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19 says such fi rms evaluate the fi nancial performance of each company on an annual basis to determine the company's available funds to be contributed to an ESOP, then distribute the funds as shares to each employee based on the structure affi rmed in the company's ESOP param- eters. Additionally, a company also must designate a trustee — someone who may or may not work in the business — to speak as a fi duciary on the employee's behalf when determining exact rates for contributions and pay outs. Klein says fi nding the right fi nancial advisor to manage an ESOP is a neces- sity. A good one can be expensive, but the alternative is far more damaging. An inferior fi rm can open a business up to investigation and weaken the potential retirement earnings for everyone involved. "There are a lot of fi nancial advisors who don't understand [an ESOP] and so they'll say not to do it. I've also seen people get into problems because they had an advisor who didn't know ESOPs well enough," Klein says. Once a company commits to an ESOP employees must be kept in the loop as well. John Minor says Midwest Wheel has used regular corporate meetings to update and answer questions regarding its ESOP since introducing the program in 2009. "Part of that meeting is to remind [everyone] of their ownership in the company," says Minor, the company's president. There's also the cash fl ow factor. ESOPs are paid off through company profi ts. If a business stumbles and lacks the cash on hand to cover its losses, everyone suffers. "It's a cash fl ow forecast exercise," says Bazzano. "The corporation is taking on new note and signifi cant debt and has to be able to service that debt." Adds Goostree, "You have to be confi - dent in the people running the business. They have to be able to see opportunities for growth." W W W . T R U C K P A R T S A N D S E R V I C E . C O M M a r c h 2 0 1 7 | T R U C K P A R T S & S E R V I C E While no two ESOPs are alike, the most common themes found around such programs are eligibility and enrollment requirements. In the aftermarket, most distributors require an employee to work a minimum of 12 months. After that period is completed the employee enters the ESOP at the next available joining date, typically January 1 or July 1. Once an employee enters an ESOP, stock is commonly awarded as follows: • After the conclusion of the year a company undergoes its annual fi nancial audit, during which the company's fi nancial advisor deter- mines the valuation of the company's stock. • For companies still paying off an ESOP, funds required for the purchase of the business are allocated. • Using the company's valuation and profi t fi gures, corporate leadership works with a trustee to determine how much money will be converted to stock and contributed into the ESOP. • Using parameters developed during the creation of the ESOP, a fi nancial advisor determines how much stock each employee will receive. These parameters are regularly built around hours worked during the year and payment compensation levels. • The stock ownership adjustments are made to each employee's account. Employees new to the ESOP are awarded stock for the fi rst time. • Balance statements are mailed to each employee noting the stock ownership and valuation changes. Because ESOPs rely on end-of-year fi nancial data, the calculation and distribution of stock regularly comes six to nine months after the close of the prior year. Payment for exiting employees can take even longer. ESOP rules require businesses to repurchase any departing employee's shares at full market value, but do not require the repurchase and pay- ment for the shares to be made simultaneously or instantaneously. Businesses can dictate when forming an ESOP how employee exits will be paid out—through single payments or over time. The latter can be especially advantageous for small businesses as it minimizes the risk of long-term employee payouts weakening the temporary liquidity of a business. The Nuts and Bolts of an ESOP Cover Story Acme Truck Brake & Supply has converted to an ESOP with two transactions over the past decade.