Welcome this is the the esop guy we are on a journey to an ESOP Welcome to our podcast for those that are joining for the first time this podcast is really for those that are thinking they might want to use an employee stock ownership plan.
 Could be that they're wanting to build their succession plan it could be that they are working towards an ultimate exit I know a lot of companies that use a nice app just for simply the tax benefits to help grow the business and retain a lot of the capital.
 So there's a lot of different ways to use it so this podcast is really there to help you navigate through maybe all the questions that you might have through for an ESOP and so,
 if this is your first time joining again thank you and welcome if you have questions or want to look at our other episodes,
 please go to our website at journey to an ESOP.com.
 
 [1:00] So today's topic I think it's a fairly important one and I will say that I haven't really touched on this much,
 just because the main focus of our podcast has been on the journey to an ESOP.
 But a lot of times I'm getting into these conversations with people as we're in the middle of the ESOP process and I so I think it's really important the topic today is going to be considerations for your post-esop.
 And that just basically means what should you be thinking about once the ESOP actually closes and transacts.
 And so what to do that we're going to interview Katie Harden she is with our firm Berman Hopkins and Katie and I have worked together for many years she's a big part of our ESOP team she has extensive experience that working with theesopguy open he's and.
 Really for us we manages through the multiple compliance areas that.
 That are really sometimes complex and I think for me you know there's certain things that I act like I'm an expert in and there's other things I'm not.
 Mostly what Katie does is what I'm not an expert in so it's getting her opinion and or her experience is going to be really I think worth it as you go through the process of listening to this episode today.
 
 [2:10] Her experience includes ESOP accounting which is absolutely necessary and it's not super straightforward.
 She also works through managing the on on the ESOP company side,
 financial statement audits or financial statement reviews to help companies,
 work through that whole process so again they may you may have already had an audit or review prior to a nice up but there are things that need to be considered after you set up your Esau.
 She works actively with Board of Directors for ESOP companies and mostly in that and that space she's presenting the board to the board of directors the financial statements anything that she's saying and gets engaged in conversations about trustees,
 gets engaged in conversations about,
 all sorts of things we're going to get into some of that I think that's going to be pretty interesting and then the other part is just auditing ESOP plan documents which is a requirement if your company has a nice app you're going to have a retirement.
 
 [3:10] Policy compliance requirement that you're going to have and it's different for each company based on the size of your company so we're going to get into all of that today too so again thank you so much Katie for joining.
 The podcast why don't you just kind of give us a little bit of your background in the ESOP world.
 
 [3:28] So I'm a senior manager here at burner Hopkins and I've been with the firm for about 13 years and I work with several employee-owned companies and.
 It really is a whole picture type of relationship when we're working with employee-owned companies because you really have two different entities to be,
 considered here and that's the company itself and then also the ESOP which has its own compliance requirements as a standalone entity.
 And so my background is really working with companies to understand the accounting but also understand the compliance because there's a lot of DOL and IRS rules,
 that play into how these things are accounted for in the different audit requirements review requirements and so that's really what my space is just understanding those compliance requirements and working with clients to make sure that they
 our meeting all those compliance requirements but also understanding that the accounting behind it as well.
 
 [4:32] Yeah so how did you ever do it was your dream when you were a kid to become an ESOP expert
 no no that's crazy me either i-i'm always I've always been kind of a nerd
 and so really one of my favorite parts of accounting and working with clients is really taking complex accounting issues and
 and breaking them down and making them understandable and attainable for my clients you know not everybody's as nerdy about stuff as I am.
 And so the ease of space was a very natural place for me to go because the accounting and the compliance requirements are pretty complex,
 and the clients that were working with are not necessarily a technical accountants you know their CEOs and managers and you know construction managers right these people who are taking over the
 the ownership of these companies and so.
 
 [5:34] It's just been very natural for me to use my skill set as really a technical Guru and bring it.
 Into a space where people can understand what's going on with this ESOP and really understand the compliance requirements without having to be the same level of nerd that I am so.
 Well I think what what definitely separates you from other nerds I'm not going to,
 be mean to you but is that you do have the ability to kind of understand that the technical part of it but been able to relay that to people.
 In a way that they can understand because it's hard enough to deal with all the other financial statement tax requirements any company but,
 later in the ESOP stuff and so you need somebody that can really help,
 you know just make it explain it in layman's terms is kind of what I'm saying so you're great at that and it really helps it helps that so when you think about this topic in this issue.
 
