An ESOP Exit: Lessons from an Owner Who Sold His Company to His Employees
Employee Stock Ownership Plans are often discussed in theory, but far less often understood through lived experience. What does it actually take to transition a business to employee ownership? What has to be in place before the transaction, and what changes for the owner, the leadership team, and the employees afterward?
That's an ExitReadiness® issue. For owners who care about their employees, their community, and their legacy, an ESOP can be a powerful alternative to selling to a strategic buyer or private equity firm. But it only works when the company is ready: consistently profitable, large enough, and led by a team that can run the business without the owner. Building those foundations takes years, which is why the decision should be made long before the exit.
In this episode, Pat Ennis and Walter Deyhle, joined by Corby Megorden, talk with Tim Rettig, a second-generation ESOP entrepreneur who transitioned his Cincinnati IT and cybersecurity company to employee ownership, first 30% in 2019 and then 100% in 2025. Tim shares how he and his father each chose employee ownership, what made his company a strong candidate, the tradeoffs versus a third-party sale, and why he now advocates for employee ownership full-time.
Key Takeaways
Size and profitability come first. Tim looks for at least 20 employees for a partial ESOP, and 30 to 50 for 100% ownership, plus consistent EBITDA to repay the bank and seller notes. A partial ESOP with seller financing can start making sense around $1 million of EBITDA; bank financing for a full ESOP typically starts around $2 million.
You can do it in stages. Tim sold 30% first, the minimum to qualify for the Section 1042 capital gains deferral, which let him keep control without a board, avoid heavy debt, and continue making acquisitions. He went to 100% six years later.
The tax benefits are real. Structured properly, the seller can defer capital gains, and a 100% ESOP-owned S corporation pays no federal corporate income tax, freeing cash to repay debt, fund retirement accounts, and grow. Confirm the structure with your advisors.
Telling employees can be a growth engine. Tim announced in 2012 that he wanted the company to be at least 30% employee-owned by 2020. His team's engagement helped hit the goals two years early.
Build leadership and open the books first. Tim implemented EOS to delegate to his leadership team, and open-book management through the Great Game of Business years before the ESOP. His father's one regret was not opening the books to employees sooner.
Leaders still get incentives. Every employee shares in ownership, and stock appreciation rights, profit sharing, and bonus structures remain available for the leadership team.
Ownership helps acquisitions. Acquired employees know they'll become owners too, which reduces turnover compared with private equity or strategic buyers.
Owners rarely regret it. In Tim's experience, about half of owners who sold to private equity regret it, while roughly 90% of those who exited through an ESOP call it the best decision they ever made.
Where to Start: If You're Considering an ESOP
Check the basics. Look honestly at your employee count, the consistency of your EBITDA, and whether you have a leadership team and succession plan in place.
Lay the groundwork early. Put a leadership operating system in place, open your books, and help employees understand the financials long before a transaction.
Consider a phased approach. A partial ESOP lets you take some liquidity and defer taxes while keeping control and capacity to grow.
Talk to owners who've done it. Learn from ESOP CEOs and former owners, and attend events like those offered by the National Center for Employee Ownership.
About Tim Rettig
Tim Rettig is a second-generation ESOP entrepreneur and advocate for employee ownership. He started his IT company in 1992 while a student at the University of Cincinnati, sold it within four years, bought the division back 11 years later, and grew it into a cybersecurity and cloud company recognized as a best place to work in Cincinnati for 14 years. He transitioned the company to a 30% ESOP in 2019 and to 100% employee ownership in 2025, then stepped down as CEO. His father, Jay Rettig, made his software company employee-owned in 2004. Tim now speaks, writes, and works with Ohio legislators to make the state friendlier to employee-owned companies.
Connect with Tim: LinkedIn
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Full Episode Transcript
This transcript was generated automatically and lightly edited for readability. It may contain minor errors.
Hey there, this is Pat Ennis of ENNIS Legacy Partners. Welcome to the ExitReadiness® PODCAST. I'm here with co-host Walter Deyhle and business partner Corby Megorden. Our mission here on the podcast is to provide you, the business owner, with subject matter expertise on topics pertaining to building sellable or transferable business value and then for planning your eventual exit from your business. We want to help you build a business that can be transferred or sold and then exit successfully on your own terms and conditions.
