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ESOPs Q&A

ESOPs Q&A

Written by Tom Dunn

Josh Zeidman is a Managing Director at Lazear Capital Partners (LCP), out of Columbus, Ohio in the firm’s Mergers & Acquisitions and Employee Stock Ownership Plans (ESOP) practices. He has closed several Tree Care ESOP transactions personally and his firm has handled multiple other ESOP transactions in the Tree Care industry. 

Prior to joining LCP, Josh served as a Senior Manager at KPMG where he was responsible for leading one of the firm’s largest financial services clients and helping clients navigate complex business transactions.  

Josh completed his Masters of Accountancy at the Farmer School of Business at Miami University, where he graduated Cum Laude. He also holds his Certified Public Accountant license. Josh can be reached at (614-902-3250) jz@lazearcapital.com

We had the opportunity to ask Josh about his take on the benefits and significance of ESOP’s in the tree care industry. 

 

How have ESOP’s evolved since you started in the business and what are some of the more recent trends? 

The tree-care industry is primed for employee ownership! The strong culture and commitment to people create sustainable companies in this industry and can generate significant wealth for business owners and employees. Preserving the legacy and passing the future financial benefits to the employees is a significant value proposition for many of today’s business owners. Additionally, the tax benefits offered to the seller and to the company are unlike any other exit strategy offered to a business owner, creating significant tax benefits not offered through any other exit strategy. The idea of selling the company to the employees via an Employee Stock Ownership Plan (ESOP) is almost always a win-win for both the business owner and the employees.

With increasing corporate tax rates and near-term economic uncertainty, employee ownership will continue to thrive. It’s created for sustainable long-term value creation. Unlike a private equity or competitor roll-up, in an ESOP, the management typically remains intact, preserving the continued vision of the company without “squeezing” operational costs out of the organization.

 

Can ESOP’s work for lower valued companies or is there a minimum threshold that is typically needed to consider starting an ESOP? 

There is no hard rule about how large or small a company has to be in order to be a successful ESOP. There is an old saying where “if you have seen one ESOP, you have seen one ESOP.” Every ESOP is created individually, catering to the needs of the owners and the employees. According to the National Center for Employee Ownership (NCEO) “there are a handful of ESOPs with under 10 employees, and a larger number between 10 and 20, but in most cases at least 15 employees is a reasonable starting point”.

We encourage any business owner to sit down with an ESOP financial advisor to understand the feasibility of creating employee ownership. At Lazear Capital, we start with understanding the goals of the owner and consider over 70 different data points when preparing a Feasibility Analysis for prospective clients.

 

How do you address owners that may have an unrealistic opinion of the value of the company? 

As advisors, our firm takes a holistic approach to understanding a company’s value proposition. This involves a deep understanding of a client’s projections, capital expenditure needs, and understanding value of similar companies. We share this knowledge with business owners as a part of a detailed Feasibility Analysis prior to engagement of an ESOP transaction.

 

What type of tree care company ownership structures have you seen it work successfully for? 

We see a lot of success with employee ownership in the tree care industry. As mentioned above, every ESOP is created differently, catering to the needs and goals of the business. In the tree care industry, owners have found significant tax advantages for the business owner and the company in selling to an ESOP. When structured appropriately, a seller can defer the capital gains tax associated with their sale. Additionally, the ESOP Company can eliminate federal and most state income taxes post-closing, significantly increasing company cash flow to finance the buyout, invest in equipment, talent, and grow. Additionally, and this is important in the tree care industry, I see a lot of success when the Company’s capital expenditure needs (maintenance and growth) are properly considered and validated during the feasibility analysis process.

 

What are the typical startup costs and considerations? 

Startup costs and considerations vary depending on the size and complexity of the transaction. The startup costs are comparable to a third-party sale. Ongoing, there are several compliance costs that should be considered as part of a company’s ESOP Feasibility Analysis. Business owners are encouraged to reach out to a sell-side financial advisor to fully understand all the considerations involved in an ESOP transaction. An ESOP transaction does involve multiple parties, including a trustee, a bank, a third-party administrator, and counsel.