 [6:31] How important is it when your opinion for as we're going through the ESOP process,
 for people to be thinking about the compliance area and really you know what's going to happen next and I know some people,
 a lot of my clients you know really range some people are super nervous about it and you know a lot of anxiety and others are like well we'll just get there when we get there and we'll take care of it how important is it for people to be thinking about that you know as they go through the process.
 
 [6:58] I think it's really important obviously you know I work on the backside of these transactions and so.
 I I think it's the most important thing to think about right I think one of the most important things that people can think about as they're going into these transactions is who's going to be.
 Kind of your Champion or who's going to be the person who's really worrying about,
 compliance accounting things like that on the backside and they might not necessarily be deeply involved in the transaction itself but really having that person who knows like hey off day one we have these things to worry about,
 you know we have all these notes to consider it all these compliance requirements to consider and we need that person to be ready,
 to really take on that project and understanding and moving forward with the plan once it's in place,
 now that's actually I mean we're not even getting into the topic yet but but just starting off I think that's a really good idea I see that champion sometimes being the controller or CFO.
 Who do you see that being normally.
 That normally is who it is just because they're going to have a little more technical knowledge of the accounting behind it or there are going to be able to get there but the technical knowledge.
 But you know sometimes you don't have a person that's extremely technical in the group or you know sometimes that person.
 
 [8:25] Maybe the person that's trying to leave.
 So you know I think naturally someone kind of Rises to the top during the transaction a lot of times
 and so that's the person who's really keeping up and really understanding the transaction as it's going and so really just making sure that person understands that.
 
 [8:47] You know there's more to it after the fact yeah I think it's a good it's a good point in we're in the process it we go through I know that for me.
 Advising a client we're likely going to be identifying some of those key people early on in,
 just so you can kind of as the owner maybe as the selling shareholder maybe has anxiety related to it getting them up to speed sometimes will Katie and I'll have questions from owners.
 Really early in the process and we'll start dealing with it but I think that's a good place to start.
 What are the things that if you think about for brand-new ESOP company so these are companies that weren't Aesop's they become esops.
 In your experience what should they really have to deal with first related to the when I say the Department of Labor DOL in Internal Revenue Service what sort of what sort of things should they be thinking about at the very beginning of their timeline.
 
 [9:41] I think the first thing post transaction that.
 Someone would really need to focus on this is a little outside of the compliance face but making sure you have a solid team.
 People who are going to help you understand what those compliance requirements are and so having that independent trustee having at EPA who really specializes in,
 ESOP transactions and ESOP plans.
 And any other advisors you think you need you know of course you want to have a good accountant who really understands he's a county but,
 really just having those people in place there's a very specific timeline or filing and making loan payments and all of those requirements.
 
 [10:29] So first step get that that team in place and understand the timeline usually,
 with your plan you're going to have a little bit of time before you have to do any filings with the DOL filings with the IRS anything like that so getting that team and place is really key yeah I agree with that so,
 and one thing that I would add to that is is those team members like the TPA and the trustee one of the things I'm looking for from the TPA,
 is it is to help them publish a timeline for the client specifically so that and the timeline itself would be this is what you're going to do client this is what we're going to do as the TPA and it just breaks down all of those,
 tasks in in part of it too that my experiences is there's the some non-compliance things too that you're going to want to naturally do and and that's like planning your rollout meeting how are you going to tell the employees,
 all of those things are going to be somewhat important when you get.
 The first Real Deal l or IRS requirement what do you what do you think in that regard.
 
 [11:37] Generally speaking one of the first.
 DOL requirements you're going to see is that there is a tax return the Form 5500 that's required to be filed by the plan itself,
 and so a lot of people think oh well this is a non tax entity so that's it they're done with the IRS
 and that's not true and then of course there's a lot of.
 Compliance requirements as far as communication with your participants and that really is an excellent tool,
 in relation to what you're talking about in that roll out and getting employees excited about this new opportunity that they have and so you want to make sure that,
 that conversation that you're having with your employees is really flowing into those Communications that you're having with them officially through your 3rd LOL requirements because it really
 shows them like hey this is real this is a real opportunity this is real stock that I own in the company.
 So it even though it's a compliance requirement it could be a really powerful tool related to this communication as well.
 