Today we're going to hear from a gentleman who has exited successfully through an ESOP, an employee stock ownership plan. Our topic is an ESOP exit, and our guest is Tim Rettig. Tim is a second-generation serial ESOP entrepreneur. He started InTrust IT in 1992 while he was in school at the University of Cincinnati. He sold the company within four years but stayed on to run the division for the parent company that bought him.
Then, 11 years after he sold it, he bought the division back and continued to grow it as a company, winning a whole lot of awards, including being recognized as a best place to work in Cincinnati for a total of 14 years through 2025, which we just wrapped up. So he's been quite successful at building a company culture with minimal employee turnover and maximum employee engagement. In 2019, Tim began transitioning his company to an ESOP, just as his dad, Jay Rettig, did with his company, Software Solutions, in 2004. So there's a legacy here that we're going to hear about.
And now Tim is a champion for employee ownership, speaking, writing, and advocating for it so that more business owners like you are aware of the benefits. As a matter of fact, he's at the Ohio Statehouse today, talking to legislators about the benefits of ESOPs. So Tim, great to have you with us. Thanks for joining us from the basement of the Ohio Statehouse. We really appreciate it, and we're looking forward to the conversation.
Thanks, Pat. Yeah, excited to be here. This was not in the cards for me. I had no idea what I was getting into when I came here to start talking to legislators about employee ownership, and they would say, "Look, you need to go talk to this person, and that person, and the Ohio Chamber, and the Ohio Manufacturers' Association." So I've been here for two days now; it was going to be one. And yes, I'm in the basement of the Statehouse right now, trying to find a quiet place to talk to you all about what's going on.
Well, fantastic. So you're in talking mode. Hopefully you're not talked out; I don't think you are. Before Walter tees us up with what's probably his second question, let's start by learning more about your business, your past role in it, and your current role. Just give us a brief history. Yeah. You did a great job with the overall background.
My father started his company, a software company, in 1978 in Lebanon, Ohio. A, it was unusual to start a software company in the '70s, so he was way ahead of his time, and B, starting it in Lebanon, Ohio, of all places, was also very unusual. It wrote accounting software for cities, counties, and municipalities. And because of that, there was a lot of concern around Y2K. If you remember the whole switch to a four-digit year, he had a ton of stress making sure all their software was up to date before it flipped over from 1999 to 2000.
With that, he had a heart attack in 2001, primarily stress-related, plus poor eating habits and too much work. The doctor said he had to somehow reduce the stress in his life, and he said all the stress was coming from his company, so he chose to sell it. At the time, I was the oldest of five kids, just over 30 years old, and my brothers and sisters were all in their 20s. None of us had the age or experience to take over his company, nor did we necessarily have the interest. He got a couple of offers to sell to strategic buyers, but none of it felt right to him, because the jobs he had created in Lebanon would get moved out of state.
One company was in New York; the other was actually in Toronto, so it would have become a Canadian company writing software for cities in the U.S. His broker knew it didn't feel right to him. He'd gotten a couple of letters of intent, so his broker suggested he look into employee ownership. He looked into it and felt it was a much better option for his legacy and for his employees, so he went down that path instead and was able to complete the transaction in 2004.
He stepped down and transitioned the company to his employees. He went on to become a deacon at the local Catholic church. He just celebrated his 80th birthday this past year, and now he's working seven days a week, because he works on Sundays. So he's still very, very active, which is great. That's where he wound up, and I got to see that whole thing play out. I started my company in '92 in college, as you detailed, sold it, and bought it back.
I was running it when my father was trying to figure out what he wanted to do, so I was consumed by running my company. And I knew I wanted to do something different with it, and I saw how well things worked for him. So in 2012, I pivoted the company toward cybersecurity and the cloud, and at the same time I told my employees my goal for the company was for it to become employee-owned by 2020, at least 30% employee-owned. We put a plan together to grow the company, become more profitable, and put a better structure in place so it could become employee-owned. We exceeded all the goals I'd set in 2018, two years ahead of time, and in 2019 we became a 30% ESOP, a year ahead of schedule.
