
ESOPs Explained: Bridging the Wealth Gap with Chris Coates (Ep. 155)
What if your employees could help drive your business to new heights while investing in their own financial futures?
Uncover the power of ESOPs now!
Join host Larry Heller, CFP®, CDFA®, as he discusses the intricacies of ESOPs with Chris Coates, a skilled professional in business transition strategies. With over 30 years of experience, Coates offers an in-depth look at how ESOPs work, the benefits they provide, and why they are a compelling option for many business owners.
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Key Points Covered:
- Understanding ESOPs, including their basics and role as retirement benefits for employees
- Significant tax advantages of ESOPs for both C and S corporations, including potential legislative changes
- Ways ESOPs foster employee loyalty and incentivize employees to act like owners
- The role of ESOPs in leadership succession and long-term business sustainability
- How ESOPs enhance employee retirement benefits alongside existing 401k plans
- A balanced look at the pros and cons of ESOPs for business owners and employees
- Plus, additional insights into maximizing the benefits of ESOPs!
Connect with Chris Coates:
Connect with Larry Heller:
- (631) 248-3600
- Schedule a 20-Minute Call
- Heller Wealth Management
- LinkedIn: Larry Heller, CFP®, CDFA®, CPA
- YouTube: Life Unlimited with Larry Heller, CFP®
About Chris Coates:
In his role as Vice President, Chris advises companies, owners and other stakeholders on business transition strategies, with a particular focus on ESOP ownership transactions. He has extensive deal shaping, negotiation and operational management experience that provide him with a unique perspective on the opportunities and challenges of companies seeking to implement employee ownership.
Prior to joining SES ESOP Strategies, Chris was a Managing Director with Accenture, a global consulting firm. During his 30-year career he has worked with various industries, including life sciences, utilities, consumer products, financial services and health and public service. In his most recent role as Commercial Director, Chris oversaw all operational aspects of sales and delivery to large, complex and global clients. This included oversight for the financial, legal, human resources and business operations aspects of the relationship.
Publishing Tags: Life Unlimited, Podcast, ESOP, Employee Stock Ownership Plan, Business Transition, Business Succession, Retirement Planning, Financial Planning, Wealth Management, CFP, Financial Advisor, Tax Benefits, Employee Ownership, Chris Coates, Larry Heller, Long Island, New York, Manufacturing, Professional Services, Employee Loyalty, Business Strategies, Financial Growth, Succession Planning, Heller Wealth Management, Financial Planner, Portfolio Management, Investment Management, Personal Finance, Certified Financial Planner, Investing For Women, Business Exit Planning.
Transcript:
[00:00:00] Voiceover: Welcome to the Life Unlimited Podcast with Larry Heller. You deserve complete financial advice so you can confidently live your life your way for life. Now let’s get into this week’s podcast episode.
[00:00:19] Matt Halloran: Hello and welcome to another Life Unlimited podcast with your host, Larry Heller. Today we have a guest.
[00:00:24] Matt Halloran: This is Chris Coates, an expert advisor specializing in business transition strategies, particularly focusing on ESOP ownership transactions with a rich background spanning over 30 years, including his tenure as managing director at Accenture. Chris brings a wealth of experience in deal shaping and negotiation and operational management across the diverse industries such as life, science, utilities, consumers, products, financial services, health and public service.
[00:00:50] Matt Halloran: So we are gonna be talking about, uh, ESOPs and a whole bunch of other fun stuff today. Larry, take it away.
[00:00:55] Larry Heller: Thanks, Matt. Chris, thank you so much for, joining us today. we’re talk.
[00:00:59] Chris Coates: Thank for having me.
[00:01:00] Larry Heller: Yep. We we’re gonna talk a little bit about ESOP. So before we even kind of get into this, I mean, a lot of our audiences may have heard the word ESOP, but they have no idea either what it means, what it does, why they should be considering this, is it a good thing, a bad thing?
[00:01:16] Larry Heller: So we’re gonna cover a lot of ground out there. So, uh, Chris, why don’t we start really right off at the. Beginning, what is an ESOP?
