fbpx

ESOPs Q&A

by | Nov 1, 2022 | Business Strategy | 0 comments

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

The Three Most Important Words in an Interview: Tell Me More

by | Oct 3, 2022 | Business Strategy | 0 comments

The three most important words in an interview: Tell me more

Written by Eric Petersen, CIC

We all know how much hiring the wrong person hurts your organization, yet most tree care companies are not good at screening potential employees during an interview. The reasoning is pretty obvious, besides feeling the pressure of needing more employees on a daily basis, interviewing can be an arduous task and one that many tree care companies don’t practice and therefore are not very skilled in.

So how do you know what to ask and more importantly, how do you know if the prospective employee is telling you the truth or just what you want to hear? Many times it is difficult to decipher, but the most powerful interview tip that I’ve learned over the years is to use a simple three word phrase…

“Tell me more.”

One of the most common traps an interviewer falls into is talking too much instead of getting the prospective employee to open up. There are many reasons why this happens, but even when the interviewer applies conscious thought on not talking too much during the interview it still doesn’t always prevent it. This is why I love the “tell me more” phrase. It intentionally takes the spotlight from the interviewer and directs it at the interviewee.

This tactic is used similarly to digging deeper when on a sales call. I recently wrote an article about how to get down to the root reason or decision-making motivation when on a sales call by asking “why” three times. To read that article click here. Employ the “tell me more” phrase three times to any important interview question and you’ll gain a tremendous amount of insight about your prospective employee.

Let’s walk through an example…

Interviewer: “I see you have worked at three different tree care companies in the past, tell me more about those experiences.”

The Interviewee will typically answer with a simple statement without much substance like; “the other companies weren’t a fit for me.” The Interviewer should follow up this bland statement with the following.

Interviewer: “Tell me more about why they weren’t a fit for you. Start with the company you currently are working for.”

The Interviewee now has to actually answer the question and you’ll get an initial glimpse into that person’s personality and what they value from an employer. Still, there probably is much more to uncover so the interviewer should try to go deeper. 

Interviewer: “You mentioned that you didn’t see a chance at advancing with your old company, tell me more why that is important to you.”

Now on the third “tell me more” the interviewee has to open up about their feelings on whatever topic you have gone down and the interviewer will receive real information to help in the hiring decision.

I suggest you do this with 3 or 4 questions on every interview so you actually get in-depth answers. From there it should be fairly easy to see which prospective employee will fit with your company culture and which one(s) won’t.

For more help with your interview format and overall hiring process sign up for ArboRisk’s Thrive Hiring and Recruiting Package to work one-on-one with our team of experts.

Tom Dunn

Risk Management Concerns When Hiring Minors

by | Sep 30, 2022 | Safety | 0 comments

Risk Management Concerns When Hiring Minors

Written by Ryan Watry

In my daily conversations with tree care companies, finding good employees seems to be the number one issue they face.  Sometimes the solution to that problem is hiring a minor to help.  Hiring someone under the age of 18 does create some different risks and needs than hiring an adult.  Here are three areas to be aware of when considering hiring a minor.

1. State Specific – Each state will have a similar but specific view on the regulations surrounding employing minors. Start by contacting your state’s Department of Workforce Development to find out specific restrictions that may apply.  For example in Wisconsin, tree work is considered hazardous employment.  This means that a minor can not operate machinery including chippers, skid steers, chainsaws, etc..  They are permitted to work on a ground crew, cleaning up and dragging brush.  You also should ask about other employment guidelines such as, the number of hours they may work and if they need a work permit.

2. General Liability & Business Auto Insurance – Depending on your insurance carrier there may be restrictions in your general liability and/or business auto policies that restrict what a person under a certain age can do and what vehicles, if any, they are allowed to drive.   Many insurance companies do not want anyone under the age of 21 to drive for your company. So it is important to check with your agent to see if there are any restrictions on employees under 18. If you are struggling with young driver eligibility, creating a driver management program within your company will help. Check out this article which talks specifically about creating a driver management program. 

3. Workers’ Compensation – Workers compensation insurance will cover any employee regardless of age.  However, there are different benefits added in for someone under 18 who gets hurt.  Again, these benefits differ from state to state, so we recommend checking with your insurance agent on your state’s specifics.  In Wisconsin, if an employee under the age of 18 sustains an injury that results in a partial or permanent disability, the lost wages (or indemnity portion of the claim) paid out will be triple what they would normally be for someone over 18.  Also you can be fined by the state and OSHA if it is found that the minor employee was operating equipment they were not permitted to.  

