The 2024 Election’s Potential Impact on Tax Policy–Post-Election Version
With the election behind us, and Republican control in the White House, Senate, and House of Representatives ensured, the direction that anticipated...
August 13, 2020 - When you're ready to exit your business, you have many options for how to go about planning what will happen when (and after) your exit. Employee stock ownership plans (ESOPs) are one of them – but how do you know what's right for your succession plan with the economy slipping into a recession?
"From a timing perspective, ESOP is the same as selling to a third party right now," says Brian Sweeney, CPA, Audit Partner, Client Manager, and ESOP team leader at Redpath. "It still comes down to value."
Whether you talked to your CPA about an ESOP before the recession started or you've done a bit of your own research, here's how to know if an ESOP is right for your succession planning, and if now is the time to start the process.
Is now the time to choose an ESOP for your business? It depends on a number of factors, including where your company is now and what kind of role you want to play in its future.
"ESOPs can have longer goals in mind, so they're not always trying to drive revenue right away," he says, in contrast to company ownership plans that consolidate decision-making privileges to smaller stakeholder groups.
Over the course of the coronavirus pandemic and resulting recession, Brian has met with clients who've chosen to pause the ESOP transition due to shifting priorities at the company as well as those who've decided to continue the process.
"For some business leaders, it's just the unknown that convinces them to stop," he says. "There are a lot more things in front of them – a lot more decisions to make – and some things just became more immediately important for their business."
For others, their goals, their relationship to their employees, and their expectations of an exit align with a long-term plan for which an ESOP makes sense. During a recession and in times of more economic stability, ESOP viability is typically evaluated on a "case-by-case basis," Brian says.
Because of the bespoke nature of an ESOP, there are some general questions you can ask to determine whether it's right for you and your business and whether now is the right time to start.
When discussing ESOP with business owners, Brian says he asks about their motivation for pursuing ESOP: "I go back a step further to ask them about their goals. 'Why an ESOP? Why an ESOP specifically for your business?'" If you're curious about whether or not an ESOP could be the right tactic for your succession plan, ask yourself these questions with a CPA you trust:
You're the only one who can determine whether or not an ESOP is right for your own business exit strategy, but your CPA can provide experienced guidance and help iron out the details. If you're interested in the possibility, review your options with your CPA and think about the short-term commitments and long-term benefits.
With the election behind us, and Republican control in the White House, Senate, and House of Representatives ensured, the direction that anticipated...
Editor's note: This piece was originally published in 2020 and has been updated to reference new changes in Illinois state law.
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