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Executive compensation: Making or breaking an Employee Stock Ownership Plan (ESOP)


Executive compensation is often a contentious issue in business valuations, as business valuations are often valued by reference to the income they produce. If the business being valued pays its employees an above-market rate, its income will be depressed. Accordingly, if no compensation adjustments are made, the value of the business will also be diminished.

When valuing controlling ownership interests, valuation analysts often restate above- or below-market executive compensation to a market level to reflect what a hypothetical buyer would pay the executives. In the valuation of companies with ESOPs, the issue of executive compensation gets more complicated. The following hypothetical example illustrates why.

Glamorous Grocery is a company that is 100% owned by an ESOP. A valuation analyst is retained to estimate the fair market value of each ESOP share. Glamorous Grocery generates very little income, in part because several executives are overcompensated. The valuation analyst normalizes executive compensation to a market level, thereby increasing Glamorous Grocery income, the fair market value of Glamorous Grocery, and the ESOP share value.

Glamorous Grocery’s trustee then uses this valuation to establish the market price of ESOP shares for the following year. When employees retire, Glamorous Grocery buys employees out at the established share price. The problem? As mentioned before, Glamorous Grocery generates very little income and as a result has difficulty obtaining the liquidity to buy out employees.

This simple example illustrates the concerns about normalizing executive compensation in ESOP valuations. If you reduce executive compensation for valuation purposes, the share price increases, putting a heavier burden on the company when you redeem shares. The company, which already has reduced income from paying above-market executive compensation, may struggle to redeem shares at the established price.

A second issue is whether control-level adjustments are appropriate in ESOP valuations. A company might be 100% ESOP-owned, but an owner of an ESOP share may not actually be able to reduce executive compensation.

Interested in learning more? Please leave a comment below, or contact me. For additional discussion of the shareholder/executive compensation federal tax statutes and historical judicial precedents and sources of executive compensation data, please click here.

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In a closely held business, ownership always means far more than business value. Valuing your business will put a dollar figure on your business (and with any luck, it might even be accurate!). However, ownership of a business is about much more than the “number.” To many of our clients, ownership is about identity, personal fulfillment, developing a legacy, funding their lifestyle, and much more. What does business ownership mean to you? In our final article in this series, we are going to look at questions around what ownership means to different people, explore how to increase business value and liquidity, and discuss the decision of whether to grow your business or exit—and which liquidity options are available for each path. 

While it may seem counterintuitive, we find that it is best to delay the decision to grow or exit until the very end of the value acceleration process. After identifying and implementing business improvement and de-risking projects in the Discover stage and the Prepare stage (see below), people may find themselves more open to the idea of keeping their business and using that business to build liquidity while they explore other options. 

Once people have completed the Discover and Prepare stages and are ready to decide whether to exit or grow their business, we frame the conversation around personal and business readiness. Many personal readiness factors relate to what ownership means to each client. In this process, clients ask themselves the following questions:

  • Am I ready to not be in charge?
  • Am I ready to not be identified as the business?
  • Do I have a plan for what comes next?
  • Do I have the resources to fund what’s next? 
  • Have I communicated my plan?

On the business end, readiness topics include the following:

  • Is the team in place to carry on without me?
  • Do all employees know their role?
  • Does the team know the strategic plan?
  • Have we minimized risk? 
  • Have I communicated my plan?

Whether you choose to grow your business or exit it, you have various liquidity options to choose from. Liquidity options if you keep your business include 401(k) profit sharing, distributions, bonuses, and dividend recapitalization. Alternatively, liquidity options if you choose to exit your business include selling to strategic buyers, ESOPs, private equity firms, management, or family. 