 [12:45] For sure let's dig into that a bit deeper to because as we start thinking about it we can kind of categorize some of these when we think about the ESOP as a retirement plan.
 And it falls under Arisa there are specific requirements like you've mentioned it's going to have to file a 5500 tax return,
 what other requirements would you have let's just say that company it in addition to that regarding the the.
 The fact that it is a retirement plan if it's got you know in excess of 100 employees and how does the kind of getting into the whole audit side of the ESOP plan.
 That is the magic number is if you have over 100 active participants in the plan View.
 
 [13:30] We'll probably have an audit requirement and so.
 From a compliance standpoint it's important to remember that you really have two entities now you have the company which may require an audit or review probably a minimum of a review.
 Annual valuation but then you also have this Esau plan which is a standalone legal entity.
 So if that plan has more than 100 active participants then you will be required to have an audit of the plan itself.
 
 [14:03] And that audit will need to be attached to your Form 5500 that goes to the DOL each year.
 
 [14:11] Something else I just want to point out about this a lot of people don't realize that those 55 hundreds and the audits that are attached to them are out there,
 for the whole world to see yeah public,
 those are all public records so yeah that's just something to keep in mind is that you know when you're doing this audit it's really out there for people to see yeah just like the 401K that you're that you're probably used to doing.
 Only say ESOP audit plan what we want to make sure we do is we really Define that that's an audit of the actual plan itself so.
 A couple questions about that and just,
 you know thoughts or whatever what what happens if I'm over 100 people and I don't do the audit what happens to us as a company or whatever that hypothetical company might be.
 
 [14:59] So when you're going to file your 5500.
 It's really easy to tell when you need an audit because if you file a short form versus a long form the long form requires the audit,
 hmm and so if you do file that 55 bar the 5500 with the DOL and you don't have an audit attached,
 you're going to get communication back from the DOL letting you know that your filing is incomplete and so from there you know generally they give you some time to fix,
 the error or fix whatever it is that you're missing but you don't want to ignore it for sure because it's only a matter of time before the DOL loses patience,
 and then you start getting into fines and penalties and those get real ugly real fast yeah,
 and we've had we've had some clients like that come to us where they have not been in compliance and then the thing is trying to get him caught up as soon as possible because the fines and penalties are.
 Are very punitive and you just don't want that so A partly nobody wants to you know be outside of compliance but it's just kind of one of those things where people.
 Might think oh I didn't do it you know what happens to me next so you definitely go ahead.
 
 [16:15] The other thing to make sure of is you know don't be afraid of the DOL if you find yourself in a position where of no I didn't realize they needed an audit we're short on time.
 You know the deal well actually wants people to do things the right way and wants these plans to be in compliance and so they have some voluntary correction plans that you can get involved with,
 it helps mitigate some of those some of those penalties and fines so if you find yourself in a situation where you know there's going to be some type of non-compliance especially with smiling,
 there's things you can do to mitigate those things.
 It's you don't want to just ignore the problem and not reach out to somebody who can help you with some of those voluntary correction plans yeah.
 Um this is a just a kind of a basic question but the people that do the professionals that do the 55 hundreds and the audits are they primarily CPA firms.
 
 [17:11] The audits are sure the audits are independent audit reports your have a CPA firm would have to do that audit the the 5500 is generally prepared by your third party administrator or TPA.
 And so that,
 that audit process the your auditor and your GPA should be working very closely together and it should really be a joint effort between the two,
 your TPA is really keeping track of your individual participants and what how much stock they have how much money they have in the plan and that's part of the audit process as we're making sure that your participants have,
 what they should have that their stocks being allocated properly and so if you have a quality TPA and you have a good CPA doing your audit you're going to have they're going to work together directly to make sure that those records are correct.
 And you just want to make sure that you're involved in a process so you know that everybody's doing the things that they're supposed to be doing.
 
 [18:11] Let's just say what happens if your CPA doesn't have a lot of maybe they do Pension Plan audits but they don't do really any ESOP plan audits.
 What would you say the.
 Company should do or look at because I'm just kind of throwing it out as a loaded question in the sense that you know that could be a problem right.
 