[00:01:25] Chris Coates: Alright, well yeah, an ESOP, is an employee stock ownership plan. You know, [00:01:30] and actually you mentioned that a lot of people don’t necessarily know what they are. And so, uh, thank you for the opportunity to share some information.
[00:01:37] Chris Coates: An ESOP is at its core, uh, retirement benefit for a company’s employees. Um, it’s a mechanism for a business owner to sell their business separate from a third party, transaction or, uh, selling it to like private equity. Um, ultimately, I. You’re selling your business to a retirement benefit for your employees.
[00:01:57] Chris Coates: and the government, provides incentives, for business owners to use this, in order to basically help bridge the wealth gap by providing broader access to equity for the employees.
[00:02:07] Larry Heller: So the, the, the employees actually then own shares, or the retirement plan owns it, and they own shares of the retirement plan.
[00:02:15] Larry Heller: How does that work?
[00:02:16] Chris Coates: Well, yeah, it’s, uh, and that is, it is an important nuance. it is, the retirement plan is what owns the shares. It’s a retirement trust. Um, so the employees get shares in the business, but they’re beneficial owners. They’re not direct owners. So, as the ESOP is set up, and we can get into the mechanics in a little bit as the ESOP is set up.
[00:02:39] Chris Coates: the shares will be allocated to the employees over time, and so they build up ownership, in the company, but it’s in their retirement benefit. Plan. And so basically it helps them retire better, you know, when that time comes.
[00:02:53] Larry Heller: Right. So they’re not kind of making decisions on running the business and how they’re, they’re getting just a piece of the [00:03:00] business financially and shares and hopefully that goes up and then at, at some point in time they could cash out and get a retirement benefit.
[00:03:08] Larry Heller: Is that kind of how it works?
[00:03:10] Chris Coates: Correct. they don’t, they’re not. And that’s a misconception that a lot of people have. They do not have operational control as they’re not, you know, getting direct ownership and having say in how the business is run, it really is the company transitions control to the, to the retirement trust operationally, the company.
[00:03:30] Chris Coates: Basically operates the same as it did before the transaction. they just get shares in their retirement plan so that when they’re ready to retire, it’s sort of akin to a 401k. Um, okay. Except it’s shares in the business that they work for as opposed to a diverse, fund. but they will get distributions when they hit retirement age.
[00:03:51] Chris Coates: Income, in addition to their other, uh, retirement income.
[00:03:55] Larry Heller: Right. I know we may cover this later, but just, throw it off the top of my head. So, do all employees have to participate and do, how do they, how do you decide how much shares each employees get? Is it equal amount? Is it different amounts?
[00:04:09] Chris Coates: everybody does participate.
[00:04:10] Chris Coates: Everybody has the opportunity to, that’s not to say that everybody will participate. There’s, requirements they have to meet to become eligible, which is typically, Been with the company a year, minimum 21 years of age and working at least halftime. So that’s sort of the eligibility side.
[00:04:29] Chris Coates: And then there’s, [00:04:30] um, vesting, which typically is three to five years. if you have a transient population, they may never participate in the ESOP as they will not meet those requirements. Everybody has the opportunity to participate though, and when they do become, eligible, the way that, uh, the distributions occur are typically based on total comp.
[00:04:50] Chris Coates: So it’s basically higher compensated employees, the more, key employees will generally get a larger allocation, though everybody who is eligible, will receive an allocation, based on their compensation.
[00:05:02] Larry Heller: So they’re not paying for anything. They’re actually just getting this benefit.
[00:05:07] Chris Coates: Correct. This is, you know, a benefit. It is done to the employees by the business for their benefit. And it’s, um, that’s one of the beautiful things about it. It’s, uh, it can be very good for retention and, uh, talent attraction because it’s an additional benefit that people are not, um, paying for and it can be material for their retirement.
[00:05:27] Larry Heller: Right. So just, so, so the government is actually paying for this? Is that how, how it works?
[00:05:32] Chris Coates: and this may be a, a moment to, uh, you know, sort of describe how they work and what the incentives are. But yes, the government is sort of helping business owners, incenting business owners to do this, for their employees benefit again, to help try and bridge the wealth gap.
