Feasibility Study

A "does it make sense?" analysis of a business sale. In EO sales, it should look at financing options, how much the EO should acquire, becoming (or staying) C corp or S corp, either to take advantage of the tax deferral on the sale of stock to an ESOP or worker co-op, different rules for participation in the plan, how much to sell in the transaction, and how much a transaction would cost. EO feasibility should describe the "optimal" EO transaction to meet a company and its stakeholders' needs. The study should then measure achievable and reasonable outcomes. Leveraged and non-leveraged alternatives should be considered. What constitutes a "feasibility study" varies significantly between advisors who recommend them and clients who believe they need one or ask if they need one. For advisors, the differences stem from what their professional skills are, what they propose their role in the EO transaction to be, and sometimes, services or product placement they may offer in addition to the EO. For clients, expectations vary due to not knowing what an EO transaction entails and what they think they want an EO to do for them and their company. Most companies starting out have very little idea of what a feasibility study will do for them, but have high expectations that it will accomplish those goals. The scope and content of a feasibility study should be driven by the specific concerns of the individual client and should not be represented for more than it is. EO advisors are often very knowledgeable about the array of related tax, accounting, valuation, financial, and EO design benefit level and repurchase liability issues. However, one advisor cannot sign off on all issues. Any issues raised in the initial feasibility study and related transaction structuring should be addressed by a professional who is specifically qualified to address them. For example, is the advisor an expert in government contractor company issues that affect revenue? Is the advisor a CPA or tax attorney that can offer or is willing to offer written opinions about tax issues, or IRS audit and controversy concerns, or non-ESOP ERISA issues that are implicated?