Nice. That was fantastic. Then we continued to grow the company and did four additional acquisitions after that. And last year, 2025, I transitioned it to 100% employee-owned and stepped down as CEO. Now we have a new CEO running the company, and I've removed myself from the company and am focused pretty much on advocating for employee ownership, which is why I'm at the Statehouse.
I've actually contracted a lobbyist for employee ownership, the first time employee ownership has had a lobbyist in the state of Ohio since 1988. We haven't had any pro-employee-ownership legislation since then, so I'm trying to make some changes to make Ohio a friendlier place for employee-owned companies. Wow. Congratulations on all that, Tim. Fantastic. Thanks, I appreciate it.
Really impressive. Let me ask you a question. We always look at whether an ESOP makes sense for clients, and frankly, a lot of times it doesn't. Yeah. So when some company owner off the street asks you about an ESOP, what are the things you look for right away that tell you yes or no before you even bother digging in? Yeah. The biggest thing, the number one thing, is that it needs to have at least 20 employees.
There are a lot of caveats around all this. If they want to go 100% employee-owned, they need at least 30 employees, sometimes 50, so there's enough diversity among shareholders that they're not running into concentration-of-ownership issues. You can do a partial ESOP, like a 30% one, with fewer employees, but you'd have to work on growing to be able to increase the ownership. Then profitability: the company has to generate consistent EBITDA year after year to be able to pay the bank note and the seller note the company is going to take on to buy the company from the owner. If the company isn't making money or is losing money, it's not a fit at all for an ESOP.
So you have to take that into account. In terms of company size, if you're going to do a partial ESOP with a seller note, you could be a $500,000 EBITDA company. It starts to make sense around a million dollars of EBITDA, and then you could look at doing 100%, though it would probably be difficult to get bank financing at $1 million of EBITDA. Once you get to $2 million of EBITDA, that's when you can start to entertain bank financing for a full 100% ESOP. And usually at that scale you also have a good leadership team and a succession plan in place.
So those are other boxes that need to be checked as well, which is why, in 2012, I wasn't ready: I wasn't big enough, I wasn't profitable enough, and I didn't have a succession plan or a leadership plan in place. That's why I chose to tell my employees, "This is my plan. Help me get there." Many companies choose not to tell their employees they want to become employee-owned. They work on it behind the scenes and hope they get there.
I chose to engage my employees and use their engagement to scale the company to become employee-owned. It was a risk for me, because maybe we wouldn't hit those goals, but I would have only had myself and my employees to blame if we didn't. And there could have been private equity money or a strategic buyer that came along and allowed me to sell, so there's always that concern. But because I'd communicated to my employees that this was my goal, I didn't want to go back on my word. Yeah.
It's interesting, because it sounds like for both you and your father, a real motivation was a passion for employees owning businesses. In my former career as a tax guy, I was often looking at the incredible ability to defer taxes on the sale of your company. When you talk to business owners, is that a big part of it, or is it more what you're feeling? A lot of times it's 50/50. In some cases it's even a bonus to them: "I really want to turn this over to my employees, and oh, it's great that I also get this tax benefit."
But there are definitely ESOPs I've met with that did it only for the tax purposes. I wouldn't say they had zero engagement or interest, but they had very little interest in really empowering their employees; they did it primarily for the tax benefits. But you bring up a good point. As a selling owner, if you structure it properly, you can defer capital gains tax on the sale of the company indefinitely through an ESOP. And after that transaction, the company, when structured properly, becomes a non-taxable entity, which allows it to repay the bank notes and seller notes more quickly, because it doesn't have to pay yearly corporate taxes.
Then, after those notes are paid off, more of the money goes toward the employees' retirement and toward growing the company through acquisitions. That's why you're now seeing employee-owned ESOP holding companies: they have a huge advantage over their competitors because they're not paying corporate tax. Right. So Tim, you did a partial ESOP; you went to 30%. You mentioned size was a factor. Were there other factors that weighed into that decision?
Yes, absolutely. Thirty percent is the minimum you have to do to use the 1042 exchange, which is the way to defer capital gains. I had two kids in grade school who I thought might be interested in taking over for me in the future, so I wanted to keep 70% of the company to be able to transition to them. That turned out not to be the case, so I didn't have to worry about it later. Another reason was that I wanted to stay in control of the company. As a minority ESOP, I didn't have a board I reported to; it was like having a silent partner.
