Exploring ESOPs as a Solution for Small Business Succession
Can employee ownership empower small businesses in an era of economic volatility and demographic shifts?
Small businesses often find themselves navigating the challenges of fluctuating tax rates and inflation to make a positive net income. The volatility of the economy in the last 20 years makes it even harder to pursue financial freedom and peace of mind.
A recent article in NH Business Review explores whether Employee Stock Ownership Plans (ESOPs) might be a solution for some business owners. 61% of family-run businesses lack a pre-established, written, formal succession plan when entering the market, according to the 2023 North American Family Business Report. As population growth will starts to slow down in the United States, this will lead to a “silver tsunami” of small business closures.
Some business owners reaching retirement age, particularly around 65, are turning to ESOPs as an alternative exit strategy. Companies with these plans give their staff a stake in the business through shares of stock that are either bought by the individuals or through vesting, where stock is given out by the ESOP managers. Depending on the business, stock can be vested upon being hired or gradually over time.
Go Deeper:
Read the original article
Read my article on Employee Ownership in Private Equity
Check out Megan Garvey of EO+WD’s article about ESOPs in the UK: The ESOP Centre’s Proposed Changes