EP4 - Casino Royale - Taking Chips Off The Table - Partial ESOPs

Arguably one of the best James Bond 007 movies - “Casino Royale” - is it time to get some chips off the table?  This episode focuses on the motivations of why some companies look at doing a partial ESOP which is going to be accompanied by risk/reward decisions.  Not as risky as going all in and hoping for the high hand.  But a partial ESOP can still be the right strategy a lot of companies to determine if an ESOP works in both the short and long term, and for shareholders and employees.  This may be your next step on the journey to an ESOP!   

Transcript

[0:09] Hey everyone thank you so much for listening today this is the journey to an ESOP and Beyond podcast where we dig into Employee Stock ownership plans from a pre- ESOP meaning that you haven't transacted yet. You're wanting to see if this is a good option for you and your company to post ESOP issues where you're already an ESOP and there are things that you're just dealing with as time goes on so we want to be a good resource for for. Both the pre- ESOP post ESOP check out our website at journey to an ESOP calm there's always helpful information uh help helpful information there and a link to us to if you have any questions specifically you can always reach out to us through our website.

[0:48] Today's topic we're going to jump right into with this.

[1:08] Pause it real quick this is the scene in Casino RoyaleJames Bond who is Daniel Craig is is, gambling with this really bad guy and the bad guy basically is a really smart accountant who has figured out how to launder money for really bad people all over the world, and what the the point of this whole gambling episode is is they're trying to bankrupt them so that he has to be able to come out and um get help, you know and so James Bond because he's such a great poker player. Is looking to um cash out now this whole thing's gone on this is like a Texas Holdem tournament it's been going on for like you know a couple days and so this is the final hand.

[1:54] Mr

[1:55] Music.

[2:08] 5.7 of spacethe street Flash. 428 the high hand.

[2:24] So the guy did not like that there was 120 million, pot that was 1 why does James Bond always win everything I don't know but he's that good right so he got the straight flush the point of that scene is to introduce the topic of partial esops and wanted to I wanted to talk about this for a while just because.

[2:49] There's a lot of questions related to should I sell, my you know should I be an ESOP right should I sell my company as an ESOP um and what are what are the the ups and downs or the you know the pros and cons of in considering that as a partial, sale so instead of doing 100% sale right we're looking at just if I sold part what my company to an ESOP um we're going to dig into the idea behind what should that percentage be how do those decisions how do they get made all of those things are going to be what we're going to talk about why I used Casino Royale obviously um the 1 of the first things that we're going to dig into is getting some chips off the table and the the scenario the scene here that we're we're take we're looking at right is the stress that these guys are under um they're all trying to read 1 another and in poker you know there's this risk-reward like I'm going to take a risk. Um by going all in just here on my 45 million of of what money right nobody actually lives this way but here's all my money I'm putting it on the table. And then you know either I'm bluffing or I'm not bluffing the point is is that that is a risk-reward decision that each player is making and if you go into that scene because they didn't have time to play at all you know every single hand was really good like there was there wasn't a bad, hand and it went from a flush.

[4:17] To a Full House to a higher Full House to a straight flush which is James Bond so part of that like as I say that.

[4:27] Is it's in this moment of risk-reward decision there's there's just this intense competition too and, they're the only only the high hand wins in the end right and that applies as we think about life and business itself right and you could be in a position as we start off this conversation with. Like just dealing with this over and over and over again and your business and some of the times when we get to talk to some people about their businesses it's like it's like I'm in a hamster wheel you know as a business owner and I'm just constantly the more I grow the more I have to spend the wheel and I just kind of get get in that place where I just am really really. Um speaking for them like I'm really really tired right and the more the decisions they're making impact them and and 1 of the things I wanted to say about that and and kind of to kick off the idea of what a why you know we're going to go through the why of a partial ESOP is there needs to be at some point. This break in the way things are happening and I think part part of the idea I mean it's not that complicated is getting chips off the table basically just meansI've got as a business owner. The majority of my net worththat's really beenum put into this business and.

