EP7 - Don’t Worry Be Happy - The Holistic ESOP Plan

On this episode I have been re-inspired by this great song to focus on why holistic planning your ESOP should minimize your worry of selling your stock during your journey to an ESOP.  As we go through the planning process, there simply are measures taken to balance all of the elements of your ESOP plan to provide a win-win-win…yes a triple win - one for the shareholder - one for the company and one for the employees…and even the key managers so that could be four wins.  Check out why this approach will help you to do what Bobby Mcferrin says “Don’t Worry - Be Happy!!!”

Transcript

[0:10] Whether you're driving. 
 Or sitting in your office or you're just chilling out this is the ESOP guy and we are on a journey to an ESOP so excited to be with you we are on a journey to an ESOP and Beyond we've entered the realm of season 5. 
 I'm very very happy you can join us today for those that are don't know what this is all about this is an employee stock ownership plan podcast. 
 This is a resource that we provide so that you can better understand. 
 The whether or not an ESOP and employees talk ownership plan might be a good fit for your company that could be you as a shareholder that could be you as a key employee of the team whomever whomever you are or wherever you find yourself um I'm so thankful that you could join us today. 
 
 [1:04] Music. 
 
 [1:15] Want to sing a note for not don't worry. 
 
 [1:21] Be happy every life we have trouble. 
 
 [1:30] And then life will have some trouble but don't worry your money is up guy podcast yeah all right till I slaughtered Bobby mcfarren song but this is this is so cool this is today is Don't Worry Be Happy Day. 
 The holistic plan for your ESOP and just okay first off I can just give lots and lots of, credit to every once in a while in life there is this this song that comes about that everybody just loves and if you don't like this song, I'm sorry for whatever reason but it's it's so like I think it's so true in terms of of just. 
 
 [2:12] We need to not worry right and it's so rooted in specially in the world that we live in but but deeper than that you know the ESOP world as we talk about it. 
 Is is. 
 
 [2:26] I think just because the stress related to selling your stock of your company now of course that applies to anything and and I would compare as you talk about this topic in you know from the intro side I would just compare like an ESOP is the least. 
 Um in anxious moment of selling your company um and I and I've got some things to talk about when it comes to that so but at the same time it's still a process of transition and change and disruption and I want to get into that today because I want to nail down why you should not worry man and be happy and so part of that is because you do what the what you do is you try to create a holistic plan that really works so that's the topic today I hope. 
 Um is your driving or whatever you're doing um just happy to spend a little time with you and hope this really helps you on your journey to an ESOP. 
 
 [3:21] 1 of the things as we as we start this you know just want to keep reminding people go to our website if you have any questions journey to an ESOP do cam. 
 There you can find all kinds of information there are some things coming up in the in the year that we're going to be putting on the website. 
 For 1 we are speaking at the EOS worldwide conference in San Diego. 
 That's coming up um in April in super excited about that there's another conference in April with the national Center of employee ownership I'm speaking at that as well. 
 With my good friend will Rodriguez with vision point Capital so if you're going to Tampa. 
 In April with the NCO are you going to San Diego for the EOS conference um would love to get to meet you in person so. 
 Um and you can always throw something in online so you should see some of that in our website. 
 As you investigate the ESOP as well as look at what podcast might help you guys you know to to really understand there's a million. 
 Um topics I'm exaggerating but there's a lot of topics we've done over the last 5 Seasons that I think are are very very helpful to break all of this stuff down. 
 So if you like the podcast please rate and review it give us a 5-star rating and if you do have any friends wonderful and you know they're looking at selling their companies possibly to an ESOP um please send them this this this podcast because I think it could be helpful to them as well. 
 