After researching each of these three areas, you will be able to determine if hiring a minor is right for your business.  Who knows this, may lead a young person down a career path in this exciting industry.

For more specific help on hiring and recruiting, reach out to an ArboRisk team member to discuss our Thrive Hiring & Recruiting Package or the Leadership Development Package today.

Tom Dunn

Taking Your Team to New Heights by Planting a Tree

by | Sep 30, 2022 | Safety | 0 comments

Taking Your Team to New Heights by Planting a Tree

Written by Kevin Martlage

In a 2019 Gallup Article, “This Fixable Problem Costs US Businesses $1 Trillion”, Gallup reported that voluntary turnover costs businesses $1 trillion dollars annually. In addition, the cost of replacing an employee can range “from one-half to two times their annual salary”. 

To put that in perspective, a full-time employee making $60,000 per year would cost an estimated $30,000 to $120,000 in sourcing, training, on-boarding, and hiring costs to replace them. The interesting thing about the Gallup Poll and their findings is that “52% of voluntary exiting employees said their manager or organization could have done something to prevent them from leaving their job”. So over half of those people who left an organization said they did so because of something their manager or organization did not do. That is incredible to think about and I am sure the costs have increased in the past 3 years since the publication. 

So, what can we do strategically as business owners and leaders to ensure we find the right employees and then ultimately support them as they become leaders within our organization, and we reach new heights as a team? The answer is simple. Go plant a tree. 

As a leader in the tree care industry, you must always ensure that you, and your team, are knowledgeable in understanding what is necessary to meet the needs of your clients while expertly taking care of their trees. This takes on a lot of different forms including Plant Health Care (PHC), pruning, planting, and removal. Let’s take planting a tree for instance. Anyone can certainly go outside, dig a hole, place the tree in that hole, and fill the hole while hoping that the tree makes it. However, if you follow the guidelines outlined on the Trees are Good Website for planting a tree you quickly see that there is much more to the process than just digging a hole and planting a tree. Specially, they recommend you consider the following:

  • Identifying the right tree to plant
  • When to plant
  • Planting stress
  • How to properly plant the tree (there are 9 steps outlined in this section)
  • Right Tree – Right Place
  • How to mulch the tree 
  • How to avoid any potential tree and utility conflicts

All these things are very important for an arborist to consider when planting a tree. By taking into consideration these things you are ensuring that the tree will establish the appropriate root system and continue to grow and flourish as part of the canopy and ecosystem in the environment in which it was planted. So, what does planting a tree have to do with hiring and retaining great people? The answer lies within the basic considerations we review when planting a tree. 

I have written before about how developing a career path for your employees is like planting a seed and then caring for it through the germination, seedling, sapling, growth, and nurturing stages “Outlining a Career Path for Your Team” – ArboRisk Insurance Weekly Tip January 14, 2022. The same analogy can be made when hiring, on-boarding and then supporting your new and existing team. However now the tree (your new hire) is grown, and it is time to transplant it into its destination. 

Let’s use the considerations for planting a tree as outlined on the Trees Are Good Website as a template. Below, I have outlined the steps to consider when planting a tree and then included questions to consider for the hiring, onboarding, and growth process. These questions are designed to help you ensure the best applicant is identified, hired, and integrated successfully within any organization. 

  • Identifying the right tree to plant
    • What is the position we are hiring?
    • What skills are necessary?
    • Do we have a developed job description that outlines the requirements for the position?
    • What organizational and business culture traits are we looking for?
  • When to plant 
    • When does the position need to be filled (immediately, 30 days, 60 days, etc.)
    • How will we post the job announcement and manage the applications?
  • Planting stress
    • What will the hiring and interview process look like internally and externally?
    • Who needs to be involved, internally, in the hiring/interview process?
    • Who is going to review applications and schedule the interviews?
    • Who will conduct the interviews?
    • What stress will this cause on the organization to find the right applicant?
  • The Right Tree – Right Place
    • How will we identify and assess the applicants to find the right candidate?
    • What are the non-negotiable traits and skills that we must have?
    • What questions are we going to ask each applicant?
  • How to mulch the tree
    • Do we have the proper offer letter developed?
    • What paperwork needs to be done once they accept (i.e., payroll, HR, etc.)
    • What does their first day look like?
    • What does their first 90 days look like?
    • Do we have an onboarding plan?
  • How to avoid any potential tree and utility conflicts
    • Are expectations clearly defined?
    • Are they aware of your organizational culture and how they can impact it?
    • How do we ensure that they are avoiding any “organizational culture hazards” during their first 6 months?
    • How will be ensure that they are growing and flourishing in their new environment?
    • How are we going to ensure they do not leave?