[5:54] Is going to take time right it's going to take time to get that outand some of this as we talk about it, really connects with the last episode we just we just produced which is like having a forward plan is always helpful like people say Well when should I plan my esap well I think that just 1 of the best things you can do is think about this in a 5-year plan and so what I'm speaking when I'm speaking about this todayum, everybody's in a different place in their life and I and I want to start with ages but at the same time age is relative to how much you've been on this hamster wheel right and so I'm talking to people on their 40s and their 50s right and of course in their 60s and and there are people that are building their businesses still well into their 70s and you know I want to kind of say that like age isn't really age is really a relative concept when we're talking about risk and reward getting chips off the table um but.

[6:49] There is a sense of like. Planning that goes into what we're getting into here which is should I be you know a partialum. ESOP versus should I be 100% or should I do something you know different and what why why would somebody even go down this route right so when you think about getting chips off the table what we're really talking about in that part of it is just knowing that um having a little bit of of the monetization of what you've built so far coming out of the business could be a really good thing for some people.

[7:26] Now when you're evaluating that part of it right the thing I would say just very objectively is. You as the equity owner have made you know a lot of sacrifice not just financially but also with your time and and your you know your family time and your your time in general, um the energy that you put in all of those things you put a lot into getting a business where it is and in some in some sense of the pros and cons you may want to see that, that fulfillment of the cash flow as Equity holder come back to you so it may not make sense to do a partial because look you're giving up a percentage of your equity, or percentage of cash flow from the equity into the ESOP. And that's going to be 1 of those those pros and cons like do I do that but I really do think I would rather hold keep the risk and then get the reward later right so I think there's at risk reward decision always being made as it relates to partially esops and as I speak about this I'm going to be just very conceptual but I will say that right there right then and there. 1 of the things that you should do. Absolutely depending on who you're working with is is have somebody that you trust do um from an advisory perspective. This is going to be for anticipation of potentially doing an ESOP whether it's now or down the road do evaluation model.

[8:50] Don't jump in and do a big feasibility model and all this other stuff just do the valuation model. And 1 of the things that we we have done over the years is just kind of really separated those 2 components because. The idea of of answering the question should I get some chips off the table right now really can't be answered fully until you really know what the what it would transact for, na ESOP negotiated fair market value um arms linked negotiation with an independent trustee and independent valuation firm. Keep in mind the what I'm speaking about should not ever be done. By the valuation firm that's going to work for the trustee because if that's the case then you're you're outside of the the rule, the rules of doing an ESOP deal because you have the trustee has to have an independent valuation firm and the work they do modeling will bias them for the other work that they would do down the road so just keep that in mind that's a so so the first thing is is evaluating getting chips off the table.

[9:48] Looking at what the valuation should be and then making a choice and coming back down to the risk and reward as to it could be hey we, we're looking at the percentage at this point we know what the number is but now what guides Us in the decision of making like the, the decision around the percentage and. And it's not as simple as hey this is the exact percentage you should do um but it is a a bit about like what you're trying to accomplish with the sale of the ESOP. So for instance if you are this is all about like what percentage you should choose right if you are.

[10:24] AC Corp we're going to convert to a C Corp and use the 1042 rollover then you're going to have to do a 30% sale and not anything less than that in order to. Qualify for the 1042 rollover for capital gains purposes.

[10:40] And other than that like 1 1 other question is is the cost of the transaction. Um which again I've spoken about this and I'm going to speak about it again this year in terms of of understanding the cost better behind a transaction because it is, all over the place. But assuming that you do have a really good understanding of what the cost should be for the transaction that probably will guide your decision on the percentage as well because if your percentage is so low. Then you're like uh you know I'm not really um it doesn't really make any sense now keep in mind at this point too we have to mention that we we can also when we think about partial lease apps we can also get into the idea of doing a contributory ESOP or. A non-leveraged ESOP.