 [4:46] So don't worry ma'am be happy so as we talk about this song of course it the first thing I just want to say is like, you know I I love this song because it reminds me um of things in life that we we get stressed out about. 
 And we've all been there right we get stressed out about things that are just like. 
 They come and they go and I had gone through a phase in my life where I think everything you know and I don't know if you've ever lived this but you just literally. 
 Can't sleep at night you're you're watching the ceiling fan if you have 1 in the middle of the night because you can't sleep. 
 You get back and forth and you're just like what's going to happen next like and most of that if I if I related that could be anything you know. 
 Um but my my experience it was much more business related and it wasn't as much of like, you know things that would be of course you know some people's lives are just riddled with issues and problems healthwise and all that it wasn't really as much of that it was more what's going to happen next I was in charge of our company and I had um just in this 1 season of life I had this the 1 of the offices just, continually you know turn new people mostly because we had um large corporations coming in and just stealing all our employees and I mean literally, um there would be like every day you're like oh my gosh we just lost somebody else and going through that whole phase of things. 
 
 [6:10] Of course there's other other things that have kept me up before but but but then listening to the song like what don't worry be happy I mean because what happens in life as you move through those things and they and they do. 
 You know once you have experienced like I've done you know I've gone through those things I know it's going to work out. 
 And even if it doesn't work out the way I wanted it to it's going to work out because um you're committed to doing what you're doing and and so I'm not trying to like. 
 Pacify that that type of thing or or say don't you know don't worry just keep moving you know it is hard life is hard there's a lot of things to deal with and but I think I'm trying to like say there are some times you think that some things a big deal and it's and it's really really not, when it comes to the ESOP process I want to kind of boil down things and I think this is partly motivated by just experience at dealing with clients in the process of going through their esops. 
 Yeah and also as I've done like some podcasts this year but just about you know working with key key people too and knowing that. 
 
 [7:14] The transition in changes itself creates anxiety amongst people and the goal that we have in terms of not just the podcast because that's definitely part of our mission um is and also in the ESOP process that we go through. 
 Is the goal is really to. 
 Help companies and key people shareholders really understand what they're getting into and be educated on that so that they they they can minimize any potential anxiety that they have. 
 And then from that you know provide and Foster, a confidence with this transition so that as they do talk about it with their key people and as they do talk about it what their employees once that does come so we're kind of moving from planning and pre-op to post-op type of issues that there's like this this is going to be just phenomenal for you guys and this is why and then part of the education part of the process of of preparing a company shareholders key people, through the ESOP process for me as a sell-side advisor is to help them. 
 
 [8:22] Ebie educated to answer questions that come and what I love about my job is that you get to experience just an incredible spectrum of personalities when you get down to it you know from the extreme side of things where you have maybe an engineer by trade. 
 Personality who literally needs to know every detail every little nook and cranny can't move to the next step until you they really fully understand. 
 Um to the very end of the other side of the Spectrum which is the high type a person that. 
 
 [8:55] Makes quick decisions they understand it like they grasp enough of the information to say all right let's move on let's move on let's move on and so you have this big Spectrum but either way that the process that we go through. 
 Needs to be created in intentional about, educating and building confidence throughout the process no matter what what personality type we have and and it gets a little more complicated than I'm I'm making it out because you know you're going to have a team of people that you're working with on an ESOP transaction, that could include that type A personality. 
 Um high-level decision maker to the to the CFO or controller who was maybe very very detail oriented and so you're and when we do this what we want to do is make sure that we have the models and that we need to support the business planning decision-making process meanwhile educating people on that and the goal of all this is to. 
 
 [9:49] Of course we want to do the ESOP transaction but do it as we do it make sure that there's this ongoing confidence. 
 Now recently I would say recently by that meaning it would be the last say 2 to 3 months I have been contacted by people. 
 That are they went with um a say more like an investment banking type of sell-side advisor in their approach, when and it's kind of like I'm fine whatever you know whatever you do like I've always said this on the podcast I'm not here doing this podcast so that you know I can be this outside advisor for everybody right that's not my goal my goal is to help you ask the right questions and get into a situation where you have ESOP advisors that. 
 Really surround you and provide the this type of level of and what I'm trying to do is create you know I guess a standard of an expectation that they should create for your entire team. 
 A holistic approach where everybody feels that the best possible level or more Optimum level of course is this is a little idealistic but everybody feels really confident this is and then part of the process of doing that is I think they need to build consensus across the board. 
 