This may seem like an odd analogy when it comes to hiring and supporting your new hires. However, I would argue that if you were planting a $60,000 tree, you would take these steps and more to ensure that the tree was planted perfectly to enable its growth and sustainability. So why would you not do the same for each person, both current and future, within your organization. 

Leadership in today’s economy is not easy. Supporting your team, ensuring you have a hiring and on-boarding plan, and making sure that your team feels supported and engaged is the X factor that will set your tree care company apart from the competition. I encourage you to continue to focus on your people, both current and future, so that you are not part of the more than $1 trillion in expenses seen globally by companies who are losing employees because of things they could have identified and changed to ensure they stayed. 

If you are interested in learning more about effective hiring, recruiting, on-boarding, and overall leadership development and planning, please check out the Risk Management Packages located on the Arborisk Insurance website. If you need more assistance with hiring and recruiting, contact ArboRisk to learn more about their Thrive Risk Management Hiring & Recruiting Package or the Leadership Development Package.

Tom Dunn

The Value of Stay Interviews

by | Sep 19, 2022 | Safety | 0 comments

The Value of Stay Interviews

Written by Sheila Beaumier

Should I stay, or should I go now?

Yes, those are lyrics from an eighties song by The Clash, but they run through employees’ heads everywhere daily.  

Employees often dedicated more time weekly to their employers than to their families. For most, work is necessary, and they want to feel trusted, valued, and appreciated. While that seems basic and reasonable, it often does not happen. Why? The why is not so easy. The employer-employee relationship takes work, listening, and communication like every relationship.

For decades many organizations have conducted or attempted to conduct an exit interview with outgoing staff. When you think about it, once you are at that point, when the staff member is leaving, what you learn is too late for any action you may take to affect the outgoing staff member. When you realize three of your staff have left because they did not feel they had the tools to do the job, you will likely create a plan to be sure your other staff members have the tools to do the job. As for the three who left, it’s too late. 

What if you make a slight shift and conduct stay interviews instead? In the stay interview, you have a chance to listen and incorporate the feedback to impact your existing staff, and in turn, the organization retains people. When your folks see this, they feel valued, listened to, and appreciated. When you conduct a stay interview, you find out why people stay and what makes them consider leaving. You have a chance to use the data you collect to improve retention, improve communications, and take action on what is important to your staff. In these meetings, you are building trust and improving communication by merely holding the meetings. When you take action on what you learn, the trust strengthens.

Stay interviews don’t have to be complicated, but you do want to be sure you do them individually and within a short period. Setting the stage for the stay interviews is essential; you don’t want to show up on a site and start pulling people off their jobs and asking questions. So, be sure your management team and your staff know in advance that you will conduct these interviews, what they are, and why you are running them. Ensure your staff knows this initiative is meant to help you understand what is working for them and what they want to see change. Stay interviews generally are twenty minutes to half an hour, but the time frame depends on the number of questions and how much sharing takes place. 

Tips for a successful stay interview

  • Put on your down-to-earth hat, be friendly and make everyone feel comfortable.
  • If you can find a location where folks feel more comfortable, all the better. I am a big fan of picnic table stay interviews, with food, of course, just not in the wintertime in Boston.
  • Don’t use this time to toot your horn. This interview is a time for you to be genuine and show genuine interest in learning and listening.
  • Plan your questions ahead and ask everyone the same questions. Do not ask questions that can be answered with a yes/no response.  
  • Maybe ask:
    • What is your favorite part about your job?
    • If you had a magic wand, what would you change and why?
    • Do you have the tools to do your job?
    • What can I do to help you be successful?
  • Be sure each person knows that you have appreciated their time
  • Keep notes
  • Look for themes
  • Create action plans or involve your staff in the creation of the plans
  • Follow up and let people know about the action plans and implement them.

Are stay interviews for every organization? The truth is no; they are not a good idea for every organization. For example, suppose you have not cultivated a culture of trust and are unwilling to act on what you find out. In that case, it is better to avoid them because if you aren’t going to take action or involve the staff in taking action, you have just ignored your folks and further eroded their trust and they will continue to mumble the lyrics, “Should I stay or should I go”.

If you need more help with stay interviews or assistance with hiring and recruiting, contact ArboRisk to learn more about their Thrive Risk Management Hiring & Recruiting Package.