[00:05:47] Chris Coates: By creating this access to equity, the four incentives that, the government has, set aside for ESOPs, and this is part of erisa. ESOPs were created in the seventies, um, under erisa. They’ve [00:06:00] been modified a bit in terms of legislation, but ultimately it’s a, a product of congress, trying to, You know, and send business owners to do this.
[00:06:08] Chris Coates: And, and that’s why there’s, they’re overseen by the DOL and the IRS for because of these benefits. But first off, it’s the only benefit plan that the government allows you to borrow money to set up. as such, the way it works is a company will take out a loan on the balance sheet. those monies get loaned to the trust because the trust has no assets.
[00:06:28] Chris Coates: those monies are then used to purchase the shares from the owner. so in that one three part transaction, the owner is getting money for their shares. The trust is getting the foundation for this benefit plan so that they have the shares to allocate that to their employees. Typically, a bank is not gonna loan you full value for your company upfront.
[00:06:48] Chris Coates: And so in addition to the lending, if you’re doing a hundred percent ESOP, you’re also, getting a seller note. So the company is, pledging to repay the owner mm-hmm, for, uh, the shares over time after the bank debt is paid down. again, first incentive is, is the only benefit plan that the government allows you, to borrow money to set up.
[00:07:07] Chris Coates: The next three are tax based. So if you’re a C corp, and you have to do it as A-C-R-N-S and you can switch at the time of the transaction. A C corp, the owner can sell their shares, to an ESOP and defer the capital gains on that sale till stepped up at death. So, as you know, your state and my state in New York and New Jersey.
[00:07:26] Chris Coates: In a low basis company, um, if you’re selling a company, [00:07:30] 30% of that could go. The proceeds could go to the government. that can be avoided. with an ESOP as a C corp. In addition, as a C corp, the company can actually deduct the contributions, to the benefit plan on an annual basis. And those contributions are tied to the re the servicing of the debt.
[00:07:46] Chris Coates: so basically you’re making a contribution to a benefit plan. Which is then used to repay, the internal debt, that becomes an additional tax deduction. So it’s cashflow, positive. So as a C Corp owner gets a potentially tremendous, tax benefit. The company gets a a moderate tax benefit. If you’re an s-corp.
[00:08:04] Chris Coates: Conversely, the company can operate as a defacto tax free entity. s-Corps, many of the listeners will know that, the company has to make contributions to their shareholders to cover for their tax obligations. Well, and, and s-Corp. ESOP doesn’t pay taxes. So that basically becomes a for profit company operating as a tax free entity.
[00:08:23] Chris Coates: So. Those are sort of the four incentives that, they’re, helping owners opt in for this or at least take, you know, become aware of it, um, as an, as a way to, uh, both monetize their business but also get a benefit, for their employees. Hmm.
[00:08:39] Larry Heller: And you, there was one more, I think you said four.
[00:08:42] Chris Coates: So that was, that’s the four.
[00:08:43] Chris Coates: So it’s, that’s the four. The, the, the ability to borrow money, the two tax incentives as a C, both for the, the owner and the company. And then the tax in incentive, uh, as an S corp.
[00:08:55] Chris Coates: Okay.
[00:08:55] Chris Coates: And typically a lot of our clients will do the transaction [00:09:00] as a C corp.
[00:09:00] Larry Heller: Mm-Hmm.
[00:09:01] Chris Coates: If it, if that’s available to them. and,
[00:09:03] Chris Coates: Defer the capital gains and then eventually, uh, switch to s to become a tax re entity, uh, defacto. ’cause it’s just, that’s, that’s pretty magical as a, uh, you know, a company being able to operate, um, and not pay income taxes.
[00:09:18] Larry Heller: so the S corp can’t defer the capital gains.
[00:09:20] Chris Coates: No. If you’re doing, doing it as an s, then they, they say that’s, you know, that does not tie to the, uh, capital gains deferral.
[00:09:27] Larry Heller: Mm-Hmm.
[00:09:28] Chris Coates: Um, there is some movement in Congress that they’re trying to get a little bit of that, in play. but that’s not, that’s currently, it’s only as the C Corp you can defer the capital gains and then you have to, uh, switch to. to basically become a, to defacto tax free entity.
[00:09:43] Larry Heller: Okay. Gotcha.