 

Is there evidence that ESOP’s increase worker productivity and therefore bring in higher valuations when a business is sold? 

Absolutely. There is clear evidence that once sold to an ESOP, the Company subsequently sees a direct increase in worker productivity. A 2020 study conducted by the Rutgers School of Management and Labor Relations and the Employee Ownership Foundation found that employee-owned companies outperformed non-employee-owned companies in job retention, pay, and workplace health safety throughout the COVID-19 pandemic. The study found that ESOP companies were 3 to 4 times more likely to retain staff, less likely to make pay cuts (26.9% vs. 57.3%), and more likely to take protective measures against the spread of COVID-19 (98.3% vs. 88.9%). Additionally, a 2018 study by the NCEO found ESOP participants have more than twice the average retirement savings balance of Americans nationally.

Lastly, many employee-owned companies do not pay federal or state income taxes. This significantly increases cash flow for the organization, which in turn can be used to fund future growth initiatives. This, along with statistically proven increased productivity, all drives future financial success and higher valuations in the future.

If you need further assistance with any of the core components of your business, please reach out to a member of our ArboRisk team. We have many resources that can help you with this, in addition to our Thrive Risk Management Program, which can provide one-on-one help to take your business to new heights.

Tom Dunn

3 Types of Safety Meetings

3 Types of SAfety Meetings

Written by Eric Petersen, CIC

One of the main pillars of any organization’s safety culture is communication. Without effective communication around safety, a tree care owner will not be able to intentionally create their desired safety culture. The best way to improve communication around safety within your company is by simply creating a structure or cadence to your safety meetings. Many tree care companies follow a safety meeting schedule similar to what I’ve outlined below, but if you haven’t put the formality to your meetings, hopefully this will help you do so. 

To keep things simple, I like to use 3 types of safety meetings when coaching tree care companies. 

Weekly – 20-40 mins with production/in-field team – Often called tailgate safety meetings, these weekly meetings are quick meetings focusing on one direct topic and are usually done at the start of the work day with your production or in-field team. They are not intended to be used as in-depth training sessions, but rather reminders to applicable job hazards that your team faces each day. There are plenty of resources on the internet for tailgate safety topics, however, one of my favorites is the TCIA’s Tailgate Safety Program. Have a sign-in sheet for each of these so you can document who was in attendance. 

Monthly – 1 to 2 hours with all employees – I feel it is very important for everyone in your company to gather together for a monthly safety meeting, including office staff and your sales team. These meetings should focus on broader safety topics that include near miss conversations, updates on progress of safety goals, upcoming season changes and other company-wide announcements. It is a great time to communicate items to the entire team and build camaraderie across departments. This meeting should be run by your safety committee and kept on task with a standard agenda that you use every time. 

Quarterly – ½ day or longer training – This is where the real training and employee development happens during regularly scheduled training time. It is too easy to get too busy and struggle with finding time to perform safety training, so block it out ahead of time. Utilize your safety committee to create topics and a schedule for the Quarterly meetings so they run efficiently and provide the most value to your team. Hiring outside trainers is a great way to enhance Quarterly meetings. 

 

Remember safety should not be viewed as an expense, but rather an investment as the dollars that your organization spends in lost time, decreased or interrupted productivity and insurance deductibles/premium after an accident all come directly out of your bottom line. If you ever want to look at the financial impact of an injury use OSHA’s Safety Pays website to see how much an injury actually will cost your company. It’s mind-blowing! 

If you are struggling with making your safety meetings worthwhile or how to improve upon the structure of your safety meetings, reach out to an ArboRisk team member today to get signed up for our Thrive Safety Package.

Tom Dunn

How to Get the Most Out of Your Safety Committee

How to GEt the Most Out of Your Safety Committee

Written by Eric Petersen, CIC

As you know, having a safety committee is a great way to intentionally create the desired safety culture for your company. It gives your team members some control and input around safety concerns that they face each day all while building company morale and hopefully limiting injuries and accidents. 

