Mark Paetznick, Vice President- Equipment Financing and Leasing, Fidelity Bank, Minneapolis  

As you transition to the next stage of your career and consider the sale of the company you have worked so hard to build, one good option is an Employee Owned organization. As you evaluate this decision it is important to align yourself with others who have taken this journey before and have the expertise to assist in your decision making. These experts include the MN  Center for Employee Ownership (MNCEO) and trusted advisors in key areas such as banking,  legal, accounting, and valuations.  

While there are multiple banks that provide financing to employee owned companies, partnering with a bank with expertise in this area provides tremendous value due to the unique  structure of these companies.  

Experience has taught us there are common characteristics of a more successful employee  owned company. As you work with your team of trusted advisors to determine whether  employee ownership is a fit for you and your organization, key factors to consider include seller  motivations, company culture, desired legacy and community impact, and financial factors. 

Motivational Considerations 

Oftentimes, the seller focuses on what they want their legacy to be. Employee ownership is a  great structure if you desire to keep your business and jobs in the local community and share  your financial success with those who have helped you achieve it. If the owner’s motivation is strictly maximizing a sale price, then a strategic buyer such as Private Equity Group (PEG) or a  competitor may be the best route to go. 

Cultural Considerations 

Company culture is important when evaluating an employee owned company. One key  question that should be asked is whether an ESOP structure will resonate with the company’s  team members. An employee owned company flourishes when the decision making becomes  more company-wide—moving from “me” to “we” culture. Will the team members embrace  that culture and are there enough employees, in general and in key roles, to sustain and grow  the business? 

Another culture consideration is key management. Loyal team members are a significant factor  in the success of employee owned businesses. Does the current leadership team have the  expertise to take on more responsibility, enabling the company to be successful and profitably  grow? Or will key hires need to be made for this transition? Succession planning is also  important and needs to be in place for the long-term success of the company.  

Financial Considerations 

Both personal and corporate-level financial plans, now and in the future, are integral to think  through when considering employee ownership. 

Personally, how much risk are you willing to take? Do you need to diversify your holdings?  With employee ownership your investment will continue to be concentrated in your company  with repayment likely made over time. Does this structure fit your retirement plans and personal cash flow needs?  

On the corporate side, experience has shown that companies with stable revenue streams and  earnings history have more success as an employee owned company. Valuations decrease with  volatility and decreased profitability. Generally financial results have been better when there  are little or no industry or client concentrations in the business. Another facet to evaluate are  the costs of establishing an employee owned company and maintaining that ownership  structure.  

Though the process of considering whether employee ownership is the right fit for you and your business can feel overwhelming at times, you can feel confident in the expertise of the  MNCEO and your team of trusted advisors.