESOP is a qualified defined contribution retirement plan that is invested primarily in the stock of the sponsoring company. ESOPs are unique in that they can borrow money which creates a flexible approach for a business owner to sell all or part of their company.
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And the timing couldn't be better. Spring is a great time to discuss ESOPs with your business owner clients and prospects.
The changing season offers a great opportunity for business owners to assess where they are at personally and professionally to re-evaluate their objectives. Are they headed in the direction established at the start of the year? Or have things changed, causing the need to chart a new course?
For most, this will involve decisions around how to operate their company in the coming year. Should the company expand, enter new markets, replace some equipment, or add to staff – these are just a few of the questions they need to address.
For some business owners the questions may be more personal. Is this the year I should sell, or plan for the sale, of my company so that I can retire? If so, what is the timeframe? Who should I sell to? Can I get a fair price and what would that be? Who can I turn to for help to understand my options?
Others may be looking to refresh their investment portfolio. It is common for business owners to have a significant portion of their net worth tied up in the business? This lack of diversification can be a double- edged sword as many learned during the run-up to and subsequent recession. If they want to diversify their holdings, an ESOP may be a liquidity solution to assist in their effort.
Many business owners are concerned about recruiting and retaining top tier staff. An ESOP can be an effective vehicle to differentiate the company from its competitors. I explored this in greater depth in a previous post .
Finally, April 15th is fast approaching. As business owners prepare to file their personal and company tax forms, it is a logical time to look for ways to manage their liabilities going forward. The unique tax status of employee stock ownership plans can assist a business owner in this effort.
There are obviously several reasons for business owners to look at ESOPs more closely. But, as a financial professional you are probably thinking WIIFM – what's in it for me? This is a fair question and next month I will look at how an ESOP can generate investable assets, create a need for life insurance, and open doors to other employee benefit plans.
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