[11:29] And a non-leveraged ESOP could be with the Redemption or without a Redemption and with a without a Redemption all we're saying is is that hey we just want to we want to set the ESOP. We want to contribute to percent 3% of the total stock value to the ESOP we'll take the tax hit. Uh not the tax set but the tax deduction which is a good thing and then we'll we'll roll that into our um ESOP.

[11:53] Like a new ESOP plan the advantages of that or you don't have to really negotiate you don't have to negotiate a non-leveraged ESOP so that could be a good. A good idea and it's relatively inexpensive in the sense of, just setting up an ESOP plan making that doing some valuation work making that make make sure that number makes sense, and then there's some tax planning around it and then you contribute it so so that's an option when you're thinking about percentages but if you're looking at really leveraging and getting some chips off the table, um even though you could do a non-leveraged with Redemption it's still not going to be as meaningful as a as a as a transaction so I think, um you're probably not going to just in general go below 20% sale and just because of the the the cost of doing a normal transaction um but 1 of the things I like to do, is encouraged the sellers to do some scenario planning around. This is why modeling is so important around the modeling of hey what happens if you do you know you have this valuation model that supported by this forecast, that gives us to this percentage but what if what if we change some of those variables around maybe the forecast changes and then the percentages can change so I think having a really good advisor that is is really good at modeling to support that will be helpful to you in order to kind of look at the pros and cons of.

[13:16] The percentage decision now 1 of the things about a p a smaller percentage too you need to understand is if it's a non-controlled sale which anything, around the realm of this is probably going to be a non-controlling sale is you're going to have the um discounts of first say locket control that could affect the net valuation or they'll affect, some level of the way the valuation is built so you're going to have some haircut there that you're going to have to um. Absorb in the valuation price so again that's why modeling is so important because somebody needs to, put something quantifiable on the table so you can review it do some scenario planning and that guides you towards again getting chips off the table looking at the percentage and making a good decision um if that if that makes sense now if it does make sense. At those percentages then go through the process of modeling out the feasibility structuring out Bank financing. The the the other parts are going to be looking at the way that the the company is going to be structured with the employee and the Employee Stock ownership plan. The benefit to the employees what that what does that look like from an inside note perspective all of those things can kind of follow suitonce you finish that.

[14:33] So so part of the Y is getting chipped off the table and I kind of talked a little bit about the idea of of. Having a very good modeling exercise to figure that out and make that that risk reward decision.

[14:44] So some other reasons why people would want to do a partial ESOP and and what I'm saying let me just say it this way. As I talk about this I'm if I talk to a 40-something year old person I know that they're not retiring. You know anytime soon they may want to start kind of dialing back their their required hours but they're probably going to be part of the company for a long term. You know proposition or whatever soum and that's true for 40 year olds 50 year olds or whatever even even people that are older than that they say hey look I just want to keep working I like working but I got to deal with this so part of the why is that they're we're looking at.

[15:23] Um a partial for not necessarily an exit plan but to start to move them through the process of um. You know moving their ownership part out but we're also going to want to deal with specifically is is a specific. Management succession plan that starts to incorporate new people into new roles you know so with.

[15:51] Frameworks or platforms like EOS right the the the terminology is right people right seats we want to start moving either internally people in the right seats, um right people in the right seats to support. The the the change in the businesses that that are happening so it could be the business is growing um moving in a new markets they're acquiring other companies we have to constantly be thinking about the management succession plan. And so 1 of the things I was going to was going to think about with this type of like partial ESOP is it does provide in 1 of the whys of doing it it provides some tools. To a effectively um support some of those transitions on management succession.

[16:37] So we're going to start with idea the the the whole organization itself right as it moves towards an ESOP so if non- ESOP to an ESOP company the 1 thing is in general, by getting some chips off the table and doing a partially up is we're starting to bring people from a from an employeeum base. You know when you look at your payroll census into. The knot employee versus an employee owned business concept so what we're doing here by doing a partial is we're really getting them um. Connected as stakeholders into the business from a long-term perspective so the the first part of this is that we want to affect a a plan for my for management succession that in general supports everybody moving into the right seats as the right people right.