 [11:02] But 1 of the things that that happened over the last several months is I've been contacted by multiple companies that have gone with Investment Banking firms to do their ESOP transaction. 
 
 [11:13] And I know we've talked about this in different ways before but I want to I want to make mention of this because it's predominantly the way a lot of ESOP transactions are are put together. 
 And I do you know the more I've done this for years after years I do think there's probably a few examples where that's a really good structure because there's a there's an intense Capital raise that that's being created where you have. 
 You know this Capital stack complexity that investment banking firms are going to be better at doing. 
 
 [11:41] Even fundamentally in that I think that sometimes when you start looking at these very complicated Capital type of structures for esops. 
 You're trying to I think they're trying to make an ESOP into something that it's not supposed to be. 
 
 [11:54] Music. 
 
 [12:22] Going to worry be happy so as we talked about this the journey to being happy, you know we're talking a little bit about the idea of of who represents you on an ESOP transaction and that's important. 
 And as I was talking about it like again I I wanted to get into like this idea that, what happens or what happened and I I think about the last several months is that it's usually the CFO or the controller that comes back and says hey, I'm I'm not happy right I've got some things happening here within the deal that I'm a little uncomfortable with and. 
 
 [13:00] The reason for this that I believe is is systemic, and a direct result of the design behind the way investment bankers go about that is because there is a significant um lack of of, Independence in that their approach to doing a transaction is to maximize their payout on the on the deal, I mean there and I think this works really well I think in the sense if you understand an investment in the banking firms approach to doing an a straight up m&a transaction, there if you win they win in an ESOP transaction it doesn't really work that way because I think what happens is there's a lack. 
 Of um Independence and there's a direct conflict of interest in how they're putting the deal together so in these situations what was happening is this Investment Banking firm they really are pushing heavily on the 1042. 
 And if you understand the 1042 is a. 
 
 [14:02] A very very valid and and 1 of the when we talk about ESOP tax benefits it's something that gets thrown around a lot we talk about it a lot and I think appropriate times and places it works really well. 
 
 [14:14] But. 
 
 [14:16] What I guess the terminology would be for for whoever's putting the deal together they should be solution agnostic in that sense they should be. 
 You know whether you go this direction or that direction it should not matter to them and I think the main thing is is that if they're going to earn a bunch of money on putting you in a 1042 because that's what they're doing um then they're not going to be independent and they're not going to and they're going to have this direct to me a direct conflict of interest and that is what's creating some some uncertainty you know as we as we play on this song A little bit the idea behind it like that's going to create some anxiety when it comes maybe not to the shareholder directly and we talk about the spectrums of. 
 Personality types because maybe they're more you know high level hey this makes sense. 
 But it's certainly going to be some some friction when it comes to the key people probably the CFO or controller that. 
 
 [15:13] Are kind of in tandem working with the shareholder internally to work through the transaction so so definitely when when you look at let me my advice here in this in just framing out the idea behind a. 
 Um whether you should use a 1042 or not my my advice is yeah look at it because you need to analyze all the possibilities. 
 But if you're an S corporation and you have to convert to a corporation and stay that for 5 years. 
 Well you should ask the question how much am I giving up in the transaction um. 
 
 [15:45] Or how much how much is the company giving up in tax benefit in order for the shareholder to get the 1042 secondly more importantly does the shareholder understand the complexity behind the 1042 and our and are they does it work in their whole scheme of things when it comes to their estate plan. 
 And all of those parts and pieces and I think what happens is they it gets so focused on well you're going to save this much money in capital gains tax because you're going to defer potentially eliminate capital gains tax and again I'm not saying you shouldn't use a 1042 I'm saying that if your cell site advisor. 
 Does not create the a model that shows you the multiple options then you can't make a good business decision based on the pros and cons of each of these scenarios, and that happens time again and again and again because there are um, predominantly done the ESOP deals are predominantly done by Investment Banking firms the other thing I saw this last couple months was in another deal where. 
 
