EP26 - Don't Be Dangerous to the Wrong Thing: A 14-Minute Field Guide for Professionals on What to Say Next

In this episode, Jason Miller explores how advisors can recognize when an Employee Stock Ownership Plan (ESOP) deserves a place in a client’s transition planning conversation. Rather than positioning ESOPs as a one-size-fits-all solution for business owners, this 14-minute field guide offers practical advice for professionals aiming to engage in meaningful discussions with clients whose objectives may align with employee ownership. From addressing common assumptions around complexity, costs, strategic buyers, seller financing, management depth, company size, and control, this episode empowers advisors with the tools to ask the right questions and identify when an ESOP deserves a closer look. Don’t miss the opportunity to enhance your advisory practice and offer your clients informed and effective solutions!

Transcript

The Real Danger for Advisors

Jason Miller 0:13

Welcome to the "Journey to an ESOP & Beyond" podcast. I'm your host, Jason Miller. One of the things that I hear most often from other professionals is some version of this: "I know enough about ESOPs to be dangerous." And usually it's said with the right amount of humility. It means "I've heard enough to know that this gets technical. I know better than to pretend I can casually advise a client through one. And I know enough to realize there are probably things I don't know." And honestly, with something like employee stock ownership plans, that's very fair. ESOPs can get technical quickly. There are issues with tax, financing, evaluation, trustee, legal, administration, and employee communication. You should not wake up tomorrow, learn three acronyms and two code sections, and then announce that you're now an ESOP advisor. But there is another kind of danger. The dangerous thing is not always what we do not know. Sometimes the dangerous thing is what we assume we know. It is the moment a client says something that should at least put an ESOP on the table, and we answer, "Oh, that probably would not work," before anyone has actually tested it. And that is what I want to talk about today. This is not an episode intended to make you an ESOP expert. It is not a sales pitch asking you to recommend an ESOP to every client with a pulse and a balance sheet. It is a field guide for the professional who wants to know one thing. When a client starts describing a problem that an ESOP might help solve, what should I say next? Your job is not to diagnose an ESOP. Your job is not to structure an ESOP. Your job is not to tell the client that an ESOP is the answer before the work has been done. Your job is to recognize when an ESOP deserves a place in the conversation long enough to be evaluated fairly. And there are a few phrases that I hear that tend to end that conversation prematurely.

Too Complicated is Not a No

Jason Miller 2:29

The first one is that ESOPs are too complicated and expensive. Well, there's truth in that statement. An ESOP is not a simple transaction. It has real costs. It has recurring obligations. It requires the right advisors, the right planning, and a company capable of supporting the structure. However, just because it is complicated, it does not mean it is wrong. And it has costs, but that does not mean it creates no value. Every transition alternative has costs. Every strategic sale has costs. Private equity has costs. Family transfers have costs. Doing nothing has costs. And waiting too long has costs. Selling to the wrong buyer also incurs costs not always listed in an engagement letter. Instead of asking, "Does an ESOP have complexity?" The better question is, "Does this client have enough potential to make the complexity worth evaluating?" So, the next time you hear yourself saying, "That sounds too complicated", try this instead. "I agree that an ESOP can be complex, but before we rule it out, let's determine whether the potential benefits are substantial enough to justify a real look." That sentence doesn't commit the client to anything. It just keeps the door open.

Price Versus Owner’s Outcome

Jason Miller 4:10

The second phrase that I hear is that a strategic buyer will probably pay more. Maybe. A strategic buyer may absolutely pay more. That is a real possibility, and it should be evaluated. But the headline purchase price is not the same thing as client outcome. What happens after taxes? What happens after indemnities? What happens if the buyer requires a rollover? What happens to the employees? What happens to the leadership team? What happens to the company's name, culture, autonomy, community, customer, and client relationships? And sometimes the client does not want the highest theoretical price. Sometimes they want liquidity, legacy, control over the transition, continuity for employees, or a chance to remain involved in the business that they built. A strategic sale may still be the right answer, but it should be compared and not presumed. The next time you think a strategic buyer will probably pay more, try this, "That may be true, but before we assume price is the only measure of success, let's compare what the owner actually wants from the transaction." That is a better professional conversation, no matter what transaction type, that eventually wins.

Liquidity and Seller Financing Reality

Jason Miller 5:32

The third phrase that we hear is that the owner wants cash. They'll never want seller financing. Again, maybe. Some care about the total economics. Some only care about the taxes. Some care about whether the company survives as an independent company. And most care about more than these at once. The job is not to assume that seller financing means the answer is no. The job is to determine whether the owner's actual needs can be met through the available alternatives. So, try this. "I understand that liquidity matters. Let's not assume the structure before we understand your actual liquidity needs, risk tolerance, and transition goals." That's an advisor sentence. It is not an ESOP sales sentence.