[17:26] But at the same time the benefit of being an ESOP is that it's a long-term proposition and I think that's a really key distinction between you know and that could be a a con somebody's I I've had some people ask me well I want to help my employees um be be part of the company more right and I, I want to give make sure that they have a stake in it, and I think sometimes they're like thinking this should be a lot more of a short-term Focus so we want our client our employees to get a lot of money quick right and that doesn't make it a lot of sense to me because when you get down to a long-term Benefit Plan, with an ESOP what's happening is that they are committing themselves to be part of the business long term. Does what first off it takes off this idea that I'm I'm going to have a um. This ongoing heavy duty turnover always happening right because we're giving them a reason to stay in the business and so we're we're strengthening the the 1 area of our business which is the retention of good people, you know in general the second thing it does is it moves them into um hopefully a a, mind shift towards the idea of I was an employee now I'm an employee owner.

[18:38] And now that I'm employee owner I I totally want to help this business you know rock right I want to get it going I want to I want to make sure everything I'm doing really supports it. Ultimately that motivation, um is going to connect with the the ongoing accumulation of value in their in their participant statements with shares they're getting and that's going to create, a incentive for them to continue to just do more and more and more and so, 1 of the things that we talked about like the idea of being the main person in a hamster wheel is I want to I want as a business owner I want to share. The same level of compelling. Energy and passion towards building the value of the business and this is the second reason why I think people look at partials because even though they're not going to leave but anytime soon they're going to want to bring people into that sense of of ownership.

[19:37] I guess ownership thinking and at the same time because it's an ESOP it's beneficial owners, and they're not really owners like in the true sense of like hey I have Partners now they're going to come in and um make decisions they're not going to because of beneficial owner and ESOP is simply an employment employee retirement plan so so those things are really important and our people's minds like how do I how do I move that because it's been so hard to get people retain good people bring people on for the long term long term Journey those are incredibly important I would call those critical success factors for most every company.

[20:16] Now if you take another round of of the you know if you just look at what we just talked about and if you bring that up a notch and you say I also want to affect a very strong management succession plan that moves those good people into you know right seats I'm also thinking about my key people now and so now if I if I carve that out my key people are like you know um maybe it's a half a dozen people maybe it's 3 to 4 people maybe it's only 2 to 1 1 to 2 people what I what I'm wanting to do is connect this ESOP plan. As a partial to my own management succession plan so that again I'm going to get as a um, I'm on the I'm on just on this every day dealing with every single thing going on in business and I want to start getting myself out of the hamster wheel and and sharing that burden right so in this of course those key people are going to be part of the ESOP and that's going to be valuable to them in addition to that they're also going to be um

[21:14] Rewarded in our planning with a stock appreciation rights program or synthetic equity and there's a lot to say about that and I know I've done podcasts you know specifically just about SARS but keep in mind this this can be affected really really well at a partial ESOP and get people moving in the right direction with those types of things.

[21:35] Couple other things on the wise and then I'll get into some of the particulars of of things you need to think about is the, and I've seen this happen really effectively with what I would call Stepping Stone strategy where you're stepping stones are a partial ESOP to get to a strategic sale. And this partial ESOP does a couple things it gets it gets the um.

[21:59] Valuation built around the beginning of where you are starting you monetize some of the value there. You build in that that you can still build in that process although not everybody loves warrants but you can still build warrants in the deal.

[22:15] For a partial ESOP um so that you have the valuation at the front and then as you go through the the payoff of the seller note, the payoff the seller notes going to be accompanied by not only interest rate but also a um a potential warrant. Um payment as well so you can build that into the strategy to get to a strategic sale.