 [16:51] There's no consideration in post dop and, the CFO is very uncomfortable in the sense because this company has a requirement for all their contracts to be bonded or or maybe a significant amount to be bonded right. 
 And so as they plow through all of the analysis nobody's stopping the sell side advisor is not stopping and saying hey we need to make sure that the bonding company is approving this deal. 
 Preliminarily initially early on so that there's a consensus on the third parties. 
 Not just to mention like not just the bonding company but other other aspects like who else is going to be what's going to happen to this company and post ESOP plan. 
 That has created a an anxiety when it comes to the CFO and and this is what I'm saying in terms of of. 
 
 [17:46] Making sure that you ask these questions early in the in the process of hiring yourself set advisor how are they going to manage through these things and I that's why when I come back to. 
 
 [17:58] The approach to interviewing and hiring you know your your your team is make sure that you. 
 If you're if this is appropriate for the shareholder sometimes it's not you know maybe it's not time to open up you know the can of worms of hey I'm thinking about doing ESOP but if it's appropriate have your your heavy duty decision makers in your team whether they're Equity owners or not be and part of the process of interviewing and making that selection. 
 And that's why I'm saying you know usually the team you're going to have that whole spectrum of personalities that are going to be you know helpful to make the right decision. 
 In in some cases it can feel like you're so deep and down you know far down the road. 
 With an advisor that it's too late you just can't pull it out I know that that can maybe even be practically true as well I've seen people do pull out even though maybe they started off in the initial phase with with, what they thought was you know a good approach and I think some of this just comes because a lot of times you get a referral, for somebody that's that you have a friend who used them and they had a successful story behind it but you don't maybe know all the intricacies of their deal until you get into it or or how they're doing it and I think too what happens is. 
 
 [19:21] Nobody actually like once they've done it they don't know anything else so they're going to say this was great even though they might have paid you know a couple million bucks in fees and they could have paid you know way less than that you know it just it just is what it is so I'm I wanted to kind of pinpoint that as we talk about this because, ultimately um the holistic plan is to make sure that all of these pieces get put together so that your team, um you know shareholder the key people the employees the company so that there's a there's a simultaneous win-win for everybody as time goes as it goes through the whole ESOP process in from pre-op to post-op and closing. 
 
 [20:04] 1 of the things about is we do the planning and and now we're going to get more into the some of the Dynamics of of ESOP planning itself. 
 That I think are really important and if we break some of this out into the very beginning steps I think 1 of the most important parts. 
 Is validating the um the value the valuation model and what I mean by that is. 
 
 [20:32] Let me just take it from a simplistic standpoint if you come into this type of understanding in the and I mean you the Share the selling shareholder specifically at this point. 
 And start thinking about. 
 Um your expected number you know and everybody's going to have some level if they're thinking about selling their company as an ESOP they're going to think about like their expected valuation and what that should be. 
 
 [20:58] In that what has to happen is you have to kind of build. 
 This idea behind history and the future and in, you know and this scheme of things what we're trying to do is is make sure that the shareholder or shareholders has a realistic understanding of of business valuation not just a multiple of IBA valuation so it could be that the the what gravitates what everybody gravitates to is trying to kind of back in. 
 Um away multiple leave it at that wasn't expected multiple of you but a um by the shareholders for whatever reason it could be, you know super legitimate they went through this whole process they didn't they've done valuations every year and everybody kind of has a sense for for that, and so they already have this idea of multiple V but or maybe it's on the other extreme it's completely just what they want I mean they want to get something that some number out of the deal. 
 
