[0:11] Hey everyone this is the ESOP guy and welcome to. Season 3 we are in the very beginning of January 2022 and as much as we all know this time flies and now we're already on season 3 so it just was yesterday that we started this podcast, to help people, think about the Employee Stock ownership plan as an alternative or a viable option when they're thinking about selling your business or doing other things like, bringing in you know a partially sap to help their companies grow by providing another percentage of stock that the company's employees can participate in, there's a lot of things you can do with an ESOP and this podcast is all about trying to help. Explain how that might work in so I'm excited about season 3 I'm excited about 20 22. Super rested from the vacation and Christmas in New Year's holiday so I'm excited to come back and thank you so much for joining us today and want to start with this as we get going today. [1:19] Music. [1:35] I was certain he was going to look back at me flattened CS2 his head crowd that he would bring our relationship to an end in some way. [1:47] Music. [2:11] What a scene that is if you know this movie. This is going to go ahead and say it's the Life of Pi and that scene he's talking about Richard Parker as a tiger. And why am I using this why am I starting off the year with something as abstract. As the Life of Pi to start an ESOP podcast well here it is this movie. In this scene exactly the scene really what's happening is he's explaining this story. [2:41] To this this gentleman to tell them kind of what happened to him and his family and how. He survived this horrible shipwreck in this incredible adventure with this this very dangerous tiger where he stuck in this Lifeboat with his tiger. And the reason I'm using it right now is because it makes us think about. [3:01] What has happened in our lives and so I want to use this podcast episode specifically this one to think about 20 21 and think about what we went through in 20, 21 with some different episodes and so I'm excited to do that it's certainly not going to be as dramatic as the Life of Pi, but it is I think going to be interesting to think about and hopefully for some people that have listened to some of those episodes. Maybe you want to go back and listen to some of the other the ones I'm just going to share the ones that I thought well these were pretty interesting ones it doesn't mean they're that none of them are that these are the only interesting ones but they're ones that I think are highlights to the 2021 year so. So the Life of Pi just gets us to think about that a little bit. If you haven't figured this out yet this podcast is really a resource to help folks understand better how esops work on Place doc ownerships plans are structured, we do topics we do interviews and so there's a ton of information. [4:04] On this podcast that hopefully because it's compartmentalised into different topics. [4:10] Will really help you on your own journey to an ESOP so with that if you have an interest in those episodes please go to journey to a nice app.com. Also I wanted to kind of also let everybody know we're continuing to do our YouTube episodes so. Normally when we do an interview in it's just not me talking I'll go ahead and put that interview on YouTube as well just as an alternative media so go to if you just go to YouTube and just put in the ESOP guy. You're going to find the that information and you can kind of look at the topics there as well so anyway so that's the resource thanks for joining today. And look forward to doing doing this together again. So as we think as we think about this movie the the one of the things I was going to say is that this was this movie came out in. 12 I believe and it's all about this, family who is going to move and they have a zoo and say they put all their animals onto a boat and unfortunately there's a big storm and everybody on the boat dies except for this boy, and this tiger who's named is Richard Parker. And they go through this him in this tiger go through this these incredible. [5:30] Types of Adventures and just they're starving and so one one scene is there these flying fish come in and to the boat and then he's got to. Get the tuna that flies up into the boat from the tiger so he takes this big gap and and he gets the tuna anyway so it's just a really remarkable movie and, remarkable in this in the in the sense of how cool the the idea is behind a young boy surviving but remarkable to it with the type of, cinematography that the. The camera people get and it's just beautiful it's an incredible movie and I totally recommend it so just like that I would recommend you know these are some of the episodes that I would recommend, as soon as we start thinking about journey to an ESOP.com 2021 in some of the season 2 episodes that I think are going to be helpful for you. [6:24] So let's start at the beginning one of the one of the ones that stuck out to me right away was episode number two. And I did a podcast with an ESOP attorney is named Steve Goodman. And the whole concept of the podcast was that Steve and I went through when we talked about the idea of doing an ESOP. But doing it for a company that ends up rolling up. With other companies and so instead of transacting at the 1 level of just a single entity before you do the ESOP transaction you're actually putting together multiple entities, and merging those into one and the idea behind this is that you can take you know a smaller company I think we used a dental practice as a good example and merge those multiple entities together, create some efficiencies relative to cost, in of course maybe move some more down to the bottom line and your ibadah but also creating a larger footprint. Geographic footprint a larger Revenue base multiple offices and that kind of thing so so what that does ultimately is it provides a bigger valuation for the for the shareholders and so. [7:40] I'm excited about this idea and I've got one client that we're talking about