Alana Muller: (00:10)
Welcome to Enterprise.ing, a podcast from Enterprise Bank & Trust that's empowering business leaders one conversation at a time. Each week, we'll hear from top business professionals about lessons on leadership and entrepreneurship that they've learned along the way. I'm your host, Alana Muller, an entrepreneurial executive leader whose primary focus is to connect, inspire, and empower community. We, at Enterprise Bank & Trust, thank you for tuning into another episode.
Hello, listeners. Welcome back to Enterprise.ing podcast. As we've done from time to time, today's episode recalls some useful advice we've received from previous guests on the program, and it provides some tactical tips for those interested in digging deeper. So, today we're diving into a topic that's becoming an increasingly popular business succession strategy: That's employee stock ownership plans or ESOPs. In past episodes, we had the opportunity to speak with Keith Davenport of the Missouri Center for Employee Ownership and the leaders of Musselman & Hall Contractors, Dexter Phillips and Kyle Van Slyke. Their insights on ESOP planning were extremely insightful, and today I'll be sharing some of the most important takeaways along with helpful tips for business owners considering this path. Let's start with why ESOPs are such a powerful tool for business succession. Keith Davenport pointed out a startling fact.
Keith Davenport: (01:40)
Let me start with the problem we're trying to solve, and then I'll talk a little bit about how we got here. So in Missouri, right now, about 52% of privately owned businesses are owned by somebody who's over 55-years-old. So you think about what that means for the economic landscape in Missouri, in the next 10 years, probably over half of the businesses are going to go through an ownership change.
Alana Muller: (02:05)
Unfortunately, many don't have a plan. Some hope to pass the business down to family, but that's not always an option. Others try to sell, but only about 20% of businesses that go to market actually sell. That's where ESOPs come in. Instead of selling to a private equity firm, shuttering the business, or pursuing another less appealing option, an ESOP can provide an alternative approach to maintaining a business as a going concern by positioning owners to sell to their employees. This translates to preservation of jobs, ensuring the founder's legacy, and strengthening the local economy. Musselman & Hall made this transition in 2018, and Dexter Phillips explained how it allowed the company's leadership to exit while ensuring business continuity.
Dexter Phillips: (02:51)
You know family organizations, I think that's one of the things they struggle with is continuity from one generation to the next. Anyway, we all had, we all came into it with different needs and wants. And you know, I kind of suggested the ESOP answer as a way to solve my problem. But it was also a way to allow the other two owners, to allow them an exit strategy. It also created a board that solved our succession plan and it also put the company in the hands of the people that basically are getting the work done.
Alana Muller: (03:24)
Now, ESOPs aren't just good for owners, they're great for employees too. Employee-owned companies tend to perform better than their competitors. Keith shared an example where an employee empowered by the ownership mindset took the initiative to save her company tens, if not hundreds of thousands of dollars on packing materials. At Musselman & Hall, Dexter and Kyle have seen the same impact. Employees became more invested in decision-making and morale improved. They also mentioned that ESOP companies tend to have lower turnover rates, which is a big advantage in today's labor market.
Shifting gears a bit, let's talk about the numbers: Keith highlighted some major financial benefits of ESOPs. For C corporations, owners can defer capital gains taxes when they sell to an ESOP. For S corps, the percentage of the company that is employee-owned is actually exempt from federal income tax. That extra cash flow can help businesses grow, pay down debt, and reinvest in their future.
Alana Muller: (04:25)
Musselman & Hall has taken a long-term approach to financial planning, ensuring their ESOP continues to provide value for employees over time. Now, ESOPs, of course, aren't a magic fix. As Keith emphasized, a business needs strong leadership and a healthy culture for an ESOP to thrive. If a company has poor management or financial struggles, transitioning to an ESOP won't solve those problems. Dexter and Kyle also noted that education is key. Many employees, in fact most people, don't fully understand ESOPs at first. It takes time, training, and clear communication to help them see the benefits of employee ownership.
Kyle Van Slyke: (05:07)
So, there's a lot of education and, you know, just really intentional conversations and communications with our employees to help them understand the true impact of the organization they're a part of, because we want them to feel empowered to really take this company that they truly own and make a difference with it.
Alana Muller: (05:32)
So, if you're a business owner thinking about an ESOP, here are a few things to consider. First, start planning early. Don't wait until you're ready to retire to figure out your exit strategy. ESOPs take time to implement. Secondly, consider a partial ESOP. And you don't have to sell 100% of your company right away. A gradual transition can ease the process. Finally, take advantage of tax benefits. Work with your trusted financial and legal advisors to maximize the tax advantages of an ESOP. To sum it up, ESOPs can be a powerful option for business succession, offering financial benefits, improving employee engagement, and contributing to long-term company stability. But they require careful planning and a cultural shift. As Dexter said, running an ESOP means making every decision with employees in mind because now they're the shareholders. If you're a business owner thinking about your company's next step, ESOPs might be worth considering. To learn more, check out the Missouri Center for Employee Ownership at moceo.org, or visit musselmanandhall.com to see how they made the transition.
Alana Muller: (06:47)
That's all for today, listeners. If you enjoyed the discussion, don't forget to subscribe to Enterprise.ing podcast and leave us a review. Thanks for listening. See you next time on Enterprise.ing podcast.
Thanks for joining us this week on Enterprise.ing. Be sure to visit our website, enterprisebank.com/podcast to subscribe so you'll never miss an episode. If you found value in today's program, please consider leaving a review on Apple Podcasts or telling a friend about us. Enterprise.ing, powering business leaders one conversation at a time.
The views expressed by Enterprise.ing presenters or guests are those of the presenter or guests and not necessarily of Enterprise Bank & Trust or its affiliates. All content of this podcast and any related materials are for informational purposes only. Enterprise Bank & Trust does not make any warranty, express or implied, including warranties of merchantability and fitness for a particular purpose, and specifically disclaims any legal liability or responsibility for the accuracy, completeness, or usefulness of any information presented. Enterprise Bank & Trust is not under any obligation to update or correct any information provided in this podcast. All statements and opinions are subject to change without notice.