When it comes to liquidity, there are several other topics clients are curious about. One of these topics is the use of earn-outs in the sale of a business. In an earn-out, a portion of the price of the business is suspended, contingent on business performance. The “short and sweet” on this topic is that we typically find them to be most effective over a two- to three-year time period. When selecting a metric to base the earn-out on (such as revenue, profit, or customer retention), consider what is in your control. Will the new owner change the capital structure or cost structure in a way that reduces income? Further, if the planned liquidity event involves merging your company into another company, specify how costs will be allocated for earn-out purposes. 

Rollover equity (receiving equity in the acquiring company as part of the deal structure) and the use of warrants/synthetic equity (incentives tied to increases in stock price) is another area in which we receive many questions from clients. Some key considerations:

  • Make sure you know how you will turn your rollover equity into cash.
  • Understand potential dilution of your rollover equity if the acquiring company continues to acquire other targets. 
  • Make sure the percentage of equity relative to total deal consideration is reasonable.
  • Seller financing typically has lower interest rates and favorable terms, so warrants are often attached to compensate the seller. 
  • Warrants are subject to capital gains tax while synthetic equity is typically ordinary income. As a result, warrants often have lower tax consequences.
  • Synthetic equity may work well for long-term incentive plans and for management buyouts. 

We have found that through the value acceleration process, clients are able to increase business value and liquidity, giving them control over how they spend their time and resources.

If you are interested in learning more about value acceleration, please contact the business valuation services team. We would be happy to meet with you, answer any questions you may have, and provide you with information on upcoming value acceleration presentations. 

Decide: Value acceleration series part five (of five)

So far in our value acceleration article series, we have talked about increasing the value of your business and building liquidity into your life starting with taking inventory of where you are at and aligning values, reducing risk, and increasing intangible value.

In this article, we are going to focus on planning and execution. How these action items are introduced and executed may be just as important as the action items themselves. We still need to protect value before we can help it grow. Let’s say you had a plan, a good plan, to sell your business and start a new one. Maybe a bed-and-breakfast on the coast? You’ve earmarked the 70% in cash proceeds to bolster your retirement accounts. The remaining 30% was designed to generate cash for the down payment on the bed-and-breakfast. And it is stuck in escrow or, worse yet, tied to an earn-out. Now, the waiting begins. When do you get to move on to the next phase? After all that hard work in the value acceleration process, you still didn’t get where you wanted to go. What went wrong?

Many business owners stumble at the end because they lack a master plan that incorporates their business action items and personal action items. Planning and execution in the value acceleration process was the focus of our conversation with a group of business owners and advisors on Thursday, April 11th.

Business valuation master plan steps to take

A master plan should include both business actions and personal actions. We uncovered a number of points that resonated with business owners in the room. Almost every business owner has some sort of action item related to employees, whether it’s hiring new employees, advancing employees into new roles, or helping employees succeed in their current roles. A review of financial practices may also benefit many businesses. For example, by revisiting variable vs. fixed costs, companies may improve their bidding process and enhance profitability. 

Master plan business improvement action items:

  • Customer diversification and contract implementation
  • Inventory management
  • Use of relevant metrics and dashboards
  • Financial history and projections
  • Systems and process refinement

A comprehensive master plan should also include personal action items. Personal goals and objectives play a huge role in the actions taken by a business. As with the hypothetical bed-and-breakfast example, personal goals may influence your exit options and the selected deal structure. 

Master plan personal action items:

  •  Family involvement in the business
  •  Needs vs. wants
  •  Development of an advisory team
  •  Life after planning

A master plan incorporates all of the previously identified action items into an implementation timeline. Each master plan is different and reflects the underlying realities of the specific business. However, a practical framework to use as guidance is presented below.

The value acceleration process requires critical thinking and hard work. Just as important as identifying action items is creating a process to execute them effectively. Through proper planning and execution, we help our clients not only become wealthier but to use their wealth to better their lives. 

If you are interested in learning more about value acceleration, please contact the business valuation services team. We would be happy to meet with you, answer any questions you may have, and provide you with information on upcoming value acceleration presentations. 