[00:09:44] Larry Heller: So let’s kind of go back to the, you know, kind of one of the reasons, like, why would somebody, a business owner want to do this rather than, you know, sell to a, third party or you said private equity. Why, why would somebody, what are the the reasons why they’d wanna do this E ESOP.
[00:10:01] Chris Coates: Well, there’s a couple of things.
[00:10:02] Chris Coates: Obviously the tax benefits may help you, end up better financially. you know, if you can defer the capital gains on the sale, you know, that can be a material, shielding of, of assets. that’s why the government is using those as incentives. The other things that might drive someone to wanna consider an ESOP.
[00:10:19] Chris Coates: many of the owners care about their employees. They’ve, they have loyal employees that have been with them for 20 years and they wanna do something. They feel they’ve made enough money and they wanna be able to give back [00:10:30] to some of their employees, and ESOP is an elegant mechanism to do that. I work, I as men, you know, as Matt mentioned, I spent 30 years with Accenture.
[00:10:38] Chris Coates: I had access to. Stock options and, RSU grants that allowed me to get equity in the company. Mid-market companies, private mid-market companies don’t necessarily have access to that or as many mechanisms. So this sort of creates, um, something that you can give to your employees. The other thing, um, if you sell to private equity or a third party strategic, they may, they’re gonna wanna tell you how to run the business.
[00:11:01] Chris Coates: They’re gonna say an ESOP trustee. Doesn’t, necessarily care how you run the business. Operationally, the business will, continue as it ha as it did prior to the transaction. Um, the trustee’s fiduciary responsibility is to make sure that you’ve set up a legitimate benefit for your employees. So. Um, as long as that purpose served, they’re not going to, you know, say how you run the business.
[00:11:27] Chris Coates: So for people who wanna stay involved, people who are not ready to fully step away, but wanna monetize their business, you know, it can be a good mechanism, for that and also create the incentive for the employees to start behaving. Like owners. They’re becoming owners and so, you know, if you, if you wanna work on your succession plan.
[00:11:46] Chris Coates: You’re gonna create incentive for people to basically get more invested in, in the company. So those that have the wherewithal and the desire to maybe become the next leadership team, there’s incentive, for that. so, you know, [00:12:00] patience, not wanting to give up control, wanting to help out their employees.
[00:12:04] Chris Coates: those are some of the reasons. That you, that people might use it,
[00:12:07] Larry Heller: right? Does the ESOP have to own a hundred percent of the company? In other words, let’s say you had a, two partners. One was the 80% partner, the other was 20% Matt, 20% owner was younger and kind of didn’t wanna sell their shares into the ESOP.
[00:12:22] Larry Heller: Can you do that Or it has to be a hundred percent?
[00:12:27] Chris Coates: Are actually very flexible. Uh, you can do any percentage that you want. the, uh, there’s rules around the capital gains deferral. the ESOP has to get at least 30% of the shares of the business, in order to qualify for the capital gains deferral.
[00:12:40] Larry Heller: Mm-Hmm.
[00:12:40] Chris Coates: But absent that, you know, you can do it for less than 30 if you just wanna create a benefit and take some chips off the table. but if you want to do 30%, 40%. anything under 50 will, allow you to retain control. So depending on the partnership scenario, if you have a couple of, junior partners who wanna stay involved and benefit in the growth of the business, you can do that.
[00:13:01] Chris Coates: just becomes a question of, do they wanna control stake? Do they, you know it, but very flexible.
[00:13:07] Larry Heller: Hmm. So are there different types of companies, industries that are better fit for ESOPs than others?
[00:13:15] Chris Coates: ESOPs are really industry agnostic. that being said, um, there are ones that you don’t see them as frequently.
[00:13:21] Chris Coates: number one, even though it’s a legal construct, law firms, do not do ESOPs technically could be feasible, but they’re just not done. you do see it in [00:13:30] medical practices, which is a, you know, a similar type of, of arrangement where you have a, you know, a partnership and there’s rules around ownership, by professionals, but like.