[22:35] And at the end of the day um build tax benefits to create the capital to pay off the debt. As an ESOP and then use that Capital to help growth so that that's 1 of the reasons some people look at this even at an early age is because it does give them a good stepping stone into a potential strategic sale meanwhile not taking off the table. The potential to do another round of of an ESOP sale if that's where you go and and there are. There aren't I guess I say I'll say it this way there aren'ta a corner that we're putting you into when we put these up partial you know sale going you know in a transaction we're we're actually creating more options than than taking options off the table so that's 1 of the reasons I see people um really look at this as a as a good way to kind of build their company long term, um in addition to that in the ESOP companyhas a lot of attractiveness to the outside world I I just had a client did an ESOP last year and then they just sold the company you know recently so it's like it happens where that there's a perception of value because the employees are so connected and it does I think, perceivably give you more value so there's there's a lot of good reasons to do that could also be a stepping stone towards the Final Exit.

[23:54] So the partials could be really effective for companies that really don't, and can't take on such a huge burden of debt and 1 you know and 1 100% sales so so partials could be really effective when you're looking at um I just want to make sure like for a contractor for instance I can't over I can't kill my my balance sheet you know so because I got to keep my bonding going so maybe I'll do a partial and try to keep all that together, and then move on to the next round of the next round until I get to my exit um so it could it could affect those things. So they're I I would say first off they're very popular in the marketplace I I would say that is something that we we look at all the time with new companies when we're talking through the ESOP processand. 1 of the things I I have picked up on is that some some trustees don't really like partials, enough for for various reasons so when you're dealing with trustee interviews you definitely want to make sure that they understand what your intention is in terms of of going into a partial versus 100%. Um this there's a maybe reasons behind that and I don't want to get too deep into it I just think it's important. That as you go into the process that the you are very communicative about that with the people that you're working with in the ESOP transaction.

[25:17] Now I mentioned the C Corp route right and so if I if I thought about the CCP being a partial. Um let me say it so from from a tax benefit standpoint all we're doing here is talking a little bit about the way that the actual C Corp would would function and and what we've done is we've we. An ESOP sale is a stock sale so what we've done is we've sold stock from a Corpum now the stock that we're selling and the CCP has to be voting shares. So you might have different classes of stock and whatever so whatever gets sold or purchased by the ESOP has to be voting shares, so in a percentage ESOP what happens is that that your the company the Corp itself is still going to pay income tax as a corporation and what what you're trying to do and managing the tax side of it is you're trying to come up with an Optimum.

[26:08] Uh contribution to the ESOP and I'll explain what I mean there um there are no.

[26:14] You know typically there's no like CC Corporation dividends but if there were dividends then of course those are going to be taxable as well so you're still in that that double taxation, you wouldn't want to necessarily dividend anything into the ESOP trust as we go just kind of I'm saying that blanket there's always exceptions to everything. But the main tax benefit of a Corp in a in a partial here is they're basically going to, um look at the inside note payment on an annual basis and deduct the principal and interest payment there now, for people that are not experienced with inside notes the the actual payment is not a cash flow payment it is a payment that's used to allocate shares to the employee participants once a year.

[26:57] And what's happening is is that at the close of the transactionthe.

[27:04] Closing documents are going to include a value to the inside note that gets um documented, and then it gets put into an amortization schedule and really once a year the company will will put money into for a principal and interest will put money on an annual base annual payment into the operating account. Or into the bank account for the ESOP and then that money will be moved back into the operating account what we call a round trip that dollar amount is going to be reducing taxable income for the corporation. Now 1 of the 1 of the caveats here in planning is you you have to look at IRS code section 404 first, and that's going to be 25% of your total payroll and whatever that dollar amount is you can't exceed that between the ESOP contribution the principal and interest payment and f401 match dollar amount anything else that's retirement plan driven so you can't exceed that on an annual basis now that the mistake can be. That the planning firm that's helping you might look at maxing that out every year to get the the ultimate tax benefits back to the Corp.

