According to the 2022 Colorado State of Owner Readiness Report, 70% percent of business owners in the state of Colorado plan to transition ownership of their business in the next ten years, but almost half of these owners have given little attention to how this transition will occur. This fact presents a significant challenge but also an exciting opportunity when working to ensure a vibrant and sustainable local economy in our region long-term.
One method of business transition planning that is gaining significant popularity across the country and state is Employee Stock Ownership Plans or ESOPs. These plans are usually set up as a trust fund, which holds shares of the company’s stock for the benefit of employees, who are eligible to receive the financial value of a specific number of shares after completing a certain number of years of service.
The benefits of these plans for owners looking to retire or take a less active role in the businesses they’ve built are twofold. First, selling your ownership stake allows access to cash to fund your retirement. This is especially important because, for many business owners, a large portion of their personal wealth is held by their business. Furthermore, across the country, only 15% of businesses are passed down to the next generation, and only 20% of listed businesses sell. That leaves many owners without the opportunity to benefit financially from their decades of hard work and leaves employees susceptible to job loss. ESOPs can provide a relatively safer option when it comes time to sell your business.
Including an ESOP in employees’ benefit packages also attracts a higher number of talented employees and encourages them to perform better, because when the company does well, they also personally benefit. Aligning the interests of employees with the company’s long-term success ensures that your business remains viable long into the future and continues to contribute to the community we all call home. Additionally, encouraging current employees to prioritize business success builds the next generation of leaders, both within your company and in the overall community.
One drawback of ESOPs is that they can be expensive and complicated to set up initially. Fortunately, the Colorado Employee Ownership Office, a division of the Colorado Office of Economic Development and International Trade, frequently provides tax credits, grants, and consulting services that can offset some of the costs and provide advice on issues associated with a transition, such as accounting, legal, business valuation, and business transition services.
More than 230 companies in the state of Colorado are employee-owned, including a small number in the Grand Junction Area. View a map of these companies here.
For more information about ESOPs, grant opportunities, or how the chamber can help you grow and expand your business, please contact Robert Hammes, Growth & Development Manager, at [email protected].