RAY: Talk to an attorney and talk to a business appraiser. Because an attorney will help structure an ESOP.

HATTIE: Valuing the business, that is the part that I think a lot of us are afraid of. We don't even want to know.

RAY: Valuation is really a very critical part of all of this, Hattie.

You have to know, `What's my company worth?' before you can sell it either on the marketplace, to another company, or to your employees.

So this is where getting a business appraiser is important, an appraiser who's expert at valuing companies. The expert comes in and the expert will look at your financials, look at your products and services, look at your customer base and begin to get a sense of the value of the company. The appraiser will look at competitors in the marketplace and get a sense of what their values are. They'll look at public companies, private companies. And from all of this data, they'll come back and they'll say, `Your company is worth X amount of dollars.' And if it's $10 million, then the person has a couple of choices.

He can try to find a large company to buy it for $10 million. He can try to find another entrepreneur to buy it for $10 million.

Or he can say, `I want to sell it to my employees. If I sell it to my employees, I can do it through an ESOP.' And the ESOP then becomes the structure through which the company is sold and the employees buy the enterprise.

HATTIE: So give us the strategies. What are the steps we have to go through to form an ESOP?

RAY: Let's assume that there's this value of $10 million. Where will the employees get the money? They set up an ESOP, which is a legal structure, and it's technically a retirement plan, but in reality, if it's done right, it's a productivity plan. It helps the employees be more productive.

So they set up this legal structure, a trust, which is the ESOP. The ESOP then has two choices to buy the company. The ESOP can go to a bank and tell the bank, `I need $10 million. Will you put the money in the ESOP?' And then the ESOP buys the company from the entrepreneur, gives the entrepreneur the $10 million and the ESOP then has to pay the bank back over some period of time. That's one option.

When the ESOP is set up there's another option. The ESOP can then say to the owner, `Instead of going to be bank, we'll set up installment payments to you,' and over some number of years the employees, through their profits, will pay you back over time.

So either one of those options can take place to buy the enterprise. Once the ESOP is set up, all the employees must participate in it. One of the big differences, I mean really huge differences, is the tax advantages that benefit the entrepreneur.

If you sell to an individual or to another company, you pay capital gains taxes. So out of a $10 million sale, you might pay $2 1/2 million in taxes. If you sell to the ESOP you pay zero taxes, as long as you follow a few key stipulations about what you do with the money.

There's not only a terrific tax advantage to the entrepreneur, there's a terrific tax advantage to the ESOP and therefore, the employees who own the company. Because the employees can pay back the bank or pay back the entrepreneur over these installments with pre-tax dollars. Now these would be dollars that originally would go to pay taxes, but instead of paying taxes, they go to buy the company through the ESOP.

So there's a huge tax advantage for the entrepreneur and for the employees through the ESOP.