Issue link: https://www.e-digitaleditions.com/i/704526
July/August 2016 27 continued on page 28 Courtesy of the National Center for Employee Ownership If you have decided an employee stock ownership plan is worth investigating, there are several steps to take to imple- ment a plan. At each point, you may decide you have gone far enough and that an ESOP is not right for you. Determine Whether Other Owners Are Amenable This may seem like an obvious issue, but sometimes people take several of the steps listed below before fi nding out whether the existing owners are willing to sell. Conduct a Feasibility Study This may be a full-blown analysis by an outside consultant, replete with market surveys, management interviews, and detailed fi nancial projections, or it may simply be a careful business plan performed in-house. Generally, full-scale fea- sibility studies are needed only where there is some doubt about the ESOP's ability to repay the loan. Any analysis, however, must look at several items. First, it must assess just how much extra cash fl ow the company has available to devote to the ESOP, and whether this is adequate for the purposes for which the ESOP is intended. Second, it must determine if the company has adequate payroll for ESOP participants to make the ESOP contributions deductible. Remember to include the effect of other benefi t plans that will be maintained in these calculations. Third, estimates must be made of what the repurchase obligation will be and how the company will handle it. Conduct a Valuation The feasibility study will rely on rough estimates of the value of the stock for the purpose of calculating the adequacy of cash and payroll. In public companies, of course, these estimates will be fairly accurate because they can be based on past price performance. In private companies, they will be more speculative. The next step for private fi rms (and some public companies as well) is a valuation. A company may want to have a preliminary valuation done fi rst to see if the range of values produced is acceptable. A full valuation would follow if it is.