Planning and execution: Value acceleration series part four (of five)

What are the top three areas of improvement right now for your business? In this third article of our series, we will focus on how to increase business value by aligning values, decreasing risk, and improving what we call the “four C’s”: human capital, structural capital, social capital, and consumer capital.

To back up for a minute, value acceleration is the process of helping clients increase the value of their business and build liquidity into their lives. Previously, we looked at the Discover stage, in which business owners take inventory of their personal, financial, and business goals and assemble information into a prioritized action plan. Here, we are going to focus on the Prepare stage of the value acceleration process.

Aligning values may sound like an abstract concept, but it has a real world impact on business performance and profitability. For example, if a business has multiple owners with different future plans, the company can be pulled in two competing directions. Another example of poor alignment would be if a shareholder’s business plans (such as expanding the asset base to drive revenue) compete with personal plans (such as pulling money out of the business to fund retirement). Friction creates problems. The first step in the Prepare stage is therefore to reduce friction by aligning values.

Reducing risk

Personal risk creates business risk, and business risk creates personal risk. For example, if a business owner suddenly needs cash to fund unexpected medical bills, planned business expansion may be delayed to provide liquidity to the owner. If a key employee unexpectedly quits, the business owner may have to carve time away from their personal life to juggle new responsibilities. 

Business owners should therefore seek to reduce risk in their personal lives, (e.g., life insurance, use of wills, time management planning) and in their business, (e.g., employee contracts, customer contracts, supplier and customer diversification).

Intangible value and the four C's

Now more than ever, the value of a business is driven by intangible value rather than tangible asset value. One study found that intangible asset value made up 87% of S&P 500 market value in 2015 (up from 17% in 1975). Therefore, we look at how to increase business value by increasing intangible asset value and, specifically, the four C’s of intangible asset value: human capital, structural capital, social capital, and consumer capital. 

Here are two ways you can increase intangible asset value. First of all, do a cost-benefit analysis before implementing any strategies to boost intangible asset value. Second, to avoid employee burnout, break planned improvements into 90-day increments with specific targets.

At BerryDunn, we often diagram company performance on the underlying drivers of the 4 C’s (below). We use this tool to identify and assess the areas for greatest potential improvements:

By aligning values, decreasing risk, and improving the four C’s, business owners can achieve a spike in cash flow and business value, and obtain liquidity to fund their plans outside of their business.

If you are interested in learning more about value acceleration, please contact the business valuation services team. We would be happy to meet with you, answer any questions you may have, and provide you with information on upcoming value acceleration presentations.

The four C's: Value acceleration series part three (of five)

This is our second of five articles addressing the many aspects of business valuation. In the first article, we presented an overview of the three stages of the value acceleration process (Discover, Prepare, and Decide). In this article we are going to look more closely at the Discover stage of the process.

In the Discover stage, business owners take inventory of their personal, financial, and business goals, noting ways to increase alignment and reduce risk. The objective of the Discover stage is to gather data and assemble information into a prioritized action plan, using the following general framework.

Every client we have talked to so far has plans and priorities outside of their business. Accordingly, the first topic in the Discover stage is to explore your personal plans and how they may affect business goals and operations. What do you want to do next in your personal life? How will you get it done?

Another area to explore is your personal financial plan, and how this interacts with your personal goals and business plans. What do you currently have? How much do you need to fund your other goals?

The third leg of the value acceleration “three-legged stool” is business goals. How much can the business contribute to your other goals? How much do you need from your business? What are the strengths and weaknesses of your business? How do these compare to other businesses? How can business value be enhanced? A business valuation can help you to answer these questions.

A business valuation can clarify the standing of your business regarding the qualities buyers find attractive. Relevant business attractiveness factors include the following:

  • Market factors, such as barriers to entry, competitive advantages, market leadership, economic prosperity, and market growth
  • Forecast factors, such as potential profit and revenue growth, revenue stream predictability, and whether or not revenue comes from recurring sources
  • Business factors, such as years of operation, management strength, customer loyalty, branding, customer database, intellectual property/technology, staff contracts, location, business owner reliance, marketing systems, and business systems

Your company’s performance in these areas may lead to a gap between what your business is worth and what it could be worth. Armed with the information from this assessment, you can prepare a plan to address this “value gap” and look toward your plans for the future.