[00:13:38] Chris Coates: Same thing with a PE transaction, with a medical practice, you’d have to set up a shared service, for, 75, 80% of the revenue in ebitda, and do the ESOP on that, and then have the ownership, of the medical, of the delivery of medical services done. by doctors. but, we see it in obviously sort of manufacturing that’s sort of a natural and where they sort of started.
[00:13:59] Chris Coates: but, professional services, we’re doing a lot in the architects, engineering and construction space. it contractors, it, it really does run the gamut and it’s, the limitations are, you know, hypergrowth companies, you’re not gonna do it. ESOP trustees are conservative. So like a cybersecurity IT company, chances are you’re not gonna get the valuation that you would, you know, based on your growth trajectory.
[00:14:21] Chris Coates: It’s not for business in distress. Again, at its core, it’s a retirement benefit for the employees. So the DOL and the IRS are gonna say, you know, if this is a company that may not endure, why are you gonna set up a benefit that may go away? so, highly technical businesses sometimes can be a struggle, not necessarily you, you can do it, but you, again, it’s a question of will you get the valuation, that you’re looking for.
[00:14:45] Larry Heller: And what about size, employee size? Is there something that you see more often, typical, or it’s just all over the place?
[00:14:53] Chris Coates: Our floor for what we think a transaction is doable with is a million dollars in EBITDA and up. [00:15:00] Now that is on the small side. it may not be the well for the owner ’cause you may not be able to get.
[00:15:05] Chris Coates: bank lending, it’s all about cash flow. Mm-Hmm. Um, so, you know, you may be doing it all seller finance, but that may be okay. But so million dollars in EBITDA and up is sort of where, you know, we think is sort of the floor for a transaction. 20 to 25 employees is the base. and that’s. Really, for anti-abuse rules, um, as an S corp, below that, it, it sort of starts looking like a land grab for senior management.
[00:15:30] Chris Coates: And it’s not, again, it’s supposed to be a retirement benefit for a broader base. Mm-Hmm. And so, um, that becomes limiting. But, we’ve done them as small as that. Our highest transaction to date is two 40 million mm-Hmm. Enterprise value. Our, wheelhouse, I would say was in, is in the sort of 30 to $60 million valuation range, you know, and the employee count can, run the gamut from, 50 to 1 25.
[00:15:57] Chris Coates: You know, it, it just depends on industry and business.
[00:16:00] Larry Heller: Right now, do you see the valuations a little bit lower than you would on a traditional sale or a p and e, uh, a PE sale?
[00:16:08] Chris Coates: By regulation, the trustee cannot pay more than fair market value. So, fair market value is a range, obviously, but you know, you, the trustee can’t overpay for the business because then, it hurts the participants, who are the beneficiaries of the trust.
[00:16:24] Chris Coates: As a result of that, they’re not allowed to pay a strategic premium. So if you had a third party. Um, [00:16:30] strategic or a PE firm that was trying to, uh, purchase the company to maybe, eliminate a competitor or, um, could, had, could consolidate shared services.
[00:16:40] Chris Coates: And so is, so is willing to pay a premium. A trustee can’t do that. Mm-Hmm. so you are gonna,
[00:16:46] Larry Heller: But you’d be able to still be able to get market value. You’re not taking a um, haircut by doing an ESOP versus a traditional sale.
[00:16:53] Chris Coates: The trustee will be a little bit conservative, but no, you’re really not taking a haircut.
[00:16:57] Chris Coates: It’s really what a financial buyer would pay. So, uh, we’re seeing in this market, you know, for good sized companies, you can get, Six, maybe more times. ebitda. Again, it depends on the industry and the size. You know, a smaller business is gonna have, you know, struggle with the cash flow to service the debt.
[00:17:13] Chris Coates: And so there may not get as much, but a good, five and a half, six times EBITDA for a strong business is there and you can go higher for, uh, specific businesses.
[00:17:22] Larry Heller: So, speaking of the market, is current interest rates in the current economy having an impact on ESOPs right now?
[00:17:29] Chris Coates: there a little bit.
[00:17:30] Chris Coates: in terms of valuations, I think less so. you know, whereas a couple years ago you could have gotten a higher premium from a strategic or pe you know, some of those, the interest rates have sort of, gotten rid of some of those extreme, multiples. and in ESOP, I think the overall multiple is.
