It is truly wonderful when business is good. You can pay down some bills and have extra bucks to repair or replace needed equipment. Pay down bank loans. Pass out some bonuses. Take a vacation. Put some money in your retirement accounts.
But then reality sets in. The business is there in front of you, but you don’t have the personnel to do the work in a profitable, efficient manner. So what do you have to do to attract people to your company and convince them to stay the course?
It’s the “convincing” part that gets tough because you are competing with every other contractor out there for worker services. As such, your convincing has to be better than that being offered by the competition, but not to the extent where it puts you in the poor house.
So how do you get there? There are two ways based on what I’m seeing out there:
- Improve your employee benefit plan offerings
- Make your employees your partner (don’t panic; there is a win-win solution)
Both suggestions are employee benefit plans. The first is pretty easy to do. The second is more involved, but in addition to being an employee benefit, it helps shareholders get money off the table as part of the implementation (win-win).
Give Them A Share in the Profit
When it comes to upgrading your benefit plan, you can start by improving the services and information for managing retirement money. Most companies have a 401(k) program where employees provide most of the funding along with whatever match the employer provides.
I also suggest you consider a profit-sharing plan to increase your standing with both potential recruits and existing employees. If the contributions are large enough, you can stretch the vesting and be almost assured that employees will stay, especially if such plans are not available at other potential employers. This is the partnering piece of the puzzle, because the contributions should mirror profitability. If you have a good year, the contribution is larger.
Both the 401(k) and profit-sharing plans are reviewed and managed by the IRS. This means there are annual compliance requirements, tax report filings, reporting requirements, investment decisions and fiduciary liability issues if you manage the plans on your own.
One option that is gaining popularity is the Multiple Employer Plan (MEP), which allows small employers to band together to obtain more favorable plan investment results and more efficient and less expensive management services. MEPs take all the work off of your shoulders; place you in a large, powerful group in a unified plan; and provide the advantages of a standalone sponsor with avoidance of the expenses and administrative burden of a single employee plan. The bottom line is a sophisticated plan to manage retirement benefits without the headaches and cost of managing it yourself.
If you wish to focus on certain levels of management or individuals, you can use various forms of deferred comp, also with vesting schedules to keep the golden handcuffs in force.
If you need someone to help you devise a plan or plans that will work for your business, one option is Tal Diekvoss, Fiduciary Management Group, who has experience working with contractors, equipment dealers and rental companies. He can be reached at (920) 318-1007 or firstname.lastname@example.org.
I have seen the advantages of ESOPs for equipment dealers and rental companies. Yet, the more I got into the subject, the more construction firms I came across using them as an employee benefit plan. I had to ask around to find out why ESOPs are so popular with contractors.
In an ESOP transaction, shareholders sell their stock or equity to the ESOP for fair market value. The shares owned by the ESOP are then allocated to employees based on compensation levels. Over a 10- to 15-year time period, the shares have the ability to gain value, which in turn is transferred to the employee-owned shares. Upon retirement, the employee vested benefits are paid out to the employee over a period of time.
Contractors find ESOPs attractive because they provide a venue where ownership can get fair market value for their investment. They are attractive because it is difficult to sell a construction business to another contractor for the price an owner feels it’s worth. Non-owner employees of the company, on the other hand, who know its strengths and weaknesses, would be willing to carry on the business activities in exchange for getting a piece of the action via the ESOP.
What is great for the employees is there is no cost to get this opportunity. They just do their job and generate profits and cash flow. It’s not a short-term investment, but one that can be quite lucrative in the long run. Contractor employees of an ESOP have all told me they are quite satisfied with the results. Of course, there are no guarantees — the company has to continue to be profitable to make it work.
Before we get carried away, I have to tell you that an ESOP requires a clean set of books, clean balance sheet, equity in the business, profits and cash flow. If you don’t have these, it will be difficult to get a deal done.
Seminar Provides a Chance to Learn More
Because I know the value of ESOPs, I also know there is limited knowledge about them in the marketplace. That’s why I have asked a few friends to sponsor a one-day ESOP Employee Benefit Seminar on May 30, 2018, in Chicago. The purpose of the seminar is twofold:
- to introduce you to ESOPs and other tools to help with recruitment and retention of employees, and
- to help you refrain from a painful financial situation related to starting an ESOP process if you should not be doing so.
Wintrust Commercial Banking and its national ESOP Practice Group will be the host and a sponsor of the event, along with CSG Partners and Fiduciary Management Group. Wintrust has a Contractor Division, which makes its participation a plus. CSG Partners is the ESOP expert, Tal Diekvoss will represent Fiduciary Management Group and I will walk you through the process and what to expect along the way. Wintrust Commercial Banking is next to O’Hare Airport and thus quite convenient for a one-day program.
Garry Bartecki is the managing member of GB Financial Services LLP and a consultant to the Associated Equipment Distributors.