When it comes to deciding on an exit strategy, owners of shuttered businesses have a lot to think about. Faced with the terrifying prospect of handing over the business they’ve worked so hard to build to a new owner, they may worry about what will happen to the company—and its employees—once they’re gone. Selling the business to a third party is not always a welcome or viable option. But if there’s no qualified management team or successor in mind, what’s a business owner to do?

Fortunately, there is an alternative that can help ensure the continuation of the business while providing significant financial rewards for both the owner and the employees: selling the business to employees through an Employee Stock Ownership Plan (ESOP). ).

An ESOP is a trust established by a corporation to allocate part of its shares to its employees over time. It is similar in many ways to a profit sharing plan. Shares are allocated to individual employee accounts based on their compensation levels and the length of time they have worked for the company; as employees accumulate seniority, they acquire more and more rights to the account.

ESOPs can be used for many purposes, including:

• As part of an ownership succession strategy

• As a pure employee benefit plan

• As a component of a full leveraged buyout

• To create a market for internal or external shareholders

• Allow shareholders with management responsibilities to gradually leave the business

• To finance corporate acquisitions

• To improve employee performance and morale

This variability, plus an attractive list of tax benefits, makes an ESOP a compelling choice in a number of corporate finance and estate planning situations. In addition, ESOPs can help business owners gradually begin the process of turning their private property into liquid, diversified capital.

An ESOP can also help ensure that the business will retain the owner’s original corporate vision by helping to retain key managers. Also, because employees own part of the company, they will have stronger ties to it and are more likely to work hard to ensure its success. Other benefits include:

• Businesses can fund ESOPs with pre-tax dollars

• The owner can sell to the ESOP in stages, gradually relinquishing control of the company

• ESOPs can be used to raise capital to finance acquisitions or refinance debt

• ESOPs can infuse working cash flow into the corporation

• ESOPs can be used to match employee contributions to a 401(k) plan, significantly reducing the cost of employee benefits.

According to the National Center for Employee Ownership, there are nearly 7,000 companies with ESOPs, ranging from small businesses operating in niche markets to industry giants like McDonald’s Corporation and Procter & Gamble. Why aren’t there more ESOPs? Unfortunately, many business owners find ESOPs too complex and believe it is easier to sell the Company.

While ESOPs certainly present unique challenges, they are actually less complicated than many people might think. In many cases, the tax and financial advantages far outweigh the implementation effort. A trusted financial advisory firm like Prairie Capital Advisors can help you determine if an ESOP is right for you and then help you implement the plan. In no time, you’ll be on your way to a happy retirement, and your employees will help you celebrate by enjoying a slice of the ownership pie.