Testing Management Depth Not Guessing

Jason Miller 6:58

The fourth phrase we hear is that there is not enough management. "We don't have the right management team in place; there's no depth." Something along those lines. And this one is more important than people realize. An ESOP should not be used as a substitute for management. It isn't a magic wand. It doesn't solve leadership weaknesses, succession planning, confusion, or a founder who keeps every decision trapped inside their own head. And we've spent a lot of time in other episodes talking about these very things that enable an owner to transition their ownership to others, not just to an ESOP. But a lack of a fully mature management team is not always a disqualifier either. The real question is whether there is a credible path from where the company is today to where it needs to be for a successful transition. Does the company have capable people who can grow? Is the owner willing to delegate? Is there time to develop leaders? Is there a leadership bench that needs structure, authority, or intentional investment? And sometimes, the answer is no. If the answer is a no, that is important to know early. Sometimes, the ESOP conversation becomes a catalyst for the owner to confront leadership development before it becomes a crisis. So, try this. "I don't know whether the leadership team is ready today, but that is a question worth testing, not an automatic reason to stop the conversation."

Jason Miller 8:35

Too Small Needs a Closer Look

Jason Miller 8:37

This is one of my favorites. The fifth phrase we hear is, "We're too small." Size matters. Profitability matters. Cash flow matters. Management depth matters, as we just addressed. Customer concentration matters. Industry matters. But revenue alone is not a diagnosis. I've seen businesses that look large enough on paper but are fragile because their cash flow is not sustainable. The customer concentration is extreme, or the owner is still making every meaningful decision. I've also seen businesses that may not be enormous but have strong recurring cash flow, disciplined operations, a healthy team, and owners with goals that align remarkably well with employee ownership. The point is not that every smaller company is a fit. The point is that too small should be a conclusion reached after looking at the company, not a reflex based on one number. So, try this. "Size may be a factor, but let's look at the actual operating and financial characteristics before we rule it out."

Employee Ownership is Not Democracy

Jason Miller 9:50

And finally, one of the biggest misunderstandings is that employee ownership means giving up control. An ESOP is employee ownership. It is not employee management. It does not mean that employees vote on every operating decision. It does not mean that the founder loses their seat at the table overnight. It does not mean the business becomes a democracy with a suggestion box and a drum circle. It means ownership is held for the benefit of employees through a trust. Governance, management authority, leadership roles, and transition timing are all separate conversations. The owner may transition immediately. The owner may remain involved for years. The management team may continue running the company just as it did before, but with more intentionality and clearer accountability. But the important thing is not to confuse ownership with day-to-day control. So, try this. "Employee ownership does not automatically tell us who will manage the company tomorrow. Let's separate the ownership question from the control and leadership questions."

Signals That Merit a Real Conversation

Jason Miller 11:02

So, what should you actually listen for? Listen for the owner who says, "I don't know who to sell to. I want to take care of my people. My kids don't want the business. I want liquidity, but I'm not really ready to walk away. I don't want everything we built to disappear after a sale. I've got a strong company, but I don't know what transition is supposed to look like." Now, those are not automatic ESOP indicators. They're not even proof that an ESOP will work. But there are reasons to ask a better question. And here is the one sentence I would love for every advisor to have in their pocket. "I don't know whether an ESOP is the right answer, but I see enough potential here to believe it deserves a real conversation before we rule it out." That's it. You're not promising a transaction. You're not advocating for something that you cannot yet evaluate. You are preserving an option for the client. And that is where I want you to be dangerous. It is dangerous to the reflex that says it is too complicated. It is dangerous to assume that a strategic buyer is automatically better. It is dangerous to the lazy shorthand that says they're too small, they don't have management, or they want cash. Those may all become real reasons not to pursue an ESOP, but they should become conclusions after examination, not casualties of causal language. The next time one of your clients says something that sounds like legacy, liquidity, independence, employee continuity, leadership succession, or uncertainty about who should own the business next, don't feel pressure to become the ESOP expert in the room. Just say the next sentence. "I don't know yet whether an ESOP is the right answer, but I see enough here to believe it deserves a real conversation before we rule it out." Then you bring that conversation back to us. You don't have to make every ESOP happen, but together we can make sure the right ones don't die before they ever had a chance.

Jason Miller 13:34

Share the Field Guide and Close

Jason Miller 13:36

Thank you for listening. Share this episode and field guide with another advisor you know who interacts with owners of privately held companies that are wondering about what their transition should look like, what it could look like, and how they want to approach it. Thank you, and we'll see you next time on the "Journey to an ESOP & Beyond" podcast.