Why More Iowa Business Owners Are Turning to ESOPs to Preserve Their Legacy
February 16, 2026
By Chelsea Keenan Priest
Published in ABI Business Monthly, February 16, 2006
Corridor Business Journal and Quad Cities Business Journal
Contributions by Tom Cavanagh, Vice President, BCC Advisers
For many business owners, retirement is not just a financial decision — it’s a personal one. After years or decades of building a company, preserving their legacy is as important as securing their future.
One increasingly popular option is selling your company to an Employee Stock Ownership Plan (ESOP). While ESOPs may not be the right fit for every business, they can offer financial as well as legacy-related advantages for business owners preparing for retirement, experts said. There are about 148 ESOPs in the state of Iowa with more than 96,000 participants, according to the National Center for Employee Ownership.
An ESOP is a type of retirement plan, similar to a 401(k) plan, that invests primarily in company stock and holds its assets in a trust for employees. Over time, employees receive shares in the plan and are paid out by having their shares bought back, typically after they leave the company.
“When there’s not an obvious family member to take over a company or a succession plan, an ESOP becomes an effective tool to keep the company in a community and keep dollars in the community," said Tom Cavanagh, vice president of BCC Capitalize Advisers. The Des Moines-based investment banking firm has a lot of experience in
the ESOP world, performing annual company appraisals to set share prices as well as working with sellers.
Selling to a competitor or private equity firm can often mean relocating company headquarters, workforce reductions or a change in company culture, said Michelle Jensen, president and CEO of Cedar Rapids-based Rayser Holdings. The company, which has been employee-owned for more than 20 years, started as a community pharmacy and health care company. In 2018, it started diversifying itself, acquiring other Iowa-based companies looking to sell to an ESOP.
“Employees are with (business owners) for so much of the journey, especially in smaller communities and towns,” said Ms. Jensen. “Owners want to feel good about selling their company — it’s their identity — and these businesses often support the communities they live in.”
Selling to an ESOP doesn’t mean no changes will be made, Ms. Jensen said, but it does mean the important things are left intact. Companies remain in the community, employees remain in their roles and company culture is left alone.
Mr. Cavanagh and Ms. Jensen both agreed that there is no magic-size a company must be to make an ESOP work, but there should be at least 20-30 employees. Companies should also have consistent cash flows and profitability as well as strong middle management.
“It’s definitely something you need to plan ahead for,” said Mr. Cavanagh. “If you don’t, the circumstances will dictate which path you go and that may not be the path you wanted. Planning ahead is important, getting the right team in place to educate owners on what the options are, what’s required and what’s feasible.”
Companies highly reliant on people, such as engineering, construction or marketing, tend to work well as an ESOP, Mr. Cavanagh added.
Selling to an established ESOP is like selling to any other buyer, Mr. Cavanagh said. You want to make sure the company culture aligns, there is continuity for employees and similar growth objectives.
ESOPs can also be a great recruiting tool, experts said. Well-managed ESOP companies can experience higher employee engagement, lower turnover, greater productivity and improved company performance.
Surveys conducted by the National Center for Employee Ownership found that ESOPs have lower voluntary quit-rates than the national average and their employees have greater retirement security.
Managing an ESOP can be time-consuming, Ms. Jensen said, adding it’s almost like managing an additional company. Shares must be repurchased when employees leave, a board must be put into place to make decisions and employees need to buy into the idea.
“If you’re truly going to embrace it, there’s education needed and it takes commitment from leadership,” said Ms. Jensen. “You need to have committees, go to conferences, give employees time to learnabout it, all while you’re still running a business and serving clients or patients. The true success of an ESOP is having your employees engaged.”
There can also be a fair amount of misunderstanding from employees at the start, said Mr. Cavanagh. Employees can see a transition to an ESOP as potential for additional work or a financial obligation to buy into the ESOP, so it’s important to have effective communication explaining what the transition means.
“It does take a coordinated communication plan and time to develop,” said Mr. Cavanagh. “In the first few years employees may not feel much of an impact. But the more mature ESOPs, that’s where you can have neat stories. We start to see employees take ownership on what they can control and how that can contribute to cost savings
and overall value.”
If transitioning to an ESOP is something your business is interested in, Ms. Jensen said there is plenty of support in Iowa.
“It’s very collaborative,” Ms. Jensen said. “And you don’t need all of that info on Day One, but it’s something to think about. Does it make sense to do it on your own? Or does it make sense to sell to ESOP? You need to look at all the options.”
For owners who value independence, culture, and long-term continuity, an ESOP can provide a powerful alternative to traditional exit routes. With careful planning and the right advisory team, it can transform retirement from an ending into a lasting legacy.
“Its a complex plan and strategy but there’s a ton of benefit to both owners and employees alike as well as the community and other stakeholders,” Mr. Cavanagh said.