[28:16] The problem with that strategy for for whether this is for a partial or for 100% for a Corp but the problem with that strategy is is that the company is going to be releasing shares. Most likely too quickly, and that's going to create a massive amount of repurchase obligation even in convergence with the the debt obligations that they have as an outside note and that's real money that's going to have to go out the door when people start leaving the planso, 1 of the things on that those mod the models so when you're estimating the tax benefits with an ESOP if you're a Corp is you got to test. Those um contributions and figure out whether or not that's going to make senseum, you need to really dial that into I on on a normal basis I'm going to lean towards a longer term inside note because I can always add more contributions as long as I don't exceed 404.

[29:12] So those are things on on the partially soft side I think are important for corporations now if I look at s corporations um a couple things I wanted to talk about like the the first thing is is that, so if I just look at the math, conceptually for tax benefits related to a partial S corporation ESOP what I'm looking at is the first part is that contribution I just mentioned. On an annual basis is going to be deducted from the S corporation's taxable income. It's same premise like if I Max it out right I'm going to reduce my taxable income more I need to be careful I need to make sure my inside note makes sense and then I make sure that all that all that is buttoned up and makes sense every year and I'm in the same place I just want it as an escort, I might want to have a little bit of a longer inside notelike an early prepay that if I want an accelerate the you know the release of those shares now.

[30:10] In an S corporation when we talk about the the way that money flows in and out we are we're still in a pass through entity we're we're.

[30:19] You know corpse not a pass Serenity what but an S corp is a pass through entity meaning that the income passes through from The Entity to the individual shareholders. And it does that in an S corp through k1s and so that might not be new to you but that's um that is the way that that works so.

[30:37] What um happens is at the end of each tax year the k1s are generated and 1 goes to the shareholders and 1 goes to the ESOP. Now a couple things about this when we think about the difference between the contribution and a distribution, a distribution in an S corp is when I take income cash flow that's that's been created by the company and I distribute it to my shareholders in the sore rules are that you have to do that on a pro-rata basis. So 1 of the main things on a partial s-corporation ESOP that you want to be aware of is that you. I want to be careful not to make a normal you don't you don't really want to do any distributions in my opinion but you want to be careful not to make distributions because what that's going to do is if it's a 7030 let's just say 70% owned by the shareholders 30% owned by the ESOP, if I make a Million Dollar Distribution dollars goes to the shareholders and 300,000 goes into the ESOP bank account. And if I do that every year all the time what I'm doing is I'm building up that bank account in the ESOP and that's a problem because that's going to be dead cash. So to circumvent that what we are going to need to do is do bonuses.

[31:51] Or um add on some expenses to pay the taxes that are going to be owed by the 70% shareholders. The 30% is exempt so we don't have to worry about that being taxed anymore um the 70% tax is going to be reduced by the contribution that we just talked about. So what this comes down to is a is a little bit of a um. Clunkiness I guess to to how you were doing distributions before and how you should be doing them now which is really not doing them, and so grossing up someone's W2 or you know bringing bonuses there to the officer, is is what we would recommend keep in mind that's going to accompany a little extra payroll tax. However you are picking up some serious tax benefits of by being a partial ESOP as well.

[32:39] So all of that it works it's just you got to do the math and you got to know what how the flow of cash flows coming in and out of the business so that you're prepared to manage through all of those things now the final thing I want to talk about with partially esops is is the idea of having um Bank financing and. There's not a lot of changes in that whether it's 100% or a partial I think the main thing I would say is that bank financing is probably a little easier you know with a partial because you're not over you're not taking on all that leverage at once. Um and keeping in mind that you know you're you're going to be making these decisions coming back as a partial. Which is again risk-reward decisions and 1 of the decisions is do how much Bank financing do I do versus the seller note.

[33:32] What are the advantages of having for the sellers to take on um. You know more seller Note versus the bank financing 1 and 1 of the things that commonly commonly comes up with partial esops is. First off I want to be you know I want to create a flexible environment and and there are people that just don't want to deal with the the requirements that the bank has to do the funding. As well as the cost of doing that and you know there's fees involved sometimes there's um obviously the interest. The companies creating all the cash flow the owners you know really are entitled to that cash flow but now they're they're kind of giving up some of that in exchange for a liquidity eventso these are not necessarily.

