What is an ESOP Feasibility Study?

Simply put, an ESOP feasibility study evaluates certain metrics and aspects of your business to determine if becoming an ESOP makes sense. The study allows you to know if becoming an ESOP is not only feasible but also in line with your goals—before you get too far into the process. Phase 1 of an ESOP feasibility study focuses on the following:

• Number of employees on your payroll. Typically, you’ll need to have at least 20 employees to become an ESOP.

• Your earnings with interest, taxes, depreciation, and amortization added back in (EBITDA). Ideally, your business should have an EBITDA of at least $250,000.

• High-level analysis to determine your business’ estimated value.

• The strength of your management team.

• Your goals for the transition.

If, after this initial assessment, you decide to continue on the ESOP path, Phase 2 of the study would focus on the following:

• An in-depth analysis of the value of your company

• An analysis of the employee benefit levels needed to support the ESOP (IRS retirement plan limits apply)

• Determining the structure of the transaction

• Financing considerations

• A cash flow analysis of your company

• After-tax cash flows to seller

• Reviewing your team of advisors and making changes if needed

For more informative or to ask a question you can check out:

Minnesota Center for Employee Ownership www.mnceo.org

Sue Crockett, Executive Director, scrockett@mnceo.org