The ROI of employee ownership for advisors: insights from three case studies
- Zarin Kresge
Employee ownership is often discussed in terms of impact: stronger companies, more engaged employees, and healthier communities. But for business advisors, there’s another question that matters just as much: does it pay?
Yes, when done well.
As succession planning becomes a growing part of advisory practices, employee ownership (EO) offers a way to deliver complex, high-value transitions while generating significant professional fees. Advisors who understand EO structures are increasingly sought after by owners looking for exits that preserve legacy without sacrificing financial return.
To explore what that looks like in practice, I interviewed advisors who have led employee ownership transitions across three different models. The case studies below show how Employee Stock Ownership Plans (ESOPs), worker cooperatives, and Employee Ownership Trusts (EOTs) can create ROI for owners, employees, and advisors.
Case study 1:
Construction ESOP increases valuation and builds retirement accounts for employees
Background
The owner of a construction firm generating $1.5M in EBITDA sought an exit while keeping the company independent and rewarding employees.
Benefits to the business owner and employees
By selling 100% of the C Corporation to an ESOP, the seller deferred capital gains taxes under Section 1042 by reinvesting in qualified replacement securities. “By converting to an S-Corp post-transaction, the new ESOP business also became federal income tax-exempt, significantly boosting cash flow,” Sam Brownell, the founder and CEO of Stratus Business Advisors, explained.
The valuation increased from $9M to $11M over five years, driven by tax savings and higher employee engagement. The seller received structured payouts through cash from bank loans and repayment of a seller’s note, while employees benefited from retirement accounts growing at 12-15% annually, outperforming the S&P 500.
The business also gained resilience during COVID-19, retaining jobs at a four-to-one rate compared to non-employee-owned companies.
“The ESOP model offers an unmatched combination of tax efficiency, employee wealth-building, and long-term company sustainability,” Sam stated.
Benefits to business advisors
For this ESOP transition, multiple experts were needed to value the business, draft legal documents, structure the sale, and ensure compliance.
“For advisors, facilitating this transition generated between $180K and $360K in fees, positioning them as key players in succession planning,” Sam said. These fees amounted to 2-4% of the $9M deal.
Case study 2:
Manufacturing company becomes worker cooperative, boosting employee engagement
Background
This case study features a mid-sized manufacturing company generating $1M in EBITDA, where the owner was looking for an exit strategy that preserved the company’s legacy and ensured long-term success for employees.
Benefits to the business owner and employees
Rather than selling to a private equity firm, the company transitioned to a worker cooperative. Employees, with the help of an SBA-backed loan and seller financing, bought the business.
The seller benefited from structured payouts with a solid risk-adjusted return and received fair market value for their business.
Productivity gains of 5-8% annually, driven by higher employee engagement, led to a valuation increase of $1M within three years. The employee-owners also experienced high job satisfaction, participated in profit sharing, and increased their understanding of the business KPIs that drove the company’s success.
There were also tax advantages involved. If at least 20% of annual patronage dividends are paid in cash, the coop does not pay federal income tax on the full amount of the patronage dividend.
Benefits to business advisors
From an advisor’s perspective, facilitating a transition like this earns the advisor team between $50K and $150K in fees, depending on the deal structure.
“For business owners and advisors alike, a cooperative transition can be a win-win strategy, ensuring financial returns while fostering employee wealth-building and company stability,” Sam said.
Professional services firm transitions to EOT, distributing financial gains to all parties involved
Case study 3:
Background
This case study centers on a professional services firm with $1M in EBITDA and 25 employees that opted for an EOT sale. It’s from the National Center for Employee Ownership’s (NCEO) publication, Using an Employee Ownership Trust for Business Transition, which features several experts from the Project Equity team.
Benefits to the business owners and employees
The owner sold the company for $4M, structuring the deal to be paid over seven years.
The advantages of an EOT include the ability for the seller to gift shares, flexibility in structuring the deal and post-transaction company, and stability for employees. While the valuation did not experience a major jump, consistent 3% revenue growth and profit sharing ensured a sustainable and equitable transition.
Employees received meaningful profit distributions, while the owner enjoyed a steady payout. In addition, the employee-owners felt a greater sense of responsibility and engagement, leading to productivity growth.
Benefits to advisors
For advisors, this transition typically earns them between $80K and $160K in fees.
“While EOTs might not have the same rapid appreciation as worker cooperatives, they provide an excellent balance between financial stability, structural flexibility, and employee wealth-building,” Sam said.
Wrapping up
These case studies highlight a simple reality: Employee ownership is not just good for businesses and workers. It is also a viable, revenue-generating specialty for advisors.
Key takeaways:
- EO can increase company value, tax efficiency, and employee engagement.
- Each EO model—ESOP, worker cooperative, and EOT—offers unique benefits for owners and advisors.
- Advisors can generate significant revenue while supporting long-term business stability.
- EO transitions help advisors deepen client relationships and have more complex engagements.
Interested in learning more about the ROI of EO? Check out our new EO Advantage course, Employee Ownership Case Studies & ROI, taught by Sam (who I interviewed in this article) and David Gray, the director of client services at Project Equity.
In this course, explore EO fundamentals, implementation strategies, and ROI analyses through real-world case studies—while earning two hours of continuing education credits.
Employee ownership can increase business value, improve cash flow through tax advantages, and boost productivity and engagement—often leading to higher long-term returns for owners and employees.
Advisors can earn significant fees by guiding EO transactions, often becoming key partners in valuation, deal structure, and compliance.