If you are interested in learning more about value acceleration, please contact the business valuation services team. We would be happy to meet with you, answer any questions you may have, and provide you with information on upcoming value acceleration presentations.

Next up in our value acceleration series is all about what we call the four C's of the value acceleration process. 

The discover stage: Value acceleration series part two (of five)

This is the first article in our five-article series that reviews the art and science of business valuation. The series is based on an in-person program we offer from time to time.  

Did you know that just 12 months after selling, three out of four business owners surveyed “profoundly regretted” their decision? Situations like these highlight the importance of the value acceleration process, which focuses on increasing value and aligning business, personal, and financial goals. Through this process, business owners will be better prepared for business transitions, and therefore be significantly more satisfied with their decisions.

Here is a high-level overview of the value acceleration process. This process has three stages, diagrammed here:

The Discover stage is also called the “triggering event.” This is where business owners take inventory of their situation, focusing on risk reduction and alignment of their business, personal, and financial goals. The information gleaned in this stage is then compiled into a prioritized action plan utilized in future stages.

In the Prepare stage, business owners follow through on business improvement and personal/financial planning action items formed in the discover stage. Examples of action items include the following:

  • Addressing weaknesses identified in the Discover stage, in the business, or in personal financial planning
  • Protecting value through planning documents and making sure appropriate insurance is in place
  • Analyzing and prioritizing projects to improve the value of the business, as identified in Discover stage
  • Developing strategies to increase liquidity and retirement savings

The last stage in the process is the Decide stage. At this point, business owners choose between continuing to drive additional value into the business or to sell it.

Through the value acceleration process, we help business owners build value into their businesses and liquidity into their lives.

If you are interested in learning more about value acceleration, please contact the business valuation services team. We would be happy to meet with you, answer any questions you may have, and provide you with information on upcoming value acceleration presentations.

Read more! In our next installment of the value acceleration blog series, we cover the Discover stage.

The process: Value acceleration series part one (of five)

Read this if you are a business owner or are interested in business valuation. 

BerryDunn’s business valuation team recently authored a book titled A Field Guide to Business Valuation for Owners and Leaders of Private Companies. It is being published by Business Valuation Resources, the leading provider of valuation textbooks, in September. 

A book’s cover can say a lot about a book, and this one is no exception. The title of this book is A Field Guide to Business Valuation. We have organized the book like a field guide used by bird watchers, and encourage readers to keep it on hand as a reference. It doesn’t necessarily need to be read cover to cover. Jump around. If a question comes up about a particular topic, turn to the section that addresses that matter. Or, if learning all about business valuation sounds appealing, by all means read it cover to cover. You may find more to certain topics than you initially thought. Here are some of our notes about the book.

We wrote this book based on data from the field. It is based on our experiences helping business owners estimate, preserve, and increase business value. We work with people who don’t have a business valuation background. We regularly use simple analogies to help people understand complicated topics. We get used to answering the same questions that come up, and we have had many opportunities to hone our answers. After years of explaining business valuations in conversations and presentations, we wrote this book to provide more people with a greater understanding of how businesses are valued. 

This book is intended for business owners and their advisors who would like to learn more about how to estimate what a business is worth, what factors affect value, and how to make businesses more valuable. After reading this book, the reader should be conversant in business valuations and comfortable with the overall valuation framework. It is not an exhaustive dissertation on business valuation. There are many other (very thick) books that get into the details, picking up where this book leaves off. This book is for people who want an understanding of how businesses are valued but don’t have the time to read heavy textbooks. 

The book is designed for people who want to learn how to perform valuations themselves. While it doesn’t contain all the details necessary to master the craft of business valuation, it is a great introduction to the topic. 

