Before signing over your family business, make sure you have strong leadership in place to take over the company, said Joe Schmieder, senior associate at The Family Business Consulting Group, who presented a Truckload Carriers Association webinar on the topic of "Transferring a Family-Owned Business." Leadership needs to be a priority over ownership when considering who to transfer the business to.

Ownership means who has control of the stocks and assets of a business, while leadership involves the person responsible for guiding and leading a business, Schmieder says. For the founding generation, ownership and leadership are simultaneous, but with the second generation, leadership needs to come first in a successful transition, as they need the leadership skills in order to take over ownership.

How to Spot a Leader

A strong leader should have both functional skills and character traits necessary to run a business, Schmieder says. He suggests carriers look for individuals with a level of competence in most of the functional skills. For a trucking company, these include: sales/quoting, marketing, operations, scheduling/dispatch, financial, administration (human resources and information technology), and knowledge of the trucking industry. In general, you should be looking for someone with practical working experience in these functional areas, he says.

While character traits can be more difficult to measure, some of the key traits owners should look for include adaptability, written and verbal communication, listening, trustworthiness and integrity, visioning, multi-tasking, problem-solving, tough-mindedness and inspiring.

Transfer Options

During Schmieder's presentation, he also gave several tips on the best ways to go about transitioning a family-owned business. If the business is going to another family member, the owner has the option of gifting or selling. Gifting may be a favorable option, since tax laws encourage giving family members common stock in the business, he says. In addition, if you sell, tax rates can be high if a business is over a certain amount in value.

Schmieder suggests keeping an eye on the estate tax and gift tax. For 2010, it's up in the air as to what's going to happen with the estate tax law, but the majority feel that by October, the government should pass a similar estate tax law to that of 2009. The 2009 law says that any amount over $3.5 million will be taxed 45 percent. The thing to remember is the need to transfer as little tax obligation as possible. "Keep consulting with your tax accountant," he said.

However you choose to transfer the business, whether through a family member, an insider, or a third party, Schmieder recommends signing a buy/sell agreement, a legal document that spells out the terms of the deal and can eliminate any complications. Some elements that can be integrated into the agreement include real estate, salary continuation, non-competition, life insurance, health care benefits, trusts and voting/non-voting shares.

Some of the advantages to using a buy/sell agreement for the business include continuity, no unintentional ownership and a smooth redistribution of ownership. For surviving family members, the agreement can provide liquidation of ownership interest and establishment of a fair price.

Getting a Fair Price

Getting a fair price for your business can be somewhat dicey, especially in this economy, where it's a buyer's market. But you also want to get the most out of the business that you've worked hard to build up over the years. If two parties come to the table and the valuation gap is too large and the two can't come to terms, Schmieder suggests walking away for a period of time.

However, there are ways to impact the business to achieve a good price and a successful transition. One way is to show that the business is consistently profitable and has a strong balance sheet, Schmieder advises. There also should be a strong management team in place, and, ideally, a leadership succession plan in place. The company should also have strong business systems as well as key supplier relationships.

A strong customer base is also key, he says. A carrier that only has one or two or three customers it depends on is not valuable. "Having a broader breadth of customers increases the value of your business," he adds.

Increased value will also be seen in a healthy pipeline of new business opportunities, such as new product offerings, new geographic markets or new industries.

"If you just talk about it but don't do it, that's the other mistake," Schmieder said. An owner needs to be proactive, not reactive.

According to Schmieder, only about one-third of companies make it through the second generation, while only about 12 percent make it through the third. However, if you have a succession plan and strategy in place, these things can significantly increase the odds of success, he says. It all depends on the capability of the generation and the leadership skills they have.