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Last Update: Thursday September 23, 2021

Key Idea: Take Out Some Cash

This is a special episode about  Employee Stock Ownership Plans.  Host Hattie Bryant says that the ESOP is a way for an owner to take some cash out of the business.

Key Question:


Go through the exercise of getting a valuation.  This requires an outside expert.

Right now you may not know what your business is worth so you can't take out any cash. Once you have determined the value and allow investors in -- either employees through an ESOP or private investors who want to participate in the growth of the company -- your attitude will change.

You will see things in a new way. You will feel less trapped in the day-to-day. You will start looking harder at the talent on your payroll and you will work harder to develop the individuals who will be calling the shots when you relinquish more and more ownership.

You may even take a vacation or buy some real estate with the cash you receive from selling some of your stock.

Q:  With tax advantages as both a sweetener and incentive, why haven't equity programs, the ESOP, employee stock ownership plans or the Small Corporate Offering registration (SCOR) been more readily embraced?

A: Corey Rosen, the founder and Executive Director of the National Center for Employee Ownership (NCEO), tell us that he believes there are only about 100,000+ businesseses in the USA that would be well-served by implementing a formal ESOP programs (to date, only 11,000+ have); the stats are weaker for informal employee ownership plans like ProfitLine and Maxim Systems (an Ziba Designs in an earlier episode).

The other equity participation program, the SCOR, is also not very widely used. Is there something wrong with this picture?

Yes. Human nature. Perhaps too many of us still have that child within us that continues to horde the toys. But more likely, most people have no knowledge to base a real change in direction. Although the federal government has been coached and counseled into providing opportunities for small business owners to use their equity more aggressively, we still have a long way to go before small business owners know what their options are.

Think about it

Are you resisting this idea because deep down inside you don't think your business is worth anythingn without you? Do you think you would die if you didn't have the business to run? Do you think you would loose control if you sold some stock?

Clip from: Employee Stock Ownership Plans (ESOP)

Meet Ray Smilor, Rady School of Management, Univ. Calif. San Diego

SAN DIEGO: In this special episode you will meet many people who understand Employee Stock Ownership Plans (ESOP).   ESOPs are keys to the future for any growing business.  Though each word is quite operative, the most important is ownership.

To understand ownership, we have to understand something about the value of what is owned. It is a lot more than a  business valuation.  It is about business sustainability. 

Ray Smilor and Dr. Robert Beyster (SAIC) are experts on the subject.  Once a person is actively participating in the bottom line or the profit line of the business, once they are vested, don't you think they'd act differently and care more? Ray Smilor says that typical productivity increases 4-5% per year.

What would that do to your profit line?

Go to all the key ideas and videos from this episode...

former Director, Beyster Institute

Ray Smilor, CEO

1241 Cave St.
La Jolla, CA 92038

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Office: 858-822-6000

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Year Founded: 1971

Take Out Some Cash

HATTIE (In the Studio): Business valuation, equity, liquidity and an exit strategy. These are the keys required to unlock the stored-up assets and values within a business.
The employee stock ownership program is just one of several possible key rings or key chains. Enormous energies can be unleased when someone can say, `Oh, yes, I'm an owner of the business.'

First, it transforms a business from an employee's 9-to-5 mind-set to an owner's mind-set. It just might be what you need to catapult your business to the next level. But it requires the discipline of an ongoing business valuation and a general understanding of equity strategies.

An ESOP program is just one of several possible ways for the business owner to gain some liquidity and even to consider possible exit strategies. As you begin to explore the options, you'll develop your own unique ownership culture.

Sharing equity in your business will be a mental obstacle that will keep many of us from entertaining the idea of developing an equity compensation plan.

You had the courage to start a business, now you need the courage to face the facts and plan for your business to live longer than you do. The founder of Hot Dog on a Stick had a long happy life. By putting an ESOP in place, Dave Barham's company keeps making customers happy and keeps employing wonderful people, even though he's no longer with us.

Announcer: At, there are self-help studies for people who want to start a business and for those who want to grow the business they have. From the home page, choose `steps' to start or steps to grow. Next, you'll find eight steps for stages of growth. At each step you'll find links to more resources. Also, from the home page you can choose LearnOnline for access to streaming video and interactive study guides.

RAY: An employee's stock ownership program is a way to get employees engaged and involved in the company so they think and act like owners.

But also a way for the owner to sell the company in a very effective way so he or she gets liquid as effectively as possible. So it helps the founder, the original owner of the company, and if it's done right, it helps the employees succeed as well.

I think to do it right you have to begin assessing why you want to do this. That's the first step.

What are the reasons that motivate an entrepreneur, a founder to want to set up an ESOP so his employees can buy the company from him or her? And the reasons may be three or four key ones, Hattie.

One is because you think it's the right thing to do because people who build the company should own it and you want them to have some ownership stake in it. That's one reason.

Second, it may be to prevent the company from disappearing. Because if the owner wants to sell the company on the open market, and a large company comes in to buy it, the company in effect may "disappear." Gets a different name. It gets subsumed into the larger firm. Or the company may actually be shut down where a competitor buys it and closes it. So you may want to prevent the company from disappearing.

A third reason may be the owner sees this as an effective way to get liquid, to get money out of the company that he or she has built. And to get liquid, there are some terrific tax advantages that benefit the owner. So you can get liquid, you can prevent it from disappearing and you can help give the company to the people who helped build it.

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