Our focus is on the valuation of privately held businesses, not publicly traded companies. Public companies can be valued based on their stock prices or various intrinsic valuation models. The value of private and public companies is affected by different factors. 

We hope this book answers questions, provides new insights, and is an enjoyable read. Stay tuned for more details about availability and opportunities to learn more about the content. If you are interested in learning more, please contact Seth Webber or Casey Karlsen.

We wrote the book on business valuation—and it's available now

Read this if you are looking to buy or sell a construction company.

This article was previously published in Construction Accounting and Taxation, January/February 2022 ©2022 Thomson Reuters/Tax & Accounting.

The other day, my wife was telling me about her dad’s friend who used to be a daredevil backcountry skier. He loved cliff drops and had a reckless approach, once quipping, “I’ll find a landing spot on the way down.” 

Our valuation team includes several expert skiers and snowboarders, but we have little in common with this approach. When we ski, we carefully assess the risks before taking action. Because we spent all day assessing risk, we’re far more likely to take a scouting run and develop a couple of alternatives. Even in our wildest days, we would never go off cliffs without first investigating the landing.  

The same approach should be used when acquiring a business. Acquiring a business can be a big financial risk, possibly the biggest financial risk of one’s life. It might even feel like skiing off a cliff. We frequently work with clients that are acquiring businesses, and we recommend a strategy of investigation and analysis, carefully vetting potential acquisitions, before taking action. 

Recent M&A activity

The pandemic caused a drop-off in merger and acquisition (M&A) activity as many companies were focused on the challenges immediately at hand. As shown in the accompanying chart, the sale of construction companies reported in the DealStats database1 dropped by approximately 53% in 2020. 

As the business environment settles down to the “new normal,” M&A activity will likely begin to pick up again. An opportunity created by the pandemic is the opportunity to acquire struggling companies at a discount. Some companies are unable (or unwilling) to adapt to the new business environment and its many challenges. This fact pattern may represent an opportunity for stabilized companies to expand through acquisition. 

There are numerous other reasons to acquire a business. One common reason historically is to expand into a new service area. For example, one of our clients wanted to expand into concrete services, so they acquired a concrete contractor rather than developing those skills in-house. Another residential builder decided to eliminate a bottleneck in the building process by acquiring a roofing contractor. 

Particularly in the current tight labor market, we have observed numerous “acquihires” where the primary motivation for a deal is to secure a key person or team of employees – particularly for in-demand specialty subcontractors. 

Companies also use acquisitions as an opportunity to establish a new geographical footprint. This strategy is especially useful when ties to the community are important in the business development process. The motivation for an acquisition might also be access to a particular client or access to a new niche. 

Growing through acquisition can enable companies to achieve economies of scale and synergistic benefits through elimination of redundancies. Acquiring a competitor may also yield a secondary benefit by eliminating a source of competition. 

All of these opportunities may paint an overoptimistic picture of the benefits of mergers and acquisitions. According to Harvard Business Review, approximately 70% to 90% of acquisitions fail to realize their targeted outcomes.2  There are a myriad of factors that can cause acquisitions to go awry. Keep the following tips in mind that we have learned from our experience working with companies that completed a successful acquisition. 

Tip #1: Avoid being rushed

Acquiring a business is a big decision that will change the trajectory of the acquirer. If one is rushed into a decision, it is easier to miss key pieces of information. If there is not enough time to learn about the business model and make a careful decision, pass on the acquisition. There will always be future opportunities.

Tip #2: Perform rigorous financial due diligence

Two primary factors drive business value: income and risk. Financial due diligence is the process of verifying income and assessing risk. We recommend having a financial due diligence checklist as an organized method to analyze a company that one is acquiring. By following this checklist, one can learn about a company’s income, assets, liabilities, contracts, benefits, and potential problems (customer concentration, claims and litigation issues, management bench strength, etc.). To perform adequate due diligence, request thorough documentation and dig deep. 

