Business decisions and investment decisions are, of necessity, intertwined. And, when it comes to selling a business, there’s no question that family finances and both short- and long-term investment goals will need to be considered in the mix.
If family members have been involved in running your business, what is the sale going to mean for them? Will an adult child continue to be employed under the new ownership? Will any of your adult children be the new owner(s)? Will there be a lump sum paid to you? If there is going to be a stream of payments, what contingencies might affect the reliability of that income?
If, as is the case with many business owners, you have been used to running certain personal expenses through the business (vehicles and their upkeep or club memberships, as just two examples), those adjustments will need to be made.
Tax and estate planning considerations can be important. Prior to finalizing the sale, you might be advised to transfer some ownership interests to trusts, along with using charitable donations to offset tax liabilities generated by the sale.
If, like most privately held business owners, your focus has been on growing and nurturing that business, the transition to managing a substantial personal investment portfolio can present a challenge. The influx of cash, after all, represents your life’s work, and although you trust the investment advisors you’ve chosen, current historic highs in the stock market are sounding alarm bells in your brain.
Allbusiness.com suggests three wealth management “rules” for entrepreneurs to follow after selling their businesses:
- Diversify holdings.
- Hedge your bets.
- Review liability protection.
As you plan a portfolio strategy, weighing each of two main approaches (active management, which focuses on outperforming the market compared to a specific benchmark, and passive management, which aims to mimic the investment holdings of a particular index), seek out investment managers with measurable, presentable track records of performance. The starting point, of course, must involveself-analysis (your own goals and risk tolerance).
There are no hard and fast rules on handling the proceeds of a business sale. But you’re used to seeking out expertise and expert advice, making hard decisions, living with consequences, and pivoting. Those same skills will stand you in good stead now.
Money management and financial planning will be critical to managing your wealth after the sale of a business.