And I didn't put too much debt on the company, so I was able to do those four additional acquisitions, because the company didn't have a huge debt burden to repay with only 30% done. Those were the reasons I did it that way. Yeah, that makes total sense. You also mentioned growth plans. Can you speak to that a little, as you look at companies that are considering an ESOP? How critical is that focus on growth?
An ESOP has a yearly valuation, and as part of it, they look forward about five years at how the company is going to grow to set the stock price for the employees. So continuing to grow the company is going to increase that stock price; it's a big component. Because the company isn't paying corporate tax, it's well positioned to make acquisitions: it can buy a company that's currently paying corporate tax, bring that revenue in, and not pay corporate tax on it. And acquisition-wise, it's a lot easier to buy a company and engage its employees, because they know they now own part or all of the company they work for.
So you have less turnover after those acquisitions than you do with traditional private equity or strategic buyers. For sure. And along those lines, Tim, you did a partial at 30% and then, a number of years later, went to 100%. A couple of the parameters we bring up with owners considering an ESOP relate to growth: you want to see revenues that are consistent, and hopefully consistently trending upward. Yeah.
And not a lot of long-term debt on the books already. Yeah. So just consistency in revenue and profitability, because you're going to be taking on debt. What would you say about that piece? When you went to 100%, were you confident you'd continue to see an upward trend in revenue, profitability, and so on?
I wouldn't say I'm confident, but historically, our industry has been growing. We're in cybersecurity. As long as the company continues to execute as it has, the growth will continue, and the company also has acquisitions it's looking to do. My leadership team are the ones putting together the growth plans, based on what we've done historically, what we have in the pipeline, and what our industry is doing. So we were very comfortable with the valuation that came back and with the goals they need to achieve going forward after I've stepped back.
Yeah. Tim, you mentioned you brought on a CEO at some point. How did you incentivize someone to come into an ESOP, where equity isn't necessarily part of the play? Well, everybody gets equity, right? My CEO who stepped in for me actually founded InTrust IT in Chicago in the early 2000s, and I bought the company from him. That was one of my acquisitions.
My company in Cincinnati was originally called LAN Solutions. I bought his company around 2008 or 2009 and took on its name, because LAN Solutions, for local area network, was a little dated. He and I were partners for about three years until I bought him out, and then he went off, did consulting, and started a SaaS software company that he grew and sold. Then he wound up working for another company in our industry in Chicago that got bought by private equity, and he worked a couple of years in that private-equity-backed space. He said it was the most soul-sucking two years of his life.
He absolutely hated every waking day there, trying to motivate his employees to work for a company that was just sucking all the profits out, and it was hard to get motivated. I had told him about employee ownership back when I bought him out, and he said, "I don't really get it." After his experience at that private-equity-backed company, he contacted me and said, more or less, "I see the light. Can I come back?" It was a longer conversation than that. So I wound up hiring him back into the company as COO, chief operating officer, about four years ago.
Then, through further discussion, I said, "I think it makes sense for you to step into the CEO role." And he's all in on employee ownership, because he sees how much more engaged the employees are and how much less turnover there is. Everybody is willing to pitch in, it's a lot easier to get motivated, and everybody has skin in the game. And yes, he has equity, because it's broad-based employee ownership. There are also stock appreciation rights, SARs, that can be distributed to the leadership team, and other things that can be done to incentivize your leadership team, but you can't set aside special stock in the ESOP for people in certain positions.
Right. Yep. I think that's an interesting point: your other incentive comp options are still available to you. Yes. That's important for any growing company. Yeah, I think sometimes people think, well, you've got the ESOP and that's it. But everything else is still open to you, especially all the different synthetic equity arrangements like stock appreciation rights, right?
We have a profit-sharing program, and in the future the board can do other things as well, in terms of SARs, profit sharing, or bonus structures for the leadership team, but at this point that's for the board to decide. I don't have to worry about it. Yeah. Talk about leadership. We've talked about the CEO some, but what about the other leaders on the leadership team, and how important is it to have a strong, capable next-level leadership team for this?