 [22:02] And this is where, when we talk about the expected you know number what we have to do in an ESOP transaction is gravitate towards the cash flow side. 
 In the cash flow of the business and when we say cash flow let's as we talk about cash flow I've done this we've talked about this in a lot of different angles but ultimately what we mean is a normalized earnings before interest taxes depreciation and amiz and usually that's an adjust an adjusted IBA and, then very very importantly next is to really estimate cap capital expenditures some companies their models are very Capital intensive and there's a lot of there's a lot of requirements in their business model um for the continuation of of spending cash flow on fixed assets to keep everything going and that can that proves itself out historically and it'll prove itself out in the forecast and so the very first part of this is we as we think about, you know making sure the shareholder is happy right don't worry be happy is to really nail down what's realistic between the historical track history of 5 years. 
 In the forecasted um expected track you know going forward for the next 5 years. 
 
 [23:28] And so 1 of the things about this this part of the valuation model that's really important. 
 
 [23:35] Is to vet that forecasts with its his with the history of the company and alongside that vetting out the actual um business plan. 
 
 [23:48] In terms of all of its components when it comes down to, things like the customer Revenue base related to recurring Revenue. 
 Related to um maybe contracts whether they're short-term or long-term contracts or whether they're customers that buy each year based on a relationship that they've built with the company maybe specific to a person or maybe specific to a multiple departments how how are all those relationships in the revenue being represented. 
 When it comes down to the predictability of that Revenue is there a lot of historical uh ups and downs Peaks and valleys in the revenue or is it been smooth and continuously growing in the history and what we're trying to do is then. 
 Take that financial and historical cash flow model in in against the background of that look at um elements of their business plan in their business model, that provide a process of vetting out the realistic nature of those future numbers. 
 
 [25:07] And that's that part of the process I mean I could go into um you know what we just talked about customers and I could go into you know the the changing gross margin or the change in cost of goods sold related to gross margin or. 
 You know historical GNA expenses non-recurring GNA expenses additional new GNA expenses that are that are absolutely required for us to get this thing up to the next level when it comes down to the the growth plan so there's some some. 
 
 [25:36] Elements here of of the business plan the business model that once we start with a very drafted for historic or forecast against a a very you know you know I would say an accounting of the historicals where the accounting is solid Then I then I think the main goal here in terms of of kneeling down with the shareholder. 
 
 [26:01] Is going to be the the reliability of that forecasts as we as we use that to glean the discounted cash flow Enterprise Value the forecasted cash flow so that those are those are like. 
 The such an essential part of dealing with the expected numbers now against all of that are are as part of all of that there is this this also element of of analyzing, um accurately the working capital that's required. 
 In this company in making sure that there is um a real strong estimate of required working capital because that's what's going to spin off our in our Equity value portion of, going from Enterprise Value Plus excess working capital minus debt equals the equity value so if we don't do anything on the target working capital side. 
 Here then we're also totally missing a big element with a lot of closely held companies. 
 Frankly there are some companies that have just an incredible amount of excess working capital. 
 Not a lot the company doesn't have debt because the company's owner just keeps plowing money back into the company um there are. 
 Extremes on that other side too there are some companies that just literally have just the bare bones working capital to keep going every year they strip the company comes the the shareholders take out as much as they can and those are just things that have to be analyzed here. 
 
 [27:28] Now that's going to let us settle in on on. 
 Providing a realistic estimate that's been totally vetted so that the net number that we get done on the valuation model with is going to address not not only the shareholder did not worry be happy kind of thing um. 
 
 [27:47] But also the key people because what's happening too is is if you do the forecast. 
 Absolutely correctly let me just say what that looks like it absolutely correctly needs to be done not by the forecast first off has to be done by the company I as a sales side advisor am not doing the forecast for my client because that is a question the trustee is going to ask you later down the road who prepared this forecast. 
 
 [28:14] It needs to be done by the company now if it's done only by the owner, then that's going to be a problem because the owner may not see all the different elements and they may be you know super optimistic and maybe they're not realistic about some things it's not that they're forecast would be incorrect it's just not good enough for what we need we need that to be beat up by all those people, on that team and what that does on the Don't Worry Be Happy part is that it actually brings the key people involved and says hey let's let's do some checks and balances here to make sure that we are not as the key people depending on the role of the owner going forward we're not put in a position where this is not achievable. 
 And the reason that's important is because when we fast forward into the ESOP plan. 
 