 [18:33] Yeah absolutely I mean the.
 
 [18:37] If you if you you know obviously we go to conferences we have a lot of experience with Aesop's for specifically to going out.
 You know always getting training on what the most up-to-date information is on East bombs and he's off accounting and the ESOP Audits and esops are a very,
 high-risk areas are as the dll is concerned and a lot of the reason for that is because there are.
 Unfortunately CPAs out there that are doing audits of Esau companies and also audits of Aesop's to go with these 5500.
 Don't really understand the complexity of ESOP accounting and so.
 If you if you are working with a CPA maybe they're doing your 401k but they don't have any experience with esops it might be a good idea to just make sure.
 
 [19:30] That you at least have an advisor who does understand ESOP accountingbenefits.
 Maybe turn to as just a double check yeah just to maybe review I know like for us one thing that comes up and I get dragged into it every year is,
 is the ESOP auditor should review the business valuation every year which is one major difference between 401K plans in an ESOP plan,
 is you have you have an independent valuation firm,
 providing the valuation to the trustee the trustee reviews it but as part of the ESOP audit we're reviewing it as well just to see,
 consistency from last year.
 Other things like you know did this person have the qualifications you know to do the auditor to do the valuation so I know that that that needs to be you know part of the
 ESOP audit engagement is there anything else that are that specific and distinct from the 401K.
 
 [20:26] Well the valuation understanding the value of the stock is huge we're very fortunate here because our team is so robust and we have evaluation person that we can you know go right down the hall to if we have questions,
 because he's running he's running right now yeah but it is an important,
 important aspect of it is there anything else that gets done on that or is it a lot more similar to a 401 k.
 
 [20:53] No the coming back to that allocation how stock is allocated the participants is very okay you know what in a 401k people are putting their own money in maybe they're getting a batch from the company they're putting it into their account
 it's very easy to line up one to one,
 you know these sock allocations that are happening in the East sobs are complicated and they're really married in with the corporate accounting side and what the contributions aren't things like that so,
 you know those allocations can be complicated and if you don't understand,
 the plan document and really be able to read into it and determine how that allocation should be working for your plans specifically,
 it's going to be difficult to understand what it is you should be doing as part of the audit.
 
 [21:41] So let's go let's let that's a great Segway into this other part of I wanted to get into as.
 
 [21:46] So we're going backwards a little bit and we close these up deal and now you know again compliance requirements one of the things I know we get into is looking at the loans.
 And when I say the loans are the notes I mean the outside notes which are the notes for the the company's borrowing.
 The money for from a bank or for the from the sellers and then the inside notes which is the ESOP come from the ESOP entity.
 Barn are buying the stock from the company so we have these two different types of notes so go into that a little bit as far as booking those notes correctly because going going backward it's like,
 one of the first things we do is we'll look at the plan documentary I'll have you look at it and make sure that you have all that figured out in terms of making sure it's all set up correctly.
 
 [22:41] I'm glad you brought this up because this is by far one of the most confusing topics you know when I'm talking through people and talking through their transaction this gets confusing really fast so.
 There is two different notes and and it's important to understand that in most ESOP transactions there's really two pieces to it you're buying the stock back from their owners,
 and then and sometimes the companies buying that stock sometimes you know the ESOP is buying that stock back but it's being brought back from the owners
 but then you're also there's a transaction between the company and the ESOP to sell that stock to Esau.
 And so that outside note.
 When you're pulling in the stock from outside from your outside owners and then you're inside note is when you're when you're selling stock between the company and the Esau,
 and so I think the reason it gets confusing is because these are two separate entities and and you know we stress that a lot like you have your company and then you have your esof plan those are two separate entities.
 
 [23:50] However on the accounting side Gap.
 Really considers them to be related parties and and related in a very unique way and so the reason it gets confusing is because that outside note is very traditional maybe you owe a bank maybe even over the former owner.
 It's recorded as debt and and that's very very typical and understandable by people that might not be familiar with the accountingbenefits.
 
 [24:18] But that Insight note that loan that's happening between the company and the Esau.
 Because gaffer considers those related parties and and really interrelated parties,
 it's not recorded as a note receivable from the ESOP it's really reported as a as a portion of your equity.
 And we refer to that as under these options there's in the equity section of your balance sheet.
 