doing this with and it's it would just be, to me a lot of fun to go through the whole process of putting the the roll up together I've done internal roll ups where you take a client and you take their multiple businesses and you merge them in together and then you take that too, the transaction take that through a transaction for Aesop's but. [8:05] To actually take different companies and do a role that would be not you know really cool so that might be an appealing one for you to listen to you just because I think it's it's an interesting concept, and the you know the idea behind this too is in the in the marketplace that's what private Equity groups do they they take these entities and they merge them together. And then eventually sell out the whole big entity and that's how they're able to pay, higher premiums as well because they can once you do merge you do get some more value out of out of putting all that together so anyway now episode number two with Steve Goodman and season season 2 awesome, episode 6 and 7 I wanted to highlight this and I think episode 5 as well was all dedicated to Aesop's for contractors and Aesop's for contractors what I started to do here is, it's a look let's start talking about some of the industries in this doesn't mean if you're a manufacturing company or, a service-based business or something else that you shouldn't be an ESOP of course that's going to apply for all kinds of companies and all kinds of Industries, but it was just to take some of the things that I started seeing. In conversations with different types of companies that were all contractors that are thinking seriously about an ESOP and so I think it's really helpful. [9:24] For those companies to be thinking along the same lines and what makes sense for a contractor so if that's if that's you then go back to season 2 episode 6 and 7. [9:36] And check out those no the one I did was with Ben Wells whose an ESOP attorney on contractors and we just specifically went through, why it makes sense for a contractor and just kind of went through the structure of that what were some of the concerns and and pitfalls that you might run into so that was a very good I think, way to kind of Leverage been Wells has experience with my experience in just kind of come up with some good ideas for you to be thinking about, how are you would structure the contractor and then the other one I did was with and this was the second one I did with a bonding agent, this this gentleman was out of California. [10:15] And it seems Michael Strahan so that was episode 7 and we really went into the whole Bonding Company issue so as a contractor one of the one of the issues that you got to think about, is once you've you know transacted you've sold your shares there's a change of control, how is the bonding company you know in the background of course the bank's going to be important to but how is the bonding company going to evaluate, that now one of the things that happens in a balance sheet with an ESOP is we've leveraged it which just means we're putting all this debt on the balance sheet so, now your company that had a great amount of say current assets and cash or whatever really hardly any debt now has a ton of debt, and we also have a contract with the account and so what happened what can happen on the on the face of all this is you can have you know a negative equity situation and how does the bonding company deal with that and is it viable and so, I think that's a really valuable episode to listen to especially you know getting again kind of staying in the lane of contractors because. [11:19] You know you want to figure out what's the best way to approach that with the bonding company and and I'll just say one thing about that episode if I remember it correctly is we really talked about, finding a Bonding Company a bonding agent. That understands Aesop's in do that early in the process don't be waiting at the end and say Hey you know hopefully this works for you guys so. So that's really those were really interesting for contractors the next one I wanted to highlight was episode 16 episode 16 was all about politics I did this with Renee Louis from Holland and night out of Chicago. I believe this was Renee second episode on the podcast so it was it was great she's got tons of experience and she's been very involved in the political aspects of. Aesop's and if you understand what an ESOP is it really is something that the government created. [12:15] And it was legislated to provide an a great opportunity for employees of companies and created this idea of the tax benefits as well so with all of that. Politics in the current politics are going to be really important so so the the Catalyst of this episode was was talking to Renee about it was thinking you know we've just in that. Part of the year we had just changed Administration so we have we had you know a new president and you know a lot of new people coming into the White House and just different aspects of that what was that going to do. Um expectedly to the world of Aesop's in how is that all going to. [12:58] Help us or hurt us in one thing I will say about that idea behind the politics number one is. [13:06] The esops are a wonderful place to think about and talk about an existing because it's probably the only thing left. Maybe there's something I'm missing but the only thing left that would it we would call that has bipartisan support. So both the Republicans and the Democrats like them and so it's just provides a you know somewhere we can talk about and go to that has a Harmony to it and the unity to it to you know pull us together and. You know there's reasons behind that why each of those parties you know looks at it you know favorably but going into this Administration one of the things I was hoping for. [13:49] Wood was that we would have the 1042 available for, s corporations which it's not in so I know there's a lot of work that people do like Renee and other people do a lot of work I'm not that involved in the politics