 [29:07] What we're anticipating is that there's going to be a potential SAR plan a stock appreciation rights plan for those key people. 
 And if that is not done um if those EBA projections are going to be way out you know way out of left field then the key people now are not going to be you know in a position where that's even achievable, because the Tsar plan is going to be very very common very typically going to have a vesting requirement. 
 For based on performance performance is going to be based on a metric of hitting those targets those IBA targets actually a little bit more than the IBA targets to be honest. 
 
 [29:48] So so that's Again part part of that is that that structure is super helpful um as we start to kind of build out. 
 Both of those things at the same time and so if the forecast gets vetted through that process that I talked about. 
 It's going to have its going to make I believe the key people that are going to be responsible to achieve those numbers especially giving their input into the forecast. 
 It's going to make them have more um consensus about around the idea that this is actually um healthy for everybody, and good right so that's going to help the shareholder feel happy that's going to help the the key people feel happy as we move in you know part of this process too and I feel like makes people happy is the sense of hey we don't we don't want to get into feasibility at all unless we are solid on that very first step because my my. 
 
 [30:46] Advice to you is that the number is not going to work for the shareholder um. 
 Then why even move on right and if that number works for the shareholder but it doesn't work for the key managers based on that forecast then why you move on right we need to have a consensus in what we're going to be doing in this topic is just kind of stopping doing this work stopping build consensus educate make sure everybody's good and then. 
 
 [31:12] Green light let's move on to the next step and so as we do that um 1 of the things that, we are doing also this very same time is planning what the roles and responsibilities of people are going forward and so before we completely leave that forecast 1 of the questions needs to be. 
 
 [31:32] What is the role of the owner going forward. 
 And it can be a lot a lot of things so here's the here's the beauty of an ESOP we're going to talk about don't worry be happy because in this in this sense of planning an ESOP they're going to have, what we call flexibility in options along that so if you know flexibility at at the almost the extreme level of flexibility in this type of of environment as opposed to um a strategic buyer saying hey you know you're going to work here 12 months and you're out of here they're going to have absolute flexibility, um almost like a yoga person who can just stretch any different direction right I don't do yoga but the point is is that we can design that now this is before we get to feasibility what we need to do is really design that from an owner comp standpoint. 
 And build that back into the cash flows if the cache if the company's owner is going to phase out over a 5-year window maybe we're going to come come back and say all right the owner comp is coming down if we have to replace that owner comp, with somebody doing what they're doing then we're going to build that into the forecasted model um there might be within this also forecasts a management incentive plan. 
 
 [32:45] That is going to need to be funded with additional cash that we don't that we haven't had to do in the historicals right so again what we're we're contemplating here is to make sure the forecasted cash flow works for everybody involved and and this is never a kind of a perfect process I don't want to kind of lead anybody into thinking oh they'll do it exactly right we will come back to this sometimes after we've done this first iteration move into the feasibility model and then come back and say you know what we really do need to to think a little deeper a little harder about who's doing what in the company let's go ahead and and you know move some cash flow out you know into uh more of a management incentive plan concept and get more people um the high level people may be paid a little bit more so those are things that that that need to be kind of constructed and planned and going back and forth and that's again that's why I am, huge believer of having a workable model. 
 That everybody can understand I am um absolutely a Critic of of models that are just. 
 Beautiful PowerPoint presentations from from advisors that want to give you what everything that they know about esops and not necessarily help you plan your ESOP. 
 
 [34:02] And I and I say that is again just very candidly like I think that that happens a lot in our industry because. 
 The advisors if they're going to make you pay extra you know all this money at a as a success fee. 
 Then all you know kind of behind all that there there's like this intimidation process that they're they're putting you through which makes me. 
 Um just be more motivated to do this these podcasts because. 
 I think it's wrong ultimately you know to try to intimidate people with with knowledge so they do these really you know these beautiful graphs and all these different complex things which behind all that are their models right so. 
 So what I'm saying is I think really you're better suited to have some ugly gross model that but but gives you good information that you that that you with your sales side team can really, you know manipulate in different directions to make sure you're getting the pros and cons of every possible scenario. 
 So as we as we land in that what you're noticing here is is we're actually building consensus so that everybody in the process is happy. 
 
