Setting up an ESOP is both expensive and difficult

The benefits ESOPs can provide both employees and owners do not outweigh the complexities and the overall costs associated with the business venture. Setting up the ESOP can prove challenging since there needs to be a specific administrator for the program. This administrator exists because an ESOP also doubles as a kind of retirement plan, and the company will need someone to handle annual independent business appraisals. ^[1] Features of a business that are normally separate from one another become complicated due to the relationship between owner and employee. In the realm of finance, seeking external aid for ESOPs can be challenging as well. According to a report by the Nuttal Review of Employee Ownership, ESOPs can face more challenges than other types of companies, particularly when it comes to sourcing finance for a transition. Banks might feel that they lack the necessary resources, expertise, or analytical tools. As a result, they would be less likely to fund them or grant them a loan. ^[2] If an ESOP is unable to acquire outside help if they need it, this can considerably affect their level of success. In turn, it would appear more profitable to set up a different kind of company, since they would be less likely to face the same initial financial challenges an ESOP might. Overall, ESOPs, while very appealing visually, could end up becoming more of a hassle than they are potentially worth.