Oftentimes small business owners may downplay the reasons to have a plan for succession.

Having a Succession Plan

They feel the business is too small, or that somehow their heirs will know what to do to sell the business—or the assets owned by the business—when they pass away. We hear things like “Oh my daughter will probably take over the business when I’m gone” or “we will probably just sell the business when the time comes.” Needless to say, it’s rare to encounter a business owner with a plan.

The fact is, that in many cases, the business represents a significant portion of the family’s wealth. The owner’s involvement in succession planning is vital to the preservation, or harvesting, of this wealth for the family—either by passing it along to the next generation, or selling it for a good price to someone else. Often, the owner is the only family member in a position to protect the value of the business for the next generation.

Settling an estate, when a closely held family business or partnership is involved, can be really complex. It can involve a multitude of tax issues, families, and partners can end up at odds with each other, resulting in a significant loss of money.

Considerations for Your Succession Plan

  • Are your heirs knowledgeable enough to value your business? Often the heirs have a difficult time determining the appropriate sales price for the business. When you value a business, you must have accurate information about the value of the equipment, assets, revenues, and future sales. Also, undervaluing a business being transferred to an heir can result in serious tax issues.
  • Do your heirs have the knowledge to run your business without you? Don’t just assume that you transferred all of the knowledge required to run the day-to-day operations of your business to your employees or family. We find that in many cases, the business owner hasn’t transferred the control of key functions, knowledge, and client relationships.
  • Does your business have sufficient working capital (cash) to last through this transition? One thing we rarely see a business owner plan for is maintaining enough liquid assets to smoothly transition a business. It takes a significant amount of cash to maintain your business, and to pay for debt obligations, payroll, and utilities. During this transition, business may slow, as your employees and heirs take time to regain their bearings. Your heirs will need cash on hand to get through this transition.

These considerations offer an opportunity for the business owner(s) to set a plan in place, and impart the necessary knowledge, so that the next generation is prepared.

The benefit we can provide to business owners is to talk through the issues mentioned above with you and your family. Sometimes there’s a need for a full succession plan, or we encourage you to complete a business valuation, or in some cases a buy-sell agreement is the best approach. We just don’t want to see an owner’s hard work and wealth diminished simply because they didn’t plan for the transition of their business.

Working with Janney

For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.


By establishing a relationship with a Janney Financial Advisor, we can build a tailored financial plan and make recommendations about solutions that are aligned with your best interest and unique needs, goals, and preferences. Contact us today to discuss how we can put a plan in place designed to help you reach your financial goals.

Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any taxrelated statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

About the author

Michael Repak

Vice President & Senior Estate Planner

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For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.

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