Sernett Wealth Management
Scott J Sernett
Wealth Management Advisor|CFP®, CLU®, ChFC®, AEP®
We build partnerships, solve complex problems, and provide security for our clients
Better Performance Still Comes With Challenges
Your organization is fueled by your employees. It’s a beautiful blend of when the organization is successful, the team members will see the fruit of their labor. It doesn’t mean it is without its own challenges.
We work with many ESOP organizations trying to answer their most difficult questions:
How do you best forecast, plan and fund these large obligations?
How do you keep top people and motivate them to keep growing?
How do you give younger leaders similar value out of the ESOP?
How will we be ready if one of our largest stockholders departs?
Uncertainty to these questions cause instability for the organization and you as the leader.
The Cash Flow Crunch
For employee owned companies one of the most common and significant challenges is failing to plan for future Repurchase Obligation adequately. This can create cash flow crunches, increased debt exposure, and devaluation of company stock. In the most extreme examples it can lead to a forced sale of the company.
So what can be done to prepare?
The best approach is similar to parents who save money over time for their child’s future education costs. This means setting aside a certain percentage of payroll each year specifically for these obligations. A company must plan for their growing Repurchase Obligation early on to avoid finding themselves in a financial crunch down the road.
A well designed plan will build income generating assets to offset growth of the stock and also have those assets available in the future to pay for or recover costs from distributions
Plan for your payouts.
After converting to an ESOP, it’s critical to have a plan to repurchase the shares when your employees leave or retire. ESOPs that fail to plan often end up running into trouble. The company may not have the funds to meet the repurchase obligations and could end up having to sell to a third party, file for bankruptcy, or find some other alternative. An external trustee can help you get a realistic view on what your payout obligations will be, by evaluating factors like your payroll, projected future growth, share price and current allocations. The external trustee can offer guidance on how to plan for those obligations, while also maintaining the level of capital you need to run operations on a day-to-day basis and invest in the business’ long-term growth.
- HAVE'S -VS- HAVE NOT'S - My employees who are not yet long-term are unhappy they are not getting the same value out of the ESOP
- REPURCHASE OBLIGATION - How to best forecast, plan and fund these large obligations?
- PREMATURE DEPARTURE - Will we be ready if one of our largest stock holders departs
- TALENT RETENTION - Recruit, reward, and retain key talent
Client Testimonial
As the Lafayette Group transitioned to an employee-owned structure, we faced the complexities of planning for repurchase obligation. We are immensely grateful for Scott Sernett & his team’s expertise and professionalism during this critical period. Their guidance was pivotal in implementing the right strategies, safeguarding our interests, and ensuring our company’s smooth continuation under the new ownership model. Thank you for your invaluable support in helping our business thrive.
Stability Comes with the Right Strategy
Client Testimonial
Transitioning to an employee-owned structure presented significant challenges. We are deeply appreciative of Scott Sernett and his team's expertise and professionalism during this crucial period. Their guidance was instrumental in allowing our company to smoothly adapt to the new ownership model and prepare us for a stable, sustainable future. Thank you for your invaluable support in helping our business flourish.