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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

What is Safe?

What is Safe?

Written by Travis Vickerson

In the tree care industry, we speak a lot about safe work practices, safety first and working safely. Yet if we truly stop to think about it, what is safe?

It’s a rather hard thing to define without using the word safe somehow which then brings us back to attempting to define it as well as each derivative of the word. I would like to challenge you that safe is a construct that we have placed as an overarching objective in tasks and work we do. Yet safety is ultimately the outcome from those tasks. Whether or not something was done safely can only be assessed after the event is over and no negative outcome has occurred or had the potential to occur. Just because you don’t have an incident doesn’t mean you worked safely; you could have just gotten fortunate to avoid a mistake that might have had potential for an incident.

What we really mean when we talk about safe work practices and safety first is that we are wanting people to perform tasks in a manner that avoids incident and potential for incident.

This means doing things in the correct sequence or within the procedure prescribed for that task. That said, the hardest thing for most employers is to know what skill level workers have in doing things in the correct sequence or as prescribed in a procedure of a task. At Noble Oak Safety and Training, we feel the best tool any employer can have is data on the abilities, proficiency and lack thereof with employees. Far too often we see incidents occurring that are not really about lack of safety, but rather about lack of ability or trying to work beyond a person’s actual ability. We place workers on job sites and are given tasks that may or may not fit their abilities to perform work in the correct sequence or with the correct understanding of a procedure or just simply are outside of their skill level.

So how does one define an individual’s skill level? I believe in using a scoring system derived from jobsite observation of skills. This skill evaluation of employees performing tasks allows the employer to get actual data on the individuals abilities, proficiencies and needed areas of improvement. This means the right workers can be placed in the right job sites that fit their skills and employees can be given a clear and concise pathway for improvement.

Remember, employee retention is based on employee happiness and satisfaction and often we find the most satisfied employees are ones that feel they are being invested into. Training is one of the most common ways to invest in someone. Even though it may be hard to see a return on training, having a pathway of improvement can provide tailored training options that speeds up your return rather than simply providing broad training that may or may not meet the needs of your people.

To summarize we must start treating all the work we do as steps in the process to achieve safe outcomes rather than just an objective to accomplish. Stop saying have a safe day and begin making safety an outcome of everyday by infusing proper procedures for tasks, correct sequence of actions and right skills for the right job.

ArboRisk is pleased to partner with Travis Vickerson and the team at Noble Oak Safety and Training to provide Arborist Skill Validation Assessments as well as direct team or individual skills training for our clients. If you have any safety training questions, please reach out to an ArboRisk team member directly and we can get you started on our Thrive Safety Package or connected with Travis.

Tom Dunn