[00:17:47] Chris Coates: Fairly consistent. with what you could have gotten a couple years ago where it’s impacting is the upfront lending. So, couple years ago you might have been able to get three times EBITDA for lending with an overall valuation of, let’s [00:18:00] say six and a half. Now, you may get the same valuation, but you’re probably only getting two times EBITDA for upfront lending.
[00:18:07] Chris Coates: And so the corollary to that though is that you’re probably getting more in the seller note. So if you’re getting in, you’re getting me interest rates on the seller note. Now those are gonna be higher than they would’ve been a couple years ago as well.
[00:18:20] Larry Heller: Got you. So now if you have, you put this in place and most companies have 401k plans.
[00:18:26] Larry Heller: does an ESOP, you know, impact having a 401k plan?
[00:18:30] Chris Coates: would not get rid of your 401k plan. you know, as, as part of doing an ESOP, typically it’s gonna be an additional benefit, uh, for the employees. Part of that is you’re not gonna wanna take a diverse retirement benefit from someone and replace it with a non-diverse benefit.
[00:18:45] Chris Coates: That’s just, it’s, you know, basically a formula for a lawsuit. But, some people will, you know, maybe adjust their match. So let’s say you have a 401k and then you have a, you know, a rich match with it, they may say, okay, I’m gonna still, we’re still gonna do the 401k, but maybe the match will then either all or in part go fund some of the, you know, annual contributions to the ESOP.
[00:19:07] Chris Coates: So that all comes out with the modeling that you have to do to make sure, to see, what makes sense in terms of, ESOP construction.
[00:19:14] Larry Heller: And the way, the way this works would be let, let’s say you do an ESOP. You put it in place. So the employees or the owners, do they have to wait until the company is sold, or if they are fully vested in leave, they would be able to get their share.
[00:19:28] Larry Heller: And where does their share come [00:19:30] from?
[00:19:30] Chris Coates: I mean, ESOP, is a sale. I mean, ultimately it is the sale of the business and it’s meant to, promote sustainability. So, it can continue, on and just, service multiple generations. We have, you know, multiple clients that have, longstanding ESOPs.
[00:19:44] Chris Coates: If the company is sold. and then the, uh, owner, the new owner has a decision point about do they want to, keep the ESOP or do they wanna buy it out? typically it wouldn’t get bought out unless it was getting paid as a premium and that benefits the participants so that, you know, that’s a good thing.
[00:20:01] Chris Coates: If someone leaves the company, it always depends on how your plan documents are written, but typically, you know, the company will wanna buy back those shares, and not have an incentive for someone who’s no longer there. And so those would get, bought out over time and repurchased, by the company to either be retired or recycled and brought into back into the plan.
[00:20:21] Chris Coates: and then other than that, if someone retires. Basically when they hit retirement age, they will start drawing. the shares will get sold and they will get, you know, income for their retirement.
[00:20:31] Larry Heller: so an ESOP’s not gonna impact a company trying to, you know, sell somewhere down the, down the road.
[00:20:38] Chris Coates: Oh, it, it, some people think that it makes it more complicated to sell. we don’t think so. It’s just, it’s just a process. again, you have to either wind down the ESOP and basically the, the monies for the people have to go into something, you know, they have to roll it into some other qualified retirement plan, otherwise they pay the taxes on it.
[00:20:55] Chris Coates: Mm-Hmm. You know, there are some. Again, it depends. If you do, the [00:21:00] ESOPs are very flexible. If you’re doing a, a full, it’s pretty straightforward. in the sale, if it’s a partial, then, you know, there may be, considerations around, again, is it a, someone trying to buy a full stake, a partial, again, it’s just a process.
[00:21:12] Chris Coates: You have to, either keep the ESOP going forward or unwind it and avoid, you know, just make sure there’s. People aren’t getting undue tax impact.
[00:21:20] Larry Heller: Right. So the trustee of the ESOP would be the one responsible determining how the ESOP is invested?
[00:21:27] Chris Coates: Well, it, it’s, there are, there is some cash that, can require investment, but ultimately the primary investment is the shares in the, of the company, in the business that you own.
