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ESOP Feasibility Studies and Why They’re Important

ESOP Feasibility Studies and Why They’re Important

If you are a business owner contemplating business succession planning, you’ve likely heard about Employee Stock Ownership Plans (ESOPs) and the benefits they can provide your company and employees. However, you may not know that an ESOP feasibility study is a crucial first step for any company ready to transition or wanting to learn more about an ESOP. In this article, we’ll discuss the feasibility study phase of an ESOP transition, what aspects are reviewed in the feasibility study and why this is such an important first step in the process.

What is an ESOP feasibility study?

When a company is looking to transition to an ESOP, the first step is to conduct a feasibility study. Typically conducted by qualified consultants, the feasibility study will gauge whether an ESOP is a viable option for the company, but also if an ESOP will fit the financial goals and objectives of the company, along with its board, management and shareholders. This feasibility study phase typically lasts around 45-60 days. Some states, including Iowa, even have programs to help businesses pay for ESOP feasibility studies. Check with your state’s economic development department to see if a program exists.

What aspects are reviewed in an ESOP feasibility study?

During the feasibility study, many financials and various data points will be reviewed by the consultants. Common aspects reviewed during a feasibility study include:

  • Company Value: What is the anticipated value of the company for the ESOP transaction?
  • Transaction Structure: How will shares be purchased from shareholders?
  • Financing and Funding: How will the company acquire company stock from shareholders?
  • Cash Flow Analysis: How will the transaction impact the company’s ongoing cash flow?
  • Employee Benefit Levels: What are the employee benefit levels need to support the ESOP?

The feasibility study typically also includes management interviews and financial models and projections. For example, your consultants may project the differences between having your company organized as either an S-corp or a C-corp (both can be done with ESOPs).

Why is an ESOP feasibility study important?

By investing in a feasibility study at the start of your ESOP transition, you’ll have the information necessary to make an informed decision for the future of your company and employees. The feasibility study will serve as a blueprint for a future ESOP transaction and identify how that transaction could impact your company’s cash flow and financial position, helping to prepare you for a smoother ESOP transition.

If you are considering transitioning your company into an ESOP, reach out to me to learn more.

Kelly Robus

Kelly Robus

VP, Managing Director - Specialty/ESOP Finance (515) 247-2124 Email Kelly

Kelly Robus joined Bankers Trust as a Commercial Portfolio Manager in August 2013. After many years leading the underwriting support for all ESOP relationships, Kelly was promoted in 2019 to Assistant Vice President, Associate Managing Director of ESOP Finance. She was then promoted to Vice President in 2021 and to her current position in 2024. Prior to joining Bankers Trust, Kelly held positions at Great Western Bank, Commerce Bank and Firstar. She has 34 years of experience in the financial services industry, 31 of which have been spent in banking. Kelly received a degree in business management from Central College.

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