If you own a business, consider these planning strategies so the next generation of owners are prepared.

Having A Succession Plan

Oftentimes small business owners may downplay the reasons to have a plan for succession. 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[1]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. If you own a business, consider these planning strategies so the next generation of owners are prepared.

 


 

Working with Janney

Depending on your financial needs and personal preferences, you may opt to engage in a brokerage relationship, an advisory relationship or a combination of both. Each time you open an account, we will make recommendations on which type of relationship is in your best interest based on the information you provide when you complete or update your client profile.

When you engage in an advisory relationship, you will pay an asset-based fee which encompasses, among other things, a defined investment strategy, ongoing monitoring, and performance reporting. Your Financial Advisor will serve in a fiduciary capacity for your advisory accounts. 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.

 


 

About the author

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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