We once helped an individual out who was considering acquiring a business that had very limited financial information available. The seller painted a glowing picture of profitability but lacked the financial data to back the claims. With a significant investment on the line, the potential acquirer judiciously passed on this opportunity. He felt that it wasn’t prudent to rely on the word of a stranger in the absence of data. In order to make a good buying decision, require sellers to bring data to the table. Be skeptical. In one of our former careers in engineering, there was a common mantra – in God we trust, everyone else brings data. If it sounds too good to be true, it probably is.

As part of the financial due diligence, review financial statements for at least the last five years. Audited financial statements are preferred. Additionally, request monthly contract schedules showing completed contracts and work-in-progress (WIP). Monthly contract schedules can provide information about the timing of projects, margins over time, information about change orders, billing practices, and the cadence of work for a particular company.

Success in the construction industry hinges on cash management. Construction firms need to bid contracts and manage operations such that they collect payment as soon as possible in order to avoid a liquidity crisis. A positive indicator is the presence of contract liabilities, which represent billings from customers in excess of revenue recognized to date. This “good liability” indicates that project managers are attentive and understand the business aspect of their roles and/or that company has well written contacts allowing them to bill advantageously. In combination with strong cash flows from operations and good working capital metrics, a contract liability in excess of any contract asset is a good indicator of a strong cash management position. 

On the other hand, the alternative is a contract asset. Contract assets, which are often characterized as “bad assets,” represent revenue recognized in excess of amounts billed. In other words, the company does not have an unconditional right to payment. This could be due to poor contract writing, inattention to scope-creep, difficulty negotiating change orders with clients, or just bad billing practices. Contract assets may also be generated in a manner that does not raise concern. For example, a company might work primarily with government entities and therefore be restricted in their ability to pre-bill. In any case, if contract assets are consistent and substantial, one should inquire into what is giving rise to this asset. 

In the event that contract assets are generated through poor business practices, an acquirer may be able to implement their own billing practices to improve the target’s position, but existing poorly written contracts could pose a large liability and claim on cash flow post-merger. 

Tip #3: Analyze key relationships

A valuable component of intangible value is customer relationships. The most valuable customer base is one that is diversified and stable, ideally with contracts in place. Before acquiring a company, assess the risk associated with its customer base by analyzing concentration and the tenure of relationships with key customers. In some cases, customer reviews may also be available through Google and other platforms. 

Relationships with surety and bonding companies as well as subcontractors should also be topics in due diligence. 

Tip #4: Learn about the employees

Many businesses rightly state, “Our employees are our most valuable asset.” What if this valuable asset becomes disgruntled and walks away after a transaction? We recommend probing employee turnover and satisfaction, as well as analyzing employment contracts. External resources may also be available, or discussions with key customers and subcontractors can be revealing. 

Oftentimes, post-merger integration is unsuccessful due to differences in the cultures between the acquirer and the target. During the due diligence process, learn about the target’s culture and consider how it will likely integrate with your company’s existing culture. 

Tip #5: Assess key person dependence

Many companies cannot operate without the current owner in the driver’s seat. Many key processes, business development in particular, run through this individual. Develop an understanding of what would happen to the business without this person’s involvement. The individual in question (the “key person”) might not be the owner, but a key employee that is essential to business operations. Key person dependence represents a threat to the company in the event of the employee’s departure from the company or incapacitation. 

Some questions we often ask to identify and assess key person dependence include the following: 

  • Who is responsible for business development?
  • How important are individual relationships to the development of new work?
  • Do people become customers because of the reputation of the company or the reputation of an individual?
  • Has management began training up the next level of management beneath them?
  • Do any employees have any specialized knowledge or skills that no other employees have that would be difficult to replace?
  • What would happen to the company if a key employee won the lottery and never came into work again?

