In our last article, we discussed the importance and confusion that can surround properly valuing your company. The next are of growth many entrepreneurs face is how and when they should grant their share options to employees.

How and When to Grant Share Options to Employees

Many small businesses often make the mistake of implementing their ESOP far too early or just at the wrong stage in their business’s development, setting the plan up for failure and numerous setbacks. Thus, the importance of understanding where your business is at in its development and how to execute your ESOP for that corresponding stage can have more impact than the plan itself.

By looking at the appropriate timeline for instituting an ESOP, it is apparent that sometimes businesses may establish an ESOP too early. In this starting period, employees fail to see the real value that the option rights could provide, not fully realising that value until the company scales up and receives interest from different investors.

Without employees being incentivised to use the ESOP, the plan can lead to even more problems and issues within. As employees might be missing the value of the option, they can also misinterpret the intention of the business owner, thinking it is just a way to “save some cash.” Therefore, assessing where your business is and following the respective stage for implementing your ESOP will heavily influence whether your plan will fail or succeed.

Next time, we will simplify and look at the tax implications that ESOPs have, helping you avoid problematic areas and addressing points that others often overlook.

If you have any questions regarding your company's ESOP, please don't hesitate to reach out to Katherine directly: k at cancangroup dot com