 [24:46] And that gets really confusing because you have this note that you have to contribute and then the ESOP is going to pay it but there's no note.
 From an accounting perspective to apply that to and so that is one of the,
 one of the more difficult Concepts to really understand and it makes it difficult because it really you have to think about it as two separate notes from a gap perspective you really don't see two separate notes on your balance sheet.
 
 [25:14] That's correct and that's in it's hard to kind of just talk through that without people asking more questions because I can imagine if somebody's hearing this for the first time it's like.
 You know what do you mean and so let me go let me go backwards a little bit when Katie says Gap she means generally accepted accounting principles and I say that because I know some people probably or not,
 the financial people and so that just in other people that are there like hey that's obvious,
 but Gap is what we have to follow when we're doing the financial statements and making sure that they're put together correctly.
 The complicated part of this is you have this idea that you have a note,
 that has these payments now the inside note the payments on that inside note are really there to mechanically allocate the shares it's a the money actually does go into an account and it comes but it comes right back into the company so it's really a non-cash.
 Outlay but the outside notes are actually going to get paid like other debt so it's just going to be like any other debt that you might have that the company is going to 0 so.
 Those are those are distinctly the differences but what happens is the balance sheet.
 
 [26:22] For an ESOP company does have to show as Katie alluded to like it's going to show the debt for those outside notes and it's going to show the show this unearned.
 ESOP accountingbenefits.
 Which is going to be a negative amount and so those are going to those are going to take a balance sheet and really make it look really really not as good as it did before right Katie.
 
 [26:45] Yeah absolutely and you kind of get this is getting into the nerdy stuff but you kind of get a double negative hit in your Equity because your.
 You have these big loans to the outside owner and that is a deduction of
 the equity in the company to take out these loans but then this underneath I'm sure is like you said is negative equity so that's also hitting your equity in a negative way so
 just another when you're Gathering that team of experts.
 One of the most important things that you can do with that team of experts is use them to make sure that the banks that you're working with your Surety agents anybody who might be looking at your financial statement,
 you really got to understand what the effect is on your balance sheet before that transaction happens because the last thing you want to do is.
 
 [27:37] Make your balance sheet look really gnarly and then send it to your banker and they weren't expecting it no or they don't understand it yeah and it kind of our standard process when we do ESOP work as.
 The ESOP process is to go ahead and do a pro forma balance sheet,
 and then way early in the process go over that with the bank go over that with the bonding company whoever might need to see it just so they can see the impact of it and there's,
 there's going to be different ways to look at the balance sheet if you have subordinate debt to the bank
 but at the same time it's still under Gap there's nothing you can do I mean it will look like that when the financials are put together so so they advice here is do a pro forma balance sheet as you go through the process,
 share it early on with your your third parties that you're relying on and make sure that that works and sometimes we do that and we're like hey let's go back and.
 
 [28:28] And change the way we're structuring the ESOP it may be better as a partial he's up so that we have less of an impact on that balance sheet.
 Um in stage a transaction as opposed to doing a hundred percent so there's there's a lot of ways but we don't want to be doing that at the last hour when we've all said it set it all up or we don't want to have any problems after these up a set up so.
 
 [28:49] Well and I know I'm kind of encouraging into your territory as far as the transaction but that's why it's so important to really start thinking about this early because.
 If you are if you're working on your stock transaction and you have a few years before you're looking to retire or make this change that you have the option to do that stage transaction rather than just having to do a hundred percent right away.
 That's a good point.
 So so another segue into the inside note and this is going to get into another ID a bigger picture idea for people to be thinking about post-esop.
 As considerations is is what repurchase liability is and when I mentioned the inside know.
 What I was saying before the inside note is going,
 provide the methodology of the allocation so it'll be like if it's a longer term inside note 30 years versus a 10-year inside note,
 that means those Shares are going to be allocated on a 10-year note a lot quicker,
 so that people will build a lot more shares to quickly so it's a lot of times that inside note is stretched out longer so that we can manage repurchase liability.
 But what I want to get into now with Katie is just like because she's done a lot of work with the board of director so and I want to set it up correctly so like any ESOP that sells.
 The controlling interest of the stock is going to have a board of directors generally with at least one independent board member.
 