Tip #6: Have the seller stick around

Business owners are steeped in the knowledge of their business. This know-how may take time to transfer. Signing the seller to an employment agreement and/or earn-out as part of the transaction can provide the acquirer critical time to absorb the seller’s expertise. 

Tip #7: Don’t assume the good times will last forever

Many construction companies have reported strong profitability despite the pandemic. These profits may simply reflect recent economic trends rather than strong business models. If, or when, the economy takes another drop, many businesses will follow suit. Will the business being purchased survive in a difficult economic climate? To answer this question, consider the following strategies.

First, study how they performed in the last economic recession, keeping in mind the rule of thumb that construction industry downturns generally lag two years behind the rest of the economy and last twice as long. Second, compare a company’s growth and profitability to its industry to reveal whether it is a star or simply rising with the tide. In the words of Warren Buffett, “It’s only when the tide goes out that you learn who’s been swimming naked.” Third, study the business model to link their business drivers to economic factors. 

Tip #8: Consider tax and legal consequences

Many people focus their time and energy negotiating the transaction price and disregard the transaction structure. The amount of taxes paid may increase or decrease dramatically based on the transaction structure. However, tax consequences are often given less attention because they are frustrating and complicated. By spending a little extra time on the transaction structure, acquirers can optimize their after-tax sale proceeds. 

Different deal structures may also sever existing liability or create nightmares in the future. Be sure to discuss these with your legal counsel and weigh the potential risks and returns of structure.

Tip #9: Get different perspectives

Discuss the opportunity with trusted friends, families, and mentors. Bringing in different perspectives can cast light on elements that would otherwise have gone unnoticed.  

Bring in professional perspectives as well for tax, legal, and financial items. Contact a professional regarding the purchase price. Businesses are tricky to value. Two people can have disparate opinions about what it is worth. A business valuation can ground the expectations on price and provide a framework to keep “deal emotions” in check. A business valuation could save a considerable amount of money and time. 

We offer this word of caution: avoid blindly relying on the perspectives of others. Bring them in as counsel, but make sure to have a firm understanding of the offered terms and the business model yourself. Think critically about the decision to buy or walk away as the choice is yours to make. 


In both skiing and acquiring a business, we recommend taking calculated risks. Acquiring a business is a big decision and should be taken seriously. There are many benefits to M&A activity, including expanding services offerings, geographical footprint, employee base, and ultimately profitability. In order to ensure the full benefits of a successful acquisition, keep in mind the advice in this discussion when considering acquiring a company. 

1DealStats is a subscription-based database of business transactions available online at   
2“The Big Idea: The New M&A Playbook” by Clayton M. Christensen, Richard Alton, Curtis Rising, and Andrew Waldeck. Harvard Business Review, March 2011. Accessed online at

Tips for acquiring a construction company

If you received over $2 million in PPP funds, read on.

The Small Business Administration (SBA) has posted a new form to collect additional information on loan necessity from businesses that received over $2 million in PPP funds. The comment period is now open and closes on November 25, 2020. As we seek more clarity, here is what we know.

What is happening: 

The SBA released PPP Loan Necessity Questionnaires (Forms 3509 and 3510) for borrowers that received PPP loans of $2 million or more on October 30, 2020. The forms are not available at the SBA or Treasury websites, but were released through the PPP Loan Forgiveness portal to lenders.  

Here is an excellent description of what we know thus far. Here are our concerns: 

  • The timing and lack of clarity. The 10-day turnaround is very tight. It could be very difficult to manage if it hits during a month or quarter close, or even worse at year-end.

  • This is counter to what was described in the FAQs at the time, so it leaves us with many unanswered questions.
  • It appears that information on the form might be subject to FOIA. There is a toggle to indicate what information you consider to be confidential. We recommend that you carefully review what information you have not flagged as confidential before submitting the form.