But are you really getting the most out of your committee? Here are my four tips to strengthen your safety committee. 

  • Create Committee Goals and Responsibilities – Have you clearly defined what you want the safety committee to do for your organization? Was your committee established because you had an accident in the past or because you’re scared of an accident in the future, maybe both? Below are some core responsibilities your safety committee should take charge of:
    • Reviewing your written safety program and implementation of safety policies.
    • Regular job site and equipment inspections.
    • Running safety meetings and analyzing incident/near miss data.
    • Addressing potential risks when providing new services.
    • Staying abreast of industry regulation and changes.

  • Involve The Right People – Making sure you have the right team is critical to ensuring the committee stays just that, committed. Diversity in your safety committee is paramount. Aim to have a committee that receives input from all aspects of your business. For example, you may have one foreman, one climber, one grounds crew member, one lift operator and one shop member all included.

  • Term Limits – Create a term limit for your committee and stick to it. Many times safety committees get stale because the same people have been on the committee for years and years. Establish a rule that each members will only be on the committee for a designated amount of time. This allows a committee member a certain amount of time to create action and provides the opportunity to involve more team members. Stagger the terms so that you always have fresh members joining the current committee. I recommend using two year terms. Two years is long enough to accomplish specific tasks, but short enough to keep it interesting for all members.

  • Rewards – Give incentives to the safety committee members. Everyone wants to feel rewarded for their hard work and being on a safety committee can add more responsibility and stress than their normal position. Set up a reward system that allows you to praise the committee for the procedural aspect of their role. This could be in a monetary bonus for every safety meeting held or additional time off for every job site inspection performed, get creative on what will motivate your safety committee members to do their absolute best. Remember that OSHA frowns upon safety programs that have an outcome-based incentive tied to them, meaning do not incentivize your team members based on the amount of injuries. Use concrete goals and procedures as your benchmark for the committee’s performance.

 

Remember that the ultimate goal of the safety committee is to strengthen the culture of safety within your organization so you can get every employee home safe each night. Empowering your team members with that goal is the surest way to succeed.

If you are struggling with creating or implementing a safety committee, contact ArboRisk today to get enrolled in our Thrive Safety Package. Our team of industry experts will work with you one-on-one to build a strong safety committee and culture within your organization.

Tom Dunn

Q&A with Work Comp Loss Control Specialist

Q&A with Work Comp Loss Control Specialist

Written by Eric Petersen, CIC

One of my favorite things about the tree care industry is meeting people who have dedicated their lives to bettering the industry. Recently I had the chance to speak with MIchael Schrand, Senior Risk Management Consultant for ICW Group Insurance Company and was encouraged to hear all of the things their work comp company is doing for the tree care industry. Michael and his team work daily to help minimize jobsite hazards and reduce accidents. 

Our conversation was so powerful, I wanted to reconnect with him for a short Q&A session so I could share some of his expert insight with our readers. Check out the rest of this article to hear his perspective on safety within the tree care industry. 

 

Q – What is the most common cause of injury that you’ve seen within the tree care industry?  

A – Since I can’t really decide on the most common cause of injuries, I’ll give you three… 

  1. Lack of planning and execution when creating a safety culture. Many times a company’s safety culture is created on its own, versus intentionally being created by the leadership team. 
  2. Not having the expertise and/or training to recognize the potential hazards that you come across daily. 
  3. Employee selection is problematic. We all know the challenges the current labor force has, but hiring just to fill a spot on your team will cause problems and result in more injuries. 

Q – Is there a common theme with all the severe injuries that you’ve seen within the tree care industry? 

A – When we see serious injuries, they usually either come from a lack of training and/or experience or from not having the proper equipment. Unfortunately, many tree care operations don’t see safety culture as an important enough part of a successful business and don’t focus on it. 