Yeah. I talk about precursors to employee ownership sometimes, and the two big things you have to do before you look at becoming employee-owned start with your leadership team. We implemented EOS, the Entrepreneurial Operating System, six years ago, and that was a great way for me to structure my leadership team and start delegating decisions down, so I could focus on being the visionary for the company and have an integrator and a leadership team run the company for me. So I'd pretty much stepped back from the company a couple of years ago anyway. EOS is definitely important, and I love that system as a way to delegate through your leadership team.
The other precursor I like is open-book management, the Great Game of Business. When I was getting ready to do my ESOP, I asked my father what he would have done differently before becoming an ESOP, and he said he would have given the employees visibility into the books well before they became an ESOP. He waited until the transaction to start exposing the finances to them, and since they hadn't been doing it for years and hadn't seen the cycles or a bad month, they were scared to death to make decisions. I started implementing the Great Game of Business in 2014, so it's been running for 12 years now, and my books have been completely open for over 10 years. I can't imagine running a business any other way.
Everybody in the company knows the P&L and the balance sheet and what we're looking at. It gives them comfort to know the company is making money and that they're going to have a job tomorrow, and it also gives them the knowledge to make changes that will improve the company's finances. That makes perfect sense. You mentioned you're seeking to influence legislation that would be favorable to employee ownership. What does that actually look like? What types of restrictions are you working on?
Well, we're starting really simple right now. This is really weird, and I never thought I would do it, but I've contracted a lobbyist personally to help me introduce people, which is what a lobbyist does, and help write legislation. The simplest thing we're working on is Ohio's commercial activity tax, the CAT, which is a gross tax on revenue for companies in Ohio. We're one of only five states with this type of tax. Because of that, ESOPs pay that corporate tax in Ohio, whereas traditionally they don't pay it federally or in any other state.
So there are 45 states in the U.S. where it's now better to have an employee-owned company than in Ohio. What we're working on is convincing legislators to carve out, or exclude, 100% employee-owned companies, ESOPs, from paying the commercial activity tax. It represents about $40 million in tax receipts in Ohio, about 1.6% of the CAT, so it's a small amount. And it would be beneficial, because that money would go to the employees, indirectly, either through profits going right into their ESOP retirement funds, or by repaying the company's debt more quickly so it can fund the employees' retirement accounts more easily, or by funding acquisitions and growth.
Any way you cut it, it's going to benefit employees in Ohio, versus a lot of other corporate tax cuts that wind up enriching people who own companies but may be located in other states, or even overseas, owning companies in Cincinnati or Ohio that pay less tax, which just benefits people outside Ohio. This is a really easy way to improve retirement and the financial aspects of employee ownership in Ohio. So we're starting with something simple. Yeah, that makes sense. Do you know offhand the other four states that are disadvantaged?
I don't. None of them are around us; Michigan, Indiana, and Kentucky don't have a commercial activity tax. I don't know what the other states are or what their rates and laws are. But a really good example is Messer Construction in Cincinnati, the largest employee-owned company in Cincinnati, and I think the largest in Ohio, with something like $1.5 billion in revenue. They could just move their headquarters across the river to Kentucky, cut out that commercial activity tax, and it would benefit all the employees.
So yes, it would be a huge benefit. All right. So in the last few minutes, Tim, as the champion of ESOPs at the Statehouse, what are some of your key talking points? Ohio right now has the most employee-owned companies per capita of all the states, and we're number three in raw number of employee-owned companies, behind California and Texas, which makes sense size-wise. One of the reasons is the Ohio Employee Ownership Center at Kent State, which has been around since about '88.
About a third of the ESOPs in Ohio were created because of that center. My father's company is a good example; he used the resources at Kent State to help him become employee-owned. So Ohio has been a leader in employee ownership since the '80s, but we're losing our mojo, our edge, because we've cut the funding to that center, for example. It still exists, but it's on a shoestring budget, funding itself through sponsorships and memberships. Colorado is putting forward much better legislation to improve employee ownership there, and Michigan is now starting to do the same.
