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Exit Planning Strategies with ESOP'S - Jul 18, 2011

Posted by: Tom Azzarelli in Articles

You may be thinking of selling your business in the traditional way but have you considered an ESOP (Employee Stock Ownership Plan) as an alternative vehicle to exit your closely held business? If not, this article may get you thinking.

ESOP’s have been around since the early 80’s but not well known as a selling strategy for business owners of a closely held business until recently. The very name ESOP suggests confusion not only with the business Community but also with many Accountants as well. Some demystification is required.

An ESOP (Employee Stock Ownership Plan) is a defined contribution employee benefit plan that allows employees to become owners of stock in the company they work for. It is equity based deferred compensation plan. Under the ESOP plan, companies provide their employees the opportunity to acquire the company's shares at a reduced pr....

Testimonial - CRS Temporary Housing - Dec 29, 2010

Posted by: Tom Azzarelli in Testimonials

Tom,

Thank you for your invaluable contribution to our company's success. We appreciate your leadership in getting our finances in great shape.

We cannot say enough great things about how critical your involvement has been towards the improvement and future success of our company.

We are extremely pleased with your contacts and experience in business and finance, including finding us a real "diamond" in our new CEO.

Thank YOU

Alex MacDonell'
Chairman of the Board
CRS Temporary Housing

Testimonial - Devau Human Resources - Dec 24, 2010

Posted by: Tom Azzarelli in Testimonials

As the owner of a small staffing/ employee leasing business for 26 years, I had always struggled with financial decisions, strategic planning, cash flow issues, banking relationships and other financial concerns that were vital to the growth and solvency of my business. When I was introduced to Tom Azzarelli and the concept of a part-time CFO, I realized this was the perfect answer to any small business's dilemma. I could utilize the expertise of an experienced CFO for just a few hours a month or as needed, and have on board my own CFO to guide me through those critical areas of my business where I needed help.

This decision to partner with B2B CFO and Tom Azzarelli has paid off many-fold since we began working with him. I truly believe no small business should be without this kind of expertise while trying to navigate the complex world of today's financial business reality.

Terry Wilkey

President

Devau Human Resources

Employee Stock Ownership Plans (ESOP) An Exit Strategy? Maybe! - Mar 10, 2010

Posted by: Tom Azzarelli in Articles

ESOP’s may be used as a means to allow shareholders with management responsibilities in a closely held company to gradually sell and ease out of the business (exit strategy) over a number of years and reward employees with a benefit tied to corporate performance (i.e. - stock value increases).

Implementing and administering ESOP’s are very complex and can wreak havoc if not properly structured. ESOP’s are not for the faint of heart and before pursuing down this road owner(s) should clearly understand the benefits and pitfalls of an ESOP and look at other alternatives carefully. ESOP’s are qualified (i.e. tax qualified) defined contribution employee benefit plans that primarily invest in the stock of the employer. If a company performs poorly the value of its stock falls and so does the employee’s retirement account value. There are DOL, IRS and fiduciary rules that MUST be adhered to throughout the entire lifecycle of the ESOP that can be onerous to the owners especially if the ESOP fails or cannot be sustained. ESOP’s can be costly to form and maintain!

ESOP’s are not for companies that are volatile or subject to major swings in profits. Commodity product companies typically are not good candidates. Employer contributions are usually required annually, and if not paid the ESOP Trust may fall into default on its obligation to the company unless provisions provide otherwise. Finally, ESOP’s almost always leverage the company (leveraged buyout). That’s just one more thing to worry about with bankers. There are also the GAAP accounting rules which are confusing at best.

However, a properly structured ESOP has many benefits for owners wishing to exit the business and for employees committed to staying on for the long haul. ESOP’s allow the selling shareholder to sell stock to the employees via an ESOP Trust. In the simplest of terms, the ESOP Trust is obligated to pay the selling shareholder for the value of the stock sold to the ESOP Trust, which holds the stock for employees until employees retire and cash out. Employees vest in their account overtime. Therefore they must stay with the company to benefit. This is one of the main selling points of an ESOP, employee retention. The proceeds of the stock sold by the selling shareholder usually is tax deferred (section 1042), essentially indefinitely as long as certain IRS rules are adhered to.

The company is allowed to deduct dividends paid and any contributions (required) made into the plan providing a nice tax shelter. The tax savings may be sufficient to payout the selling shareholder over time.

Determining whether an ESOP is right for your company requires careful investigation by experienced ESOP and accounting professionals. Setting up an ESOP may take from three to nine months and can be costly.

If you need assistance with ESOP’s or finding qualified ESOP professionals please contact me at 480.403.1483

Testimonial - KO Floor Supply - Jan 26, 2010

Posted by: Tom Azzarelli in Testimonials

I just wanted to tell you what an incredible asset you’ve been to our business. While my husband & I had a vast industry knowledge, we had never run our own business and didn’t have any accounting and finance background. Having you help set up our books and get things categorized properly has been very helpful. Your assistance with creating budgets & keeping track of our performance and cash flow has been invaluable. Your experience & advice with things such as leasing versus buying, bidding out our business insurance, best practices, and many other issues that come up day to day has been a light in a dark tunnel. Just knowing you’re there for us when anything comes up has made us better, more confident business owners.

Thank you so much for all your help. We have & will continue to recommend your services to any small business owner.

KO Floor Supply
Kevin and Rima O'Leary www.kofloorsupply.com

Manage your CASH! Avert a CRISIS! - Jan 26, 2010

Posted by: Tom Azzarelli in Articles

I’ve heard the great recession is over. Try telling that to a small business owner struggling to meet his payroll or pay his suppliers. The great recession of 2009 has caused a lot of pain for many businesses and caught many of them unprepared to cope with a cash crisis and the lack of available bank financing. Many business failures may have been prevented if cash flow planning was part of their daily management practice. Now, let me be clear, business owners cannot control an economic crisis and the effect of such, but that is not to say that business owners should not take proactive steps to implement a cash program to minimize the risk of running out of money.

If you’re a business owner that has been caught in a serious cash crisis or if you are just struggling along and want to survive this crisis then you will want to properly manage your cash flow to increase your odds of success. Read on for some advice.

Rule one, get this thought in your head and never forget it. If you run out of cash your business will fail. Also, profits are wonderful, but profits do not equal cash. Have you ever heard a business owner say, where’s all my cash? I made so much money, (profits) but I am broke! Rule two, you cannot borrow your way out of a cash flow problem without careful planning. Unless you are a financial expert you will need someone with experience to guide you through this kind of situation. There’s a proper method of financing your assets but if you try to band aid a bad cash flow situation with a bank loan you may be setting yourself up for diaster. Next, are you collecting your accounts receivable in a manner to maximize cash flow? I cannot tell you how many businesses I have seen fail because the business owners try to manage this part of their business by themselves. Is inventory part of your business? Is any inventory overstocked or obsolete?

Here are some suggestions for struggling business owners:

1. Rule one –Without cash my business will fail! Cash is King!

2. Rule two - profits do not equal cash. A cash flow projection should be prepared and updated regularly by someone qualified. Items of a capital nature must be identified as well as other than normal operating items such as debt loan payments, etc.