side but they do a lot of work, lobbying for certain things and getting involved and I really appreciate it I hope everybody else does because it's, it's really important because when you think about the future of Aesop's you know with politics you always have to kind of keep. You know telling your story and so somebody's always got to go up to Washington to tell the story of Aesop's and how important is but I think overall it's been a favorable year for for Aesop's I do know one of the things that recently came out. Politically this in this past I think December I think it was is that small business, government contractors that are under percent ESOP tone are going to now start getting a special designation that gives them preferred treatment on contracts so we did two episodes in. On government contract financing actually one was in season 1 episode 53 and then there was one in season 2 episode 4, one was just specifically dealing with the nature of government contractors and how, all of that works in terms of their business model and just understanding that as if you think about transacting as an ESOP for government contractor which I think is. You know again a very good industry for. [15:18] Aesop's if you look at some of the areas of the country one of the major areas for government contractors is Huntsville Alabama. Certainly my market there's a lot of government contractors in there all over the country and they're just really ideal. For Aesop's and so episode 53 of season one was a great one to just go back and listen to if you had an interest in that and then episode 4 I did one with. [15:46] Banker and we went through just understanding the government contract financing and how important it is. To look at the neat thing about government contractors is that their business models have the potential for explosive growth which means how do you capture that on the forecast you know. [16:05] And the reason they have potential for explosive growth is because they're bidding bigger contracts and so the company could move from 20 million in Revenue up to 50 million in Revenue over a five-year period because they might have won some major contracts so how do you give them credit for that, in the d c-- f model, and then how do you actually financed that and I thought that episode from a government contract Bank financing was really helpful to and it partly is to help you think about, you know when you're a government contractor what is available to you in Bank financing and who do you partner with. As far as you know go back through. Some of the episodes we talked a lot about advisory who your advisors are what questions you should be asking your advisor so these are these are really really important, and so partnering at the right bank is going to be important on gov con because you want to know the they understand the space and that they can help you. Baby the first tranche of your sale then and then coming out and and adding more and more to that as the time as time goes on so so look at those episodes that was season 1 episode 53 and then season 2 episode 4. [17:18] I'm excited to see what in 2022 will happen with this new legislation regarding small business set-asides for government contractors. Episode 19 this was with Peter Jones and he's with Tucker else he's an ESOP attorney up in Ohio. And Peter and I talked a lot about a topic I thought was really kind of important, and I didn't really think about it as much until Peter and I started talking about the idea behind it which is the value, that you can derive from having an independent board and one of the things that, comes up a lot in conversations it's this question and I've done other episodes with other people to about this is who's in control of my company once I sell my company to a Nissan, and so underneath all this is the idea that I've sold more than 50% of my ownership, to the Esau and what does it feel like. To have a company we're before you were in the driver's seat every decision was yours and then afterwards you know now you have okay governance to deal with and one of the things that happens on a controlling, sale is that the trustee is going to require. [18:34] In the negotiations that you have an independent board member so so the background and all this is that okay so. In that case you know and I have to have somebody that's independent and the board in one thought on this on the owner side that once they've sold is I don't want to have somebody telling me what to do. [18:52] All right I understand that and so Peter and I did just kind of took through you know went through that whole idea that topic and we started thinking about, you know what what sort of things can you actually do to turn that around and actually create some value and so that episode 19 really explores how do you expand your team using the independent board member or members. Expand maybe even you know people that you wouldn't ever thought about that might really help you know your business grow in value. And so if you think about it you might end up putting somebody on the board that has very strong connections with, people in your industry that might open doors from a business development standpoint you might put some people on the board that have very strong financial backgrounds that really can help, from a capital structure that you might not have had before so there's there's, you know and one of the things that you think about is you start talking about the future and the forecast how do you going to get from here to there right and so some of that could really be answered by improving the value, that you're providing in your board and so I think it's just thinking about that so that's one of the one of my favorite episodes was that just because I think it really made me think about. That in a different light that I haven't really thought before so. [20:14] Moving on episode 21 create amazing this was a this was a book that was written by Greg Graves he's the author he is an retired. CEO but a very