During March 2020, when the COVID-19 pandemic reached the U.S., it not only impacted the health of many Americans but also quickly resulted in economic instability: thousands of businesses were shuttered, the unemployment rate spiked, there was a significant drop in personal consumption expenditures and GDP plummeted. However, the U.S. government intervened, helping to stem further declines by offering unemployment and stimulus payments to eligible individuals as well as programs such as the Paycheck Protection Program to assist businesses in continuing their operations. As a result, the U.S. economy began to recover; still, it has lost ground since early 2020.

For owners of closely held, service-based businesses contemplating the total or fractional sales of their companies, attracting and retaining key employees is critical to creating and sustaining value for the long term. A service-based business faces the unique challenge of proving its continuing viability to a potential buyer since its assets are people. A business that can keep its best employees during and following a transaction will be much more likely to keep its customers, thus retaining its value.

When it comes to deciding upon an exit strategy, owners of closely held businesses have a lot to think about. Faced with the frightening prospect of turning over the business they have worked so hard to build to new ownership, they might worry about what will happen to the company—and their employees—once they’re gone. Selling the business to a third party isn’t always a welcome or viable option. But if there isn’t a qualified management team or successor in mind, what’s a business owner to do? Fortunately, there is an alternative that can help ensure the continuation of the business while providing significant financial rewards for both the owner and the employees: selling the business to employees through an Employee Stock Ownership Plan (ESOP).