Material Handling Wholesaler (MHW) gave you an opportunity on October 10th to make a LOT OF MONEY within the next six months. I am referring to the webinar titled ESOPs for MATERIAL HANDLING, EQUIPMENT RENTAL COMPANIES /DEALERSHIPS, and RELATED INDUSTRIES. I hope you had time to attend and learn how this transition option can put a lot more money into your bank account and still allow you continue working with the same staff you currently have, knowing you have additional working capital in terms of the company income taxes you will no longer have to pay.
I am sure you know that if you sell assets you need to pay the bank, the IRS and yourself. The “yourself” piece in this scenario is dramatically impacted by the sale of rental assets with zero or low tax basis. What the ESOP does is give you the opportunity to greatly reduce or defer any recapture taxes thus adding a significant amount to the “yourself” payout.
This is a simple example of how it works. You sell stock to an ESOP….and keep your debt intact….and pay taxes at the capital gains rate if you choose. If you are a C-Corp you can roll-over the investment into corporate securities and defer the tax until you sell the corporate securities. The seller also gets a note for the portion of selling price that is not funded with new debt, which is normally paid after the cash payment (note) is paid off, usually in 5-6 years. The seller note also pays interest at a very acceptable rate which can produce a significant annual interest payment until the debt is paid.
Once both notes are paid off, the employees have a company that could be worth $15 million, or more, or less depending on operating results of the company. Not bad for all concerned.
But, and this is a BIG but you have to qualify to do an ESOP transaction. In other words, your EBITDA numbers historically and projected have to be able to fund the cash payout as well as other debt service and Cap x. If you can, you should investigate further to see if the ESOP works for you.
As I have mentioned in the past….do your homework first and avoid spending a ton of money only to find out that you don’t qualify. Run your own numbers and get a valuation of your rental assets as well as other fixed assets (if a material number), and then present those findings to CSG Partners who can review them to determine if there would be a bank willing to finance your deal.
If you didn’t get a chance to listen in to the webinar, click here to listen to it and if you have a question or need help with the “numbers” give me a call and we will get you through the process.
Just remember the point here is to maximize your personal return while the company value is at a high point, as opposed to pushing off a sale because you wish to continue to work and then trying to sell it for a lower value because the next recession is upon us. With the ESOP you can do both.
So Going Once…..Going Twice……SOLD to your ESOP….if you qualify.
Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail editorial@mhwmag.com to contact Garry.