 [35:07] And as we move into the feasibility model we're going to do the same thing, and we're leveraging the idea of an ESOP to kind of create this flexible environment around planning for everybody involved and so that you may have a very definitive succession plan written you may have no succession plan written. 
 And you might have something in the middle of that so what we can do is use the flexibility as a benefit to make sure that that is part of your of your go forward plan. 
 
 [35:36] Now we're going to feasibility the main thing here is that we want. 
 Um to really identify 3 to 4 major things in the first part is going back to the shareholder side and saying how am I going to get my money out of this how am I going to monetize now we came up with and we agreed to the numbers how am I going to actually get my money how much money should I be able to get out of the deal, at the front end how much am I going to be waiting on, and we've done a lot of different podcasts on Bank financing so there's a lot of background there and the main thing I wanted to kind of point in here is that. 
 
 [36:10] That's an anxiety point for the shareholder and it needs to be dealt with and not only the the financing need to be dealt with in in the feasibility model but also the the. 
 You know the the individual fiscal periods going forward need to be dealt with so that, the owner and the shareholders can understand how much cash flow are they going to get out of this after tax every single fiscal period. 
 And whether they do a partial ESOP or a 100% ESOP which again gets modeled here, and whether they do an escorp and a CCP or whether they use the 1042 or they keep the S Corp election this needs to be modeled in this in this feasibility model now they can look at, this scenario as an escort and then they can look at this scenario as a C Corp, from their perspective is it installment sale income what is their tax basis how much are they going to pay in taxes every year as much as they get out so. 
 The the the emphasis here that we're making is that we want the shareholder or shareholders to not worry and be happy about the process of going through this is that going to work for them. 
 You know if they are selling 100% is that enough cash flow for them coming out of the deal between what they got in Bank financing and what they're getting on their interest rate for their note and ultimately what they're going to get for their seller note is subordinated is that enough after tax for them. 
 
 [37:37] Secondly is the company in a position um with cash flow the stability of cash flow going forward to manage and what the tax benefits as an s or the tax benefits of as a c are they in a position, to manage the uh Debt Service that's going to be required of them. 
 And if if it's super thin where like wow there's no room on the forecast to go down. 
 Then as a stress test. 
 The advisor should come back and caution hey we need to restructure this is not going to work so so what's happening here is is back to the same thing we're we're not we're not just modeling everything out for the purposes of modeling we're actually business planning it out to make sure that the transaction is going to work for everybody. 
 Um with what we know and what what's knowable and as times change you know we might be in the middle of a transaction and we expected something better and we have we have a down year right so we need to update the models for those kind of things. 
 So here we're actually preparing um so that the company doesn't have to worry and the company is in a position to to benefit from the ESOP. 
 You know and then specific to the company the key people that are that are managing it so they feel comfortable with the forecast and now they also feel comfortable with the structure of the debt that's being put on the balance sheet because there we need to hit the, um x amount of cash flow each year. 
 
 [39:05] To make sure that that debt gets paid off you know within the the plan time frame now this is where again I come back to the. 
 
 [39:13] Idea of straddling the company's cash flow with all of this additional debt with like these very complex Capital raises. 
 And what's what can happen is that we can be basing a lot of this on on. 
 Confusing cash flow or capital and raising capital in the model, for a very high level growth strategy and we're trying to now merge in the idea of of owners leaving replacing that with new capital and trying to hit some big big targets now. 
 That's where I'm saying it's not I'm not saying that that's a bad idea I'm saying that if that's, um if your mail merging all this together and trying to use the tax benefits of an ESOP to be a very solid like growth plan and your stair stepping up into this maybe higher multiple for a strategic buyer to come in by the company there's more risk to that transaction right and I think it's not there's nothing wrong with it and I be careful I just want to be careful to say this. 
 If everybody understands it but if you're putting as owners your people in a position where they don't really understand it and there's and they're racked with all this additional debt because you're you're trying to do this big play then I think that's where. 
 
