The feasibility study is the analysis that decides whether an ESOP is possible before anybody spends money on making one. It is the cheapest step in a route whose later steps are expensive, and its most valuable outcome is often a clear no.
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What it tests
A preliminary view of value, so the owner knows the range before committing. Whether the company's cash flow can service the debt the transaction would create, under conservative assumptions rather than the plan. The employee base and payroll, which drive how allocations work. The corporate structure and whether it suits the route. And the ongoing cost of running the plan against the company's size.
What it costs and who does it
A defined engagement with a specialist ESOP adviser or an accounting firm with an ESOP practice, priced as a fixed fee. It is a fraction of what the full transaction costs. Insist that the same firm's later role is disclosed: a feasibility study from somebody who is paid only if the transaction proceeds is an opinion with an interest attached.
Reading the result
A study that says the debt service is tight under conservative assumptions is telling you something important, because the company repays that debt out of real earnings for years. A study that only works on the optimistic case is a no. Owners frequently want the answer to be yes; the study is worth having precisely because it does not care.
Questions people ask about esop feasibility study
How long does it take?
Usually weeks rather than months, once the financial information is provided.
Is the preliminary value binding?
No. The trustee commissions an independent valuation later, and that is the number the transaction is done at.
What if it says no?
Then it has saved you a great deal of money and time, and the plan turns to another route: a marketed sale, a management buyout or a longer preparation period.