Trouble finding the exit?

Employee ownership is a business model where employees receive an ownership stake in their company in return for the work they do. This is a viable exit path for many owners, with financing used to pay out the owner while the business continues to operate.

Employee ownership can take several forms:

1. Employee Stock Ownership Plan (ESOP): Retirement plans that transfer company equity to employees in a retirement account, realized upon leaving the company.
2. Worker-Owned Cooperatives: Owned and governed by employees, with profits (known as patronage) shared among them.
3. Employee Ownership Trusts (EOT): Use a Perpetual Purpose Trust to protect the company's mission and benefit employees perpetually, with profit-sharing distributed based on compensation and tenure.

Employee ownership boosts engagement and productivity, builds worker wealth, and simplifies succession planning, benefiting both employees and the company.

Despite its many benefits, employee ownership (EO) has been called a "well-kept secret" for decades. Many advisors or owners are either unaware of EO or misunderstand it.

Interestingly, EO's roots go back to the founding of our country. Thomas Jefferson, for example, placed a condition that companies receiving tax credits must enable profit-sharing with employees.

EO companies span all industries and sizes. Large examples include Publix Supermarkets, the largest ESOP in the US with over 250,000 employees to smaller EO companies to Isthmus Engineering in Madison, WI, with 80 worker-owners. EO companies can have as few as three employee-owners.

Employee ownership can be a great exit strategy for you, but it doesn't rely on individual employees coming up with the capital. In employee ownership structures, the company itself facilitates the purchase, not individual employees.

For most ESOPs and EOTs the answer is "$0" financial contribution from employees. For worker co-ops, there is typically an equity buy in amount, but this will be decided on by the workers themselves democratically, and will typically be nominal.

EO transitions are a net new perk for employees, i.e they follow the structure of a leveraged buyout where the cash flow of the business is used to pay for the business. Overall, employee ownership can be a win-win situation. You get a successful exit strategy, and your employees gain a stake in the company's future, potentially boosting morale and performance.

A staggering 80% of owners fail to sell their business even after spending time & money on the sale process. Despite being profitable, these businesses are unattractive acquisition targets to outside buyers who need to achieve a high Internal Rate of Return (IRR).

Employee ownership, through models like ESOPs, EOTs, and Co-ops, is a viable solution for owners who want a competitive exit plan that is often more predictable. These models help many businesses avoid closure, retain jobs, and preserve the founder's legacy. Employee ownership can be a good model for many companies, but it may not be appropriate for all companies or situations:

• Profitability: Employee ownership isn't the right choice for companies that aren't showing a healthy profit and for whom the financing costs aren't feasible given the business's cash flow

• Owner's motivation: Employee ownership might not be a good idea for owners who has many interested third party buyers and wants as much cash as possible for their business right now.

That's okay! Succession planners often recommend planning to begin 5 years in advance of the anticipated exit. So if you're not ready, that could be ideal.

Why 5 years? This advanced planning allows business owners to leverage various tax strategies effectively and facilitates necessary restructuring to prepare the business for a successful transition. Initiating early succession planning grants business owners a comprehensive understanding of their business from an external perspective and sets the stage for setting realistic expectations, recognizing potential hurdles and potentially modifying the business model to attract a broader spectrum of buyers. Waiting until the "verge of selling" significantly limits the scope of impactful changes and hampers the potential to enhance the business's valuation.

The advantage of employee ownership is that you can sell a portion of your business now, and continue to transition over time.

In short, Zolidar can help you explore and prepare your business for an exit even through a third-party sale. Further along the exit journey, our features focus on exiting through employee-ownership, however the underlying concepts apply to other exit paths too.

Zolidar's Day Zero Guide and Aha! Planner help you evaluate all your business exit options, which fall into three primary options of employee ownership, strategic sale, or financial sale. Based on your business metrics, you will get personalized insights and tips relevant to any exit option you choose.

The Day Zero Guide tells you how each exit option aligns with your goals and then provides resources for you to explore any aspect in greater depth. With these insights, you can improve the feasibility of all three of these exit options. Aha! Planner then takes this further, providing insights that let you make a fair comparison from a financial perspective between employee ownership models, such as ESOPs, EOTs, and Co-ops, and a third-party sale. Together, these tools help you understand the pros and cons of each exit path so you can confidently choose a path and start building your future.

We do know that many businesses are not a good fit for third party sales (finding an outside buyer), given 4 out of 5 businesses never find a buyer. We believe that employee ownership is a viable and advantageous option for many of these businesses. Our next set of features will be focused on employee ownership and making it easier for these businesses to make this transition.

Yes, all the way. Zolidar is a software platform to help business owners (and their existing advisors) like you understand the holistic landscape of exit paths with a special emphasis on Employee Ownership. Our focus is on providing an accessible guided service for assessing their business's exit readiness, bridging any gaps that could limit their exit choices, and build conviction in their chosen exit path.

Owners use Zolidar as a time-efficient and cost-effective mechanism to reach a point where they can be more deliberate about their exit plans. Then, for the owners who select employee ownership as their exit path, Zolidar can help them form a team of experienced EO practitioners, align with financiers if applicable, and continue to serve as the software platform for efficiently executing transitions to ESOPs, EOTs, or Co-ops.

Absolutely! Here's how Zolidar could benefit SMB / EO advisors:

• Access to Cutting-edge Technology: Advisors gain access to Zolidar's innovative software solutions, streamlining the evaluation, implementation, and management of employee ownership structures.

• Educational Resources: Zolidar offers educational content and training modules, keeping advisors informed about the latest trends, benefits, and best practices in employee ownership.

• Networking Opportunities: Zolidar hosts events, webinars, and forums, providing valuable networking opportunities with other professionals, potentially leading to new partnerships or opportunities with potential clients seeking guidance on transitioning to employee ownership

Contact us to be on the waitlist for our Early Access launch!