 [40:27] Um this thing can get out of whack pretty soon and and I that's why I'm saying at the front end of the of this podcast. 
 Um I don't know if if if it's reasonable to try to use all of these manipulations for with an ESOP to try to accomplish these other financial goals if it if it's. 
 
 [40:47] Truly the right thing to do at the end of the day and I I can't take every single scenario out there and say this is um wrong. 
 Legitimately but I do know that this creates anxiety for your team and I do know that that creates potential disruption for everything else to to you know strain the organization and and push it to a to another level meanwhile trying to to tell the employees hey you're getting this great deal with these ESOP shares and all that so. 
 What we want to do here if I just said in general if there was a bell curve I think everything should probably fit on average and what I'm saying a reasonable debt structure with a reasonable forecast with reasonable cash flow that can be reasonably paid in a in a time period where nobody's you know really freaking out. 
 
 [41:34] And we get to use the tax benefits of an ESOP to help support additional cash flow to do that so I think those are those are things that we're going to be balanced between the owner's goals and the key people's goals and making sure that we're we're kind of in that right, in a sweet spot of what we of where we want to be, keep in mind we're really early in the whole ESOP process what we're talking about here is is planning building consensus and, basically trying to eliminate a lot of the anxiety in this whole process we haven't yet gotten into this concept of how do we explain this to the employees right we're not even there yet because we're so pre- ESOP but I do want to say at this point 1 thing that needs to be contemplated here, and I've seen this with some clients where they're they're much more focused at the employee level and this stage of things it does need to be thought Pro that does need to be thought about. 
 
 [42:29] In like for instance if this was all done right right and I out of the feasibility model we're not only going to model out the cash flow company we're on we're not only going to model out the inflows and the tax you know the full tax benefits to the shareholders we're also going to want to model out the Insight note here under the 404 25% payroll limit and what we're trying to do is figure out what's a reasonable benefit to the employees and if this were all coming together what would it look like for the next 5 to 10 years for your employees. 
 
 [43:06] And how much you know for instance if I had this payroll roster how much would they actually get in New Stock what would the potential value of that stock be over the next 5 to 10 years. 
 That's a that's another part of the whole the whole thing and that's and that's why I keep kind of crossing my fingers as I talk and say you know what, I feel like I'm doing the tenant movie thing where everything kind of has to fit together right and the reason I'm doing that is because I want the employees. 
 To also not have anxiety I want them to be happy don't worry be happy this is going to be great for you guys right and it the more the cleaner the deal the better we can explain it um the more we've planned and built this around everybody's interest then I think you can do that you know in a way that that is solid in in a way that can become ultimately a highly successful company that's owned by an ESA. 
 
 [43:58] That has a long-term benefit plan that benefits the employees the key people the shareholders. 
 The um and then as a company the community of which they they live and contribute back to. 
 And then as a customer group as a as a company builds a value within their customer base continuing to. 
 Um build value with their customers all of that fits together and this. 
 This is 1 of the things as as it all comes together that I think encapsulates the goal of helping everybody to build a. 
 The most Optimum environment for the company going forward a very solid ESOP company. 
 
 [44:44] The ideal here is that everybody's happy and that's really the the gist of this podcast today and I think those as we broke all all those pieces down I do hope that that makes sense to you. 
 I know I'm treading on you know, other types of ways to go about this and maybe maybe that you know is what it is and you just have to kind of like let that kind of marinate if that's new to you then great I would just have you investigate that deeper right don't take my word for it, but that's what I've seen in the deals and that's what I've seen in the industry, and so a lot of this you know a lot of the podcast you know that I try to get to is like what am I seeing and how can I help you to be looking at it you know with a bigger picture, so hopefully that helps you today um thank you guys for listening so much today we can go to our website at journey to an ESOP Comm check us out for other podcasts and we will look forward to our next step on our journey to an ESOP.