 [30:13] An ESOP that sells a non-controlling interest is going to have a board of directors but it not it won't necessarily have an independent board member unless that company just once one.
 
 [30:22] In addition to that the board is also interacting with an ongoing independent trustees very common.
 Now on Katie's were all she's doing is she's going and presenting to the board of directors and,
 what I thought would be helpful is just kind of talk a little bit about your experience in talking to the board,
 what sort of topics do they kind of focus on and I kind of teed up repurchase liability because it's it's a it's a major one but just going into that a little bit would be helpful because people are like what are the what's the board looking at normally.
 
 [30:56] So there there really is a lifecycle to Aesop's and so.
 Starting at the beginning if you have a new transaction the role of the board is really to oversee and make sure that that transition is happening.
 The way that they needed to be happening for their company,
 and so much of that as you said earlier has to do with the communication and really getting the idea of the ESOP out there to the employees and making that cultural transition.
 And so from a compliance and accounting perspective early on in the ESOP life cycle that's you know zero to three or four years,
 the board is really focused on making sure the compliance stuff is happening of course you want to make sure that all of the compliance work is happening correctly and that you have that good great team of advisors in place.
 
 [31:54] Really their focus is on getting the ESOP going hmm.
 Usually and and so backing up when we're talking about repurchase obligation that comes back to the idea that
 over the life of this Insight now you're allocating stock to your participants and then someday they're going to retire and when they do retire,
 the company has an obligation to.
 Fund that buyback of their stocks that they can take their retirement cash and so that's referred to as R approaches on location.
 
 [32:27] Usually and in the ESOP world you have a few years of a buffer between the transaction and when those repurchase obligations are going to start it's usually written into the plan document.
 But once you get into year five and Beyond of your esop you're really going to need to start thinking in the board of directors specifically is really going to need to start thinking about okay what's the long-term picture here.
 And so.
 They were purchased obligation is not necessarily going to kick in in your five but the reason it's important to start thinking about it at that point in time is because.
 It might kick in in here 8 and you want to make sure that you have the cash available for that repurchase obligation,
 and potentially you want to make sure you have that cash already in the plan there's a lot of different ways that you can go about these reproaches on location.
 And there's a lot of decisions of course that need to be made because of the different options and so.
 Asking questions like is the company going to be buying the stock back or the plan and then if the company is going to be buying the stock back how do we get that stock back into the plan for future employees,
 yep yes also a lot of questions around.
 
 [33:45] Once you get into your five and Beyond if you have a lot of employees who are no longer with the company who are holding stock you have options to really,
 get that stock back into the hands of the company or get that stuff back into the hands of the plan so it can be reallocated,
 to the participants that our current employees the last thing you want is to have your stock be appreciating and employees but don't work there anymore reaping the benefit of that.
 So those are the types of those are the types of overarching issues that the board should really be paying attention to at that part in the life cycle of the ESOP is really start thinking through what are these.
 
 [34:25] Exactly and it sounds kind of like as you think about it from.
 Common Sense the board is going to be concerned about what affects the company from a from a financial standpoint for sure like a cash flow standpoint so so clearly the repurchase liability is a cash-flow obligation.
 So it would make it would make sense that,
 other things like the warrant coming up and being in maturing and the managing the the outlay of paying off the warrant it's going to be an issue,
 as monk as other things too like that I mean so so what imagine like your experience with working with the board's is just you you know you're in a like you said you're in a life cycle So what at what stage is the ESOP company,
 if it's starting out but if maturity sup company you're probably going to be more engaged in a lot of these conversations.
 
 [35:16] Yeah absolutely because there's a lot of really proactive decisions that need to be made and I'm glad you brought up the warrants and the czar's that's another thing that people,
 don't necessarily consider when you're really first making that transition for plan from an accounting perspective,
 accounting for those instruments starts right away you might not be thinking about the obligation the cash obligation that comes with those until five ten years whenever they might mature or or be available,
 for the fern follow-up transaction but from an accounting perspective they got to get recorded those are things that are going to get trued up every year.
 So real quick question on that side so if but the company doesn't in that fiscal period 0 anything on the warrant or the Tsar.
 
 [36:04] How is it is it not it's not treated as a liability or how is it treated or is it just put noted.
 
