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Joe Phelps’ management idea.

Joe Phelps’ management idea. Birmingham, 2005. Three markets: Public offering Competitors Employees. Finding a market for the founder’s stock:. For my life to feel worthwhile, I must: enjoy life as I live it, help build something that makes the world a better place.

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Joe Phelps’ management idea.

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  1. Joe Phelps’ management idea. Birmingham, 2005

  2. Three markets: Public offering Competitors Employees Finding a market for the founder’s stock:

  3. For my life to feel worthwhile, I must: enjoy life as I live it, help build something that makes the world a better place. My philosophy and life goals:

  4. Public offering Not practical Sell to competitors Would destroy the culture Sell to employees Best chance of getting value and perpetuating the culture is an ESOP The 3 Options in the context of my goals

  5. ESOP borrows from bank to finance the purchase of 30%+ of the stock from the founders. ESOP must have 30% for seller to avoid taxes The founder guarantees the note. The founder avoids capital gains tax. A portion of profits goes to payback the principle and interest to the bank. The company deducts the ESOP contributions. If there’s a bad year, there’s trouble with the bank. Most common ESOP scenario:

  6. I loan the ESOP $3MM to buy 30% of the company at 6% interest. The interest on the loan comes to me, not the bank. I won’t avoid capital gains tax on all of the $3MM. If there’s a bad year, I’ll be flexible with the ESOP. My scenario:

  7. In the past, we’ve shared 50% of the profits with the associates: Half allocated to cash distributions Half to ESOP stock Current ESOP holdings are 7% At our Oct. 7th Annual Retreat, I announced: 100% of profit goes to the ESOP until the $3MM note is paid. Here’s the kicker:

  8. Associates are immediately in an “owner” frame of mind. Focusing on increasing revenue Decreasing expenses This first 30% “primes the pump” on the ESOP without incurring bank liability or interest. I’ve found a market for 30% of my stock. And for the 15% of the company that’s held by others After the loan is repaid, the ESOP can borrow on its own and buy more stock. The rationale:

  9. At current agency size At 11% profit The $3MM loan will be paid in 3 years. The last 40% will be tax free. Profit sharing will return to 50%. The ESOP can then buy another 30% Financed by me or the bank. I’m open to all comments, concerns or questions. Projections:

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