Other considerations and actions you can take in the meantime:

  • We know that the questionnaire is triggered by submitting an application for forgiveness. Given some of the uncertainty of other program impacts and this additional information that is requested, it may be reasonable to wait to seek loan forgiveness until we determine the impact.
  • You may wish to comment on the federal notice. See instructions for submitting comments below.

COVID-19 business support

We will continue to post updates as we uncover them. Let us know if you have questions. For more information regarding the Paycheck Protection Program, the CARES Act, or other COVID-19 resources, see our COVID-19 Resource Center.

Instructions for submitting comments:
Agency Clearance Officer                  
Curtis Rich
Small Business Administration
409 3rd Street SW
5th Floor
Washington, DC 20416


SBA Desk Officer
Office of Information and Regulatory Affairs
Office of Management and Budget
New Executive Office Building
Washington, DC  20503

Your comments should be titled as follows:
Title: Paycheck Protection Program
OMB Control Number: 3245-0407

Comments should include one or all of the following: 
(a) whether the collection of information is necessary, 
(b) whether the estimate of 1.6 hours to complete or review the proposed application form is accurate (42,000 applications, 67,833 annual hour burden), 
(c) whether there are ways to minimize this burden, and
(d) whether there are ways to enhance the quality, utility, and clarity of the information.

Paycheck Protection Program: New regulatory announcements

Read this if you are a Maine business or organization that has been affected by COVID-19. 

The State of Maine has released a $200 million Maine Economic Recovery Grant Program for companies and organizations affected by the COVID-19 pandemic. Here is a brief outline of the program from the state, and a list of eligibility requirements. 

“The State of Maine plans to use CARES Act relief funding to help our economy recover from the impacts of the global pandemic by supporting Maine-based businesses and non-profit organizations through an Economic Recovery Grant Program. The funding originates from the federal Coronavirus Relief Fund and will be awarded in the form of grants to directly alleviate the disruption of operations suffered by Maine’s small businesses and non-profits as a result of the COVID-19 pandemic. The Maine Department of Economic & Community Development has been working closely with affected Maine organizations since the beginning of this crisis and has gathered feedback from all sectors on the current challenges.”

Eligibility requirements for the program from the state

To qualify for a Maine Economic Recovery Grant your business/organization must: 

  • Demonstrate a need for financial relief based on lost revenues minus expenses incurred since March 1, 2020 due to COVID-19 impacts or related public health response; 
  • Employ a combined total of 50 or fewer employees and contract employees;
  • Have significant operations in Maine (business/organization headquartered in Maine or have a minimum of 50% of employees and contract employees based in Maine); 
  • Have been in operation for at least one year before August 1, 2020; 
  • Be in good standing with the Maine Department of Labor; 
  • Be current and in good standing with all Maine state payroll taxes, sales taxes, and state income taxes (as applicable) through July 31, 2020;
  • Not be in bankruptcy; 
  • Not have permanently ceased all operations; 
  • Be in consistent compliance and not be under any current or past enforcement action with COVID-19 Prevention Checklist Requirements; and 
  • Be a for-profit business or non-profit organization, except
    • Professional services 
    • 501(c)(4), 501(c)(6) organizations that lobby 
    • K-12 schools, including charter, public and private
    • Municipalities, municipal subdivisions, and other government agencies 
    • Assisted living and retirement communities 
    • Nursing homes
    • Foundations and charitable trusts 
    • Trade associations 
    • Credit unions
    • Insurance trusts
    • Scholarship funds and programs 
    • Gambling 
    • Adult entertainment 
    • Country clubs, golf clubs, other private clubs 
    • Cemetery trusts and associations 
    • Fraternal orders 
    • Hospitals, nursing facilities, institutions of higher education, and child care organizations (Alternate funding available through the Department of Education and Department of Health and Human Services for hospitals, nursing facilities, child care organizations, and institutions of higher education.)

For more information

If you feel you qualify, you can find more details and the application here. If you have questions about your eligibility, please contact us. We’re here to help. 

$200 Million Maine Economic Recovery Grant Program released