Q – What are 3 things that all tree care companies should make sure they do to prevent/minimize injuries within their company? 

A – The top 3 things that I recommend tree care companies focus on to prevent/minimize injuries would be:

  1. Maintain your equipment.
  2. Implement planning and training around your safety efforts.
  3. Eliminate climbing if possible. 

Q – In your opinion, what is the most important component to have a culture of safety within a tree care company? 

A – Safety is a people business and unfortunately, accidents are a people program.  Safety must start within a person. A safety culture is created initially by the leadership individuals and then supported by every person throughout the organization. This combines with the DNA of the overall company operations and will have a direct affect on the success of the company.  


If you ever had doubts that you are not doing everything you can to get your employees home safe each night, reach out to a member of the ArboRisk team today and discuss how becoming an insurance client will help you achieve your safety goals or enroll in our Thrive Safety Package to get one-on-one help.

Tom Dunn

Q&A with Aerial Lift Specialist Dave Webb Jr.

Q&A with Aerial Lift Specialist Dave Webb Jr.

Written by Mick Kelly

As more and more tree care companies transition from climbing to working out of aerial lifts, the need to talk about safe ownership and operation of these pieces of equipment has become evident. Many times we hear from companies that they don’t know their aerial lift should be inspected annually and/or where or how to get the inspection done. 

At ArboRisk, we wanted to give you some basic information and provide a resource to help you out, so I sat down with Dave Webb Jr. of Wellbuilt Equipment to talk a little bit more about his background and knowledge of aerial lifts. His family has been in the aerial lift business for over 30 years – so they know a thing or two about what you should be looking for with your lifts!

Tell us a bit about yourself and your background in the lift industry.

My name is Dave Webb Jr. and I work at Wellbuilt Equipment. We’re a family owned and operated full service aerial lift company based out of Crete, IL. My dad started our company in 1987 in our back yard with just a couple of lifts. Since then we have grown to over 500 machines in our rental fleet and a staff of almost 30 people. 

I’m a second-generation aerial lift mechanic. I started working at Wellbuilt when I was 12 and became a mechanic when I was 18. I’m over 20 years into the industry and about 16 as a mechanic. Despite being in the management team here, I still work on equipment every day. I love getting dirty and fixing equipment, and hope to continue that path as long as possible. 

Explain the process of the annual inspection and why it’s so important?

First off, annual inspections are important to keep tabs on not only common wear and tear items but also long-term maintenance items and breakages that may occur on equipment. Many of our customers bring in their equipment quarterly for inspection and maintenance, but most are on a yearly rotation. 

The process of an inspection at our shop is very in depth. From top to bottom we touch everything on the machine. This includes checking electrical connections, torque checking every nut, bolt, hose, pin, mount, you name it, load testing, performing preventative maintenance and ensuring all proper decals and placards are in place. 

For more information regarding inspections, click here to visit our website!

How and where can you become a certified lift operator?

You can become a certified lift operator through an IPAF location (such as ourselves) or other independent aerial lift companies. We require that whomever is performing the training is familiar with the brand and model of the machine they are using to certify operators/users.

Do you have a brand and model of lift you recommend?

We sell two brands that we have partnerships here in the US with – CTE and Palazzani (Spimerica). Both have an industry leading 2 year warranty and excellent service and support. 

We try not to pick favorites as no brand truly checks all the boxes when it comes to design and customer service. We work on every brand of spider lift out there as well as over 60 brands of aerial lifts and other equipment. Brands and models vary heavily in features and cost, we try not to force a particular brand on a customer, but rather point them in the direction that best suits their needs. 

For more information on aerial lifts or inspections, visit Wellbuilt Equipment’s website here: https://www.wellbuiltequipment.com/

If you need further assistance with safety, please reach out to a member of our ArboRisk team. We have many resources that can help you with this, in addition to our Thrive Safety Package, which gives you one-on-one help creating the safety culture that you desire.

Margaret Hebert