[00:21:37] Chris Coates: again, this gets into the nuance with, a minority s. You know, transaction. If, if it is like a, a. a minority S transaction, then there will still be shareholders out there. They will get distributions annually. So will the ESOP and so cash will start building up in the ESOP.
[00:21:54] Larry Heller: Mm-Hmm.
[00:21:55] Chris Coates: Some of that is, um, actually you, you’re gonna want to make sure you have liquid for repurchase obligations or invested in safe, investments so that when some you have retirement spikes, you can repurchase the shares and, um, not create a cash drain, but.
[00:22:10] Larry Heller: Right. That’s where I was going. Would the ca you know, would there be cash that would build up in the ESOP that would be managed or the, so the business is not, caught by surprise in case you have a a number of people retire at the same time.
[00:22:22] Chris Coates: Correct. that’s, you know, and that’s something that you hit about seven years into an ESOP.
[00:22:27] Chris Coates: You have to start thinking about your repurchase obligations. [00:22:30] Mm-hmm. In the early years, there’s just not enough allocated out to have to worry about it. But as you start getting material, balances in people’s accounts. If you have retirement spikes, you know, that will, draw down cash.
[00:22:42] Chris Coates: And so you don’t wanna plan for that. And, but that’s something that, um, you have advisors, your CFO just has to, you know, pay attention to it. you know, so that you can, you know, it’s just planning for the future and you know when you’re gonna have those cash needs.
[00:22:55] Larry Heller: Okay. So just to summarize, you know, kind of big picture advantages and disadvantages of an ESOP are.
[00:23:02] Chris Coates: Disadvantages. I would say, you know, if, if it’s a, you know, a company that’s in distress and looking for an exit, you know, not really the right vehicle, if it’s someone who’s looking to exit quickly, not the right vehicle. if the ultimate goal is, most money in the now and someone’s willing to pay a premium, then an ESOP’s not the right answer.
[00:23:21] Chris Coates: But, for someone who is, Looking to take care of their employees, looking to, monetize their business in a flexible manner and tax efficient manner, in a way that doesn’t give up control. if they’re patient, again, you’re gonna have to wait out, the bank debt and, and the servicing of that before you’re gonna get.
[00:23:38] Chris Coates: you’re selling note, uh, repaid. So, it’s patients wanting to take care of your employees. not looking for the last dollar. Um, someone who cares about the name on the masthead, you know, not necessarily having a a third party buy it, move it, break it up, those are the sort of, the fact patterns that, fit.
[00:23:56] Chris Coates: And typically it’s a company with a good culture. usually the owners [00:24:00] who wanna look at ESOPs. the bones of, of that sort of culture are there, you know, with great place to work, programs, et cetera.
[00:24:07] Larry Heller: Great. Chris, this has been great. Very educational. I’m sure a lot of our audience out there has got a, a little bit of understanding, uh, of how an ESOP, uh, works and whether it may be of interest to you.
[00:24:18] Larry Heller: So if somebody wants to learn more about it and see if this is a possibility for them, Chris, where can they get ahold of you?
[00:24:25] Chris Coates: Well, they can reach me at Christopher dot Coates, C-O-A-T-E-S, at SES ESOP.com. And you know, we happy to get into more detail about how they work, where they might fit and where they might not, and, you know, talk about specifics.
[00:24:42] Larry Heller: Right. Thank you so much for, uh, for joining us today, Chris.
[00:24:46] Chris Coates: Thank you for having me. It’s been fun.
[00:24:47] Matt Halloran: If you wanna make sure that you can provide great benefits for your employees, save on taxes, and truly help bridge the wealth gap that is happening in the United States, and ESOP is a fantastic way to go ahead and do that.
[00:25:00] Matt Halloran: So please go to www.ssop.com. Uh, and also go ahead and find Chris on uh, LinkedIn. all you have to do is just go ahead and type in Chris Coats and he will show up immediately. Of course, if you have any other questions about how this can plug into your overall financial plan as a business owner or as an individual, please make sure that you reach out to Larry at Heller Wealth Management to find out more.
[00:25:23] Matt Halloran: So for Larry and Chris, this is Matt Halloran and we’ll see you on the other side of the mic very soon.