The financial decision to sell your business is a complex one. To further add to this, one must decide what to do with the wealth once the business is sold. After spending years building your business, finding the right buyer and finally selling the business, there is still some planning left to do. Xerxes Mullan, the Founding Partner of financial advisory