They've started funding their own employee ownership center and are looking at ways to make employee ownership easier in Michigan. So Ohio needs to get with the program and start catching up. Okay. Tell us, too, why you're such an advocate for employee ownership. What are the reasons you're such a champion? Well, it's hard to read pretty much any story these days without hearing about income inequality or the concentration of capital, and that's why ESOPs were created.
Louis Kelso created ESOPs in the '50s because he saw that as automation improved, the value of labor would go down, and the people who owned the capital, the machines, would become richer and richer. That's definitely what has occurred, and now with AI, automation, and robots, it's becoming even worse, with CEOs on average earning 300 times the average frontline worker's salary. So employee ownership is the best way to provide broad-based ownership, and it creates capitalists out of all the employees. You're not giving them a free ride; they're earning that capital ownership through the sweat of their brow, by working at their jobs, and they come to understand how the capital system works. I don't know of any better system out there for doing that.
Yeah, that's phenomenal. And a last question, Tim: trends. Given that boomers are starting to exit in larger numbers, what are you seeing down the pike? Yes, that's definitely a concern. There's a lot of concern about the silver tsunami, all the retiring owners, so we're trying to figure out ways to make becoming an employee-owned company, or being acquired by one, easier.
There are multiple ways to become employee-owned. You can obviously set up your own ESOP. Or you can find an employee-owned company in your industry and sell to them. Or there are now holding companies, because ESOPs have been around long enough that they're gaining size, multiple billions of dollars in revenue in some cases. To diversify, those holding companies are now starting to buy companies in different sectors, which is actually what I did with my company this past year.
Instead of just giving all my employees stock in InTrust IT, I joined my company into a holding company and swapped my employees' shares into shares of the holding company, which is 100% employee-owned. So now my employees own shares across about a dozen different companies. It's still all employee-owned, with no external private equity or anything like that involved, but it diversifies their holdings. And if somebody in my company comes up with a new AI initiative or solution, we can take it and implement it across those 12 companies, and the stock value for all the employees goes up over time. So there's some diversification, some shared capabilities, and economies of scale that come out of those holding companies.
Excellent. Fantastic. Okay, Tim, in a second I'll ask whether you want to share your contact information and whether there's something you'd like to promote. But before that, any last words of wisdom for an owner out there who's listening and considering an ESOP as an exit strategy, anything we haven't talked about? Yeah. The tax benefits are fantastic, both for you and for the company after you've exited, which makes it easier for it to repay its seller note and bank note.
About half the time, when I talk to entrepreneurs who exited their company through private equity, they say, "This is the worst decision I ever made in my life," and they're upset they did it. Ninety percent of the time, when I talk to people who exited through an ESOP, they say it was the best decision they ever made. I've spoken to only two people who exited through ESOPs and didn't have a good experience, and they're definitely the outliers. For people like my father and others I've spoken to, it's been a huge benefit in their lives. So think about your legacy and what you want it to look like, and the fact that you can do it in pieces over time, which is what I did and which is one amazing part of ESOPs.
If you're considering it, talk to other ESOP CEOs or exiting owners like me. In June there's an event called "Is an ESOP Right for You?" here in Columbus, Ohio, put on by the National Center for Employee Ownership. I helped champion getting it here to Ohio, so anybody in Ohio can go. It's a day and a half long, and you can learn what it takes to become employee-owned. There'll be accountants, attorneys, trustees, and bankers there, and people like me who exited their companies, speaking and available to talk with.
So go to one of those events and learn more. Very neat. Fantastic. If someone wants to contact you, how can they do that? The best way is on LinkedIn; just search for my name, Tim Rettig, R-E-T-T-I-G. That's the best way to get in touch with me, for sure. All right, fantastic.
Well, thanks for joining us today, Tim, from the bowels of the Ohio Statehouse. We're really grateful you took the time. This has been hugely helpful, and listeners are going to benefit greatly from it. And listeners, if you need help maximizing the value and sellability of your business or planning your exit, please contact us at ennislp.com. Thank you for listening, and if you've benefited from today's episode, please consider liking it and sharing it on social media; we'd be very grateful. And until next time on the ExitReadiness® PODCAST, this is Pat Ennis and Walter Deyhle with Corby Megorden signing off.