 [36:11] In the initial couple of periods your problem they're probably not going to have any value,
 but oftentimes they are going to be treated as a liability before that passion obligation is actually do okay and there's going to be compensation expense,
 that's going to be recorded in the period leading up to when the cash liability is due which is a good thing because the last thing you want to do is have,
 five million dollar warrant come due and he didn't have it on your balance sheet nobody nobody knew it was coming so no that's that would be bad,
 yeah I think that's a great point because I think there are people that have questions about,
 you know the impact of that you know going forward and how that again comes back to just like we're talking about the beginning of,
 of booking your transaction it comes back to what your balance sheet is going to look like you know and and so if that's going to affect the balance sheet the bank's going to have to need to know and understand,
 the way that that warrant and the sorrow structured you know in the end at the end of the day we're that liability will actually come to.
 
 [37:16] Be owed and the company will have us this big cash flow or responsibility or cash outflow responsibility so
 and it can be difficult because often times that obligation will is going to come do just as you're starting to also have this room or Cassandra,
 so
 Really you don't want to be surprised by that stuff you really want to start thinking about it earlier yeah well one point I'll make is we kind of finished because I know we're getting close to the end of the time is you know one thing that happens in.
 Almost every transaction I do is that we did we end up negotiating at some time period when the company is going to have a repurchase liability study.
 It's pretty much built in all the term sheets that I'm working on now and it makes sense because.
 
 [38:02] You know the company you know of course is going to want to do that but at the same time the fact that it's mandated.
 In the negotiation in it's a requirement just like an independent board member or whatever other requirements we have,
 is it is good it's good for everybody because we want at the end of the day even though we're selling we still want a sustainable ESOP company that can make sure it can pay all of its,
 potential obligations that it has coming down the road so that's just kind of a point to make when we look at the idea of repurchase liability that's a lot more orchestrated.
 
 [38:36] The other thing to consider is on the flip side again another compliance requirement is related to there are limits on the amount of money you can put into the plan each year based on your,
 payroll amounts in the company there's a there's a 25 percent limit so.
 If you do need to get some cash into the plan for repurchase obligation very quickly,
 yeah that 25% limit that you have to deal with so it's just there's so many there really is so many compliance requirements and you really have to look at the whole picture
 okay so that's yeah that's a good point that's because now that we go into you know one application of that for existing ESOP company is,
 now that we go into a potential recession.
 
 [39:23] You have you have like just this hypothetical scenario if the company had to lay off some people so payroll has.
 We also they also have a purchase liability and they have to contribute more to the plan even though they might have the cash to do it if you if you run into that 25% limitation,
 that can create a problem so planning is really important so when a company goes through the process of say hey we're going to lay off people you know at the same time they got to look at all of those,
 all the angles of a business decision that can be a lot more complex so having an experienced Esau.
 Team of people on that board and advisers is really is really quite critical to being a successful he's up company so.
 I think that's I don't know if you have any more to say about that part but I think that just brought up that too in my mind.
 
 [40:13] Well the only other thing I was going to say it's just kind of bringing it back to the beginning is is.
 That's that's why it's so important to have that champion and that person really thinking through,
 initially the ESOP transaction but knowing that it's going to be a long-term commitment for them to really understand the obligations of the ESOP and be able to bring that information to the board because
 oftentimes your board members are not CFOs not controllers they're not going to certainly going to have that in-depth knowledge.
 
 [40:41] And you should definitely get that as a company from the trustee,
 that from the TPA from your ESOP attorney from of course your advisors at the outside level 2 so I think that's a good place to end because I know we could go into this topic for a long time but,
 I think that's those things are really important I think what Katie and I were doing is really distressing some things that that need to be thought of and.
 Don't get really talked about a lot in the beginning steps but I think they do come out as we go as we go through the whole process and actually do the closing.
 So with that Katie thanks for your time today I really appreciate you jumping on our podcast and,
 I think it was very helpful with what you have and experience to share all that so.
 Thank you for having me this is nice great so for everybody else thanks again for listening if you like the podcast Please Subscribe share it with a friend go to our website at journey to an ESOP calm to check out all the episodes,
 and with all of that thank you again for listening we look forward to our next step on this journey to an ESOP.