[34:18] Like here's what you should do questions these are more like here's the risk and reward of that decision versus this decision versus that decision that's why when you do, whether it's partial or 100% esops that's why when you do modeling you can really answer some of those questions and look at, 1 of the things that we'll look at specifically is for the shareholders cash flow, over that next 5 to 10 years with a partial it's probably more like a 5 year cash flow but what are they actually coming away with at the end of the day after taxes I think that's an important part of answering the question so what you're going to want to do is create some modeling towards um. Answering those questions what do we look like if we Finance this percentage or and then now we have some of the some of the chips off the table completely. And then the rest is coming to seller notes and with that we might get warrants what does all that look like in quantify that you know with with taxes now that the cool thing about having warrants.

[35:13] From a taxable standpoint is warrants are taxed at capital gainsversus interest income is taxed at ordinary income rates and so, we at least right now I mean capital gains is lower as a tax rate so so there's a lot of like not just risk reward but there's there's some tax planning in the decision-making process as well. So with the bank financing too it's1 of the 1 of the main questions comes back to am I going to have to personally guarantee this. Um now on a on a percentage basis 1 of the things we talked about in our last episode is that if you're doing an SBA Finance deal. Then they will on a partial they will definitely require a personal guarantee. But from institution to institution it really kind of depends um the financial institution and how they're underwriting the the strength of the credit. But I would say more often than not a a percentage deal is going to be is going to accompany a personal guarantee where a 100% deal is not so just keep in mind that's. That can happen and and you just got to be prepared for that. So from a bank financing standpoint too though I think they're um the idea here is to um structure it to where it makes sense, in the scheme of things you have to do the the other part of it which is the holistic plan on.

[36:35] Were what we're adding in the bank financing is an element of ofdebt that has to be managed that doesn't really contribute to the growth of the business if the company is going to grow the other thing that needs to happen is you need to build out a a cash flow model that supports the the entirety of the credit need of the business going forward into the into the forecast.

[37:01] Looking at all of the the debt service related to that I think is really really healthy because now we're looking at the company's cash flows that can take on for instance, the cash flow modeling can take on that debt service because we're creating this benefit of the taxes.

[37:18] By doing the ESOP in the first place at the same time it can help we can we can we know what we're our borrowing need is going to be just for the business itself so all of that needs to be kind of inclusive in that model. And again coming back to the scenarios we need to look at scenarios that manage all of those things plus the the forecasted taxes now and and then including the tax benefit of being an ESOP for both an S corp or a C C Corp so Bank financing is going to be a big part of of the conversation related to that and it really does depend on.

[37:53] The decision-making of risk reward when it comes down to how those how that type of financing gets placed in the company. Now coming back I want to kind of wrap this whole partial up with this idea that you you really do have a a tremendous opportunity to do um to do a lot strategically with a partial s partial s or partial CC Corp ESOP because what you're really doing.

[38:21] Is you're kind of like you're kind of building into the whole process the whole plansomething, that most companies do not have and that is um a a, you know assuming you have a really good culture a culture enhance enhancement that that brings something to the table and to the marketplace that isn't there and soyou know if if people ask me like right off the bat you know should I should I even look at a partial, um I would be I'm I'm extremely positive about a partial esops and I and I get that they're you know it may not be. Exactly what you think it should be at the end of the day with respect to some of your exit planning and things that you're planning to do but what I what I'm getting at and then and the opportunity for partial is that the now the company has some tools, to play with that really helped do a lot of things ownership transition management transition, um the long-term benefit of of plugging my employees into the future of the business um. Things like you know benefiting directly from all the tax benefits that the IRS provides and then using that Capital to strengthen and grow the business and I think that makes a better a better company at the end of the day.

[39:37] So thanks for listening today I hope it was helpful we covered a lot of ground and I wasn't able to dig into some maybe some technical stuff that I covered um but that's why we do other topics in episodes so thanks for listening and we'll see you on our next step on this journey to an ESOP.