Thinking of Selling to Employees? Here’s an ESOP Alternative Worth Considering

Have you ever thought about what will happen to your business after you step away? Not just financially, but in terms of the people, the culture, and the legacy you’ve built. It’s a huge decision; one that deserves more than a cookie-cutter approach.

For many business owners, selling to employees sounds ideal. After all, who better to carry things forward than the people who’ve helped build the company from the ground up? But once you dig into the details, the traditional Employee Stock Ownership Plan (ESOP) often feels like more hassle than it’s worth. Expensive, complex, and heavily regulated, it’s not exactly a smooth path for most owners of small to mid-sized businesses.

There is another way. A simpler one. A more personal one. And for many, a smarter one.

Why the Traditional ESOP Often Falls Short

At first glance, an ESOP seems like a win for everyone involved. It’s a government-recognised structure that allows employees to buy into the company over time. Sellers get tax perks. Employees feel ownership pride. Legacy is preserved.

But then come the catches.

An ESOP is classified as a retirement plan, which means it’s under the microscope of ERISA, the IRS, and the Department of Labor. That comes with strict compliance requirements, hefty admin costs, and complex rules around how the ownership is structured and maintained.

In practical terms, here’s what that means for you as an owner:

• You’ll likely need at least $1.5 million in EBITDA for the math to work.
• Set-up costs can soar above $100,000, even before ongoing fees kick in.
• You’ll probably be left financing a large chunk of the deal through seller notes, with external financing often covering only 40-60%.
• The process is long, technical, and often not tailored to your specific situation.

So yes, an ESOP can work, but it’s not built for everyone. In fact, it often only makes sense for companies with large workforces and significant infrastructure.

Meet the Simpler Option: The Step Up Legacy Plan

The Step Up Legacy Plan takes the concept of employee ownership and strips it of bureaucracy. It’s a direct, deal-driven approach where trusted employees, usually key individuals already in leadership roles, buy the business using a mix of SBA financing and a seller note.

It’s not a retirement plan. That means no ERISA compliance, no complex regulation, and no annual valuations that cost a fortune.

For owners who still want to sell to employees but can’t justify the cost or complexity of a traditional ESOP, this structure is a powerful ESOP alternative that delivers many of the same benefits, without the usual headaches.

What Makes the Step Up Legacy Plan Work?

It’s more than just simplicity. The success of this plan lies in how well it aligns with the realities of smaller businesses and their people.

There’s flexibility baked into every deal. No mandated ownership percentages, no rigid timelines, and no forced valuations that don’t reflect market conditions. Everything can be tailored, such as down payments, loan structure, timelines, and ownership splits.

Crucially, it also allows the seller to exit on their terms. Whether that means staying on for a smooth transition or stepping away right after the deal closes, the path is built around personal preference, not regulatory timelines.

And for employees, it’s empowering. They get a clear path to ownership without needing to raise a mountain of cash. They’re supported by financing options already in place. And they’re often already invested in the company’s culture and success.

Why More Business Owners Are Choosing This Path

With millions of businesses set to change hands in the next decade, and many lacking a clear successor, options like the Step Up Legacy Plan are more important than ever.

For business owners, it provides peace of mind. You get paid fairly for what you’ve built. You avoid the red tape. You hand the reins to someone you trust.

For employees, it’s an opportunity they might never get elsewhere. Ownership, leadership, and the chance to grow a business they’ve already poured themselves into.

And for communities, it keeps businesses local. That might not be on your checklist now, but it matters. Businesses that stay in the hands of committed teams are more likely to thrive, keep jobs, and contribute to their region’s economy long-term.

A Better Exit, Without the Headache

Selling your business doesn’t have to mean navigating a maze of legal jargon and regulatory burden. It can be clear. It can be fair. It can reflect your values, your team, and the culture you’ve built.

The Step Up Legacy Plan is that kind of option. It offers the key benefits of employee ownership, without the complicated infrastructure of a traditional ESOP. If you’re looking for an approach that protects your legacy and rewards the people who’ve helped you grow your business, it’s worth serious consideration.