successful CEO of an ESOP company, and Greg basically writes his story and most of this has to do with the culture of an ESOP and, after I did that podcast I got a lot of comments from some people you know and a lot of people bought Greg's book and I think that was really good I think he did a great job, of communicating into the ESOP space. [20:53] You know an answer to a question of that many people have post ESOP like what do I do with this ESOP afterwards and how do I do this and one of the things he talked a lot about in the podcast in with in his book is how do you communicate the message, of the ESOP to your employees because when you think about one of the things that we talked about a lot is, is the benefit that you get as an ESOP company that Noah Nani sub company doesn't have and that's the benefit of connecting the dots of your employees. [21:24] With ownership and getting in the the owner the concept of ownership thinking, under and in within the engine of motivation and building that energy that you know a company that has a whole group of employees that own the business, that are starting to see the value of that business continued to improve. The idea is like that creates just an incredible amount of fuel to grow the business and do the things that. You really couldn't do otherwise so I think Greg's book is good at that I think there's a lot of other things that you have to do and think about and it's not something that it's going to happen overnight. And it's not something that happens without work to be honest with you at work and work is the sense of I'm working towards, messaging this correctly and I'm always thinking about it whether it's me the CEO. [22:20] Or the committee of people or whomever else is on the leadership team how do I Implement and how do I continue to communicate. The Importance of Being employee-owned company to my people so so if you haven't checked out that episode check it out you can always just by Greg's book to online I'm sure he wouldn't mind that as well so one of my one of my favorites, the next one is episode 29 and this is another thing I hadn't really thought about a lot through the process of doing ESOP work. But I have been you know and grew up thinking about this in a lot of ways because this this whole topic was. The concept of wealth inequality in how esops can really address the idea of wealth inequality in our country and one of the things that happens I think to all of us. Um [23:13] I don't be too generous generalizing this but is that we get into pockets of people that we pretty much work with live with in community and we start realizing and thinking that that whole world is those pockets of people. When in fact there's a lot going on in this country there's a lot going on with other people's lives and so one of the things I like about this episode is that it really helped open my eyes to some things that I don't think about a lot which is you know people that are down and out, and how do they get out of that and you know where you have. This continual continuation of poverty and one generation after another after another and whether your. You know, soft hearted towards that topic or issue or not I think we have to understand there's a there's definitely an impact to our country when it comes to wealth inequality and there's got there's got to be something as time goes on now, what I like about this whole concept behind what Thomas Dudley and I talked about and Thomas runs and as a founder of a company called certified eeo and he's a brilliant. Man and really enjoyed getting a met him several times at the conference is I've done two episodes with them I've recommended his company to a lot of my clients. [24:33] But what he addressed in a paper that he wrote to the I think it went through the Harvard Business Review was how esops can really affect this issue and. [24:43] The reason I like it so much is because. [24:47] Ultimately what's happening with an ESOP is that there is a transfer of wealth but it's only if in conditioned upon people staying in their jobs. They're not being given a bunch of money staying in their jobs in working hard and if they do that and they do that together. Then the business grows in value and that's where the wealth is transferred and, one of the reasons that this is such an effective means to deal with the wealth inequality issue is because. Um first off one of things I love about it is Aesop's that our escorts don't pay taxes. [25:23] And so instead of that money going into the. The bucket of tax dollars that get then spent on stuff that personally I don't really agree with most of it honestly that's kind of where I'm how I'm bent. Gets spent on buying out the owner and then that cash gets once the debt is paid off that cash gets to be used to grow the business. [25:50] In the beneficial people the people that benefit from this are the employees. So so that's one part the second part is if you really think about this sorry that's my cell phone and that was a Spam caller by the way and if you are spam caller out there please stop calling me. Happens like 15 times a day so sorry about that tangent. Should I have my phone off so the second thing I like about this is that if you really think about, where wealth is created it doesn't take a rocket scientist to or an economics professor to figure out. Wealth is created in small business. And the reason wealth is created in small business is because small businesses have the ability to grow and appreciate in value. In percentage wise far greater than when I invest in whatever's on Wall Street and big companies Tesla and all these companies that are great, um strong there ways to diversify my retirement investment but when I round that out with. And a direct investment in stock on a small business that grows in value I'm going to have a lot more potential for growth in wealth than I would otherwise and so what the Aesop's do, is they give Everybody in the company and ability to participate in that. [27:13] And I think that's phenomenal and that is ultimately underneath all of that is going to be. [27:20] I think a strong solution in the future that needs to be strongly considered so episode 29 listen to that one and season two I thought that was it was a really good one, episode 31 and 37 what I did with those is I like to do this take some clients that I brought through the ESOP process and I'll do some more coming up in season 3. [27:40] But I like to walk them walk people through real life situation so these are just client experiences with new Aesop's and, the first was a client of mine called a OTC and two partners great guys we went through. What they were thinking they ended up doing a partial ESOP and sold a portion of their business to ESOP and it was just it was really a very good episode because we went through, and we YouTube that one too by the way I think both of these we YouTube so you can actually do go go into YouTube and find that one on the ESOP guy. [28:18] But we I think we did a good job of explaining in that episode. [28:24] You know what is it what's the difference between this was a non-controlling interest that we sold. How did it all work why did they even do it I mean they're they're not they're not exiting the company why would they do a partially sup so I thought that was a really valuable episode, and the other one was a company in Texas that we did ESOP for and then the name of the company is smooth Fusion. And we went through and talked about that one now that one's an on leveraged ESOP which what I, wanted to do there is really talk about how a nun leveraged ESOP works why some companies would think about doing an on Leverage he's that prior to doing their full leveraged ESOP. So those were really unique opportunities for us to do a client experience and I just had a lot of fun with that it's always fun to talk through that, that to kind of kind of like because hey we did this you know ESOP journey together and just being able to kind of talk to the clients afterwards and think through that was a lot of fun so check those out, if you don't go to YouTube just look at episode 31 and 37 on the podcast if you're interested in that and then episode 36 I'll finish with this one. [29:36] Because I'm running out of a little bit of time and I've got certainly other ones that I would say there are really good but I've been thinking about this one for since I started doing ESOP work, and I called this the cost of a nice app so episode 36 is specifically addressing. [29:57] The biggest question that I think are it's probably the most common question that's going to have it happen to anybody that's asking the question like should I do an ESOP well, what's it going to cost me and the the issue that I have in the really the thing I tried to identify in this and I am going to do another one in season 3 because I know there's more to talk about when it comes to the cost of a Nissan. [30:19] Is the way that esops are structured really does. Um not destructure the advisors that are selected really do impact the cost of what the Aesop's going to happen you know have now. One of the things I did on that episode is I really outlined very in much in a lot of detail what a typical m&a process looks like and I mean they just stands for merger and acquisition and the reason I did that is because, what I'm really what I really have found after doing ESOP work talking to a lot of people. Is the marketplace is dominated by. [30:59] Very high cost of doing Aesop's because in the marketplace investment bankers are primarily the ones that are doing the transactions and the question that I tried to kind of fun. You know unfold and unpack in this episode is is I know that this looks like an m&a transaction but let's ask the question is it really an m&a transaction and is it really should it really, charge or should it really cost as much as a traditional ma transaction when an investment banker goes through, and does the things like finding a buyer that nobody knows about. And so so really getting getting into the details there I tried to identify itemization of cost for turn ESOP attorneys and trustees and valuation firms and in advisors and, and just other people that are involved are different roles so really just listen to that and it was one of that I really felt you know first off like, convicted about I wanted to do it so that people could get this information and I think it's a conversation that we need to have as time goes on and I when I really do think as time goes on, and he stops become more and more popular what I don't want to happen. In because I love esops and if you're listening to this and you love Aesop's then we're kind of in a community together what I don't want to happen is that. [32:23] People just can't afford to do an ESOP because they're going to give up so much of their retirement to some Investment Banking firm when they can actually get it done otherwise and so there's definitely options out there and listen to that and can we're going to continue that conversation as, as time goes on in this podcast so with all of that again as we as we started off with you know, the The Life of Pi and this thinking about that movie. When I think about like some of those scenes it does make me just stop and think and I think in New Year's is always a time to stop and think what's coming as well, not just what's happened in 2021 but also be contemplating what's going to happen in your business and in this might be the year that you want to put together an employee stock ownership plan for your company, in a few concerned about it or you know you have questions go to our website at journey to nice up.com and let us know what your questions are and you may may we might even do a podcast about, that specific question so with all of that happy New Year everyone looking forward to 2022 and season 3 thank you so much for tuning in today and everyone keep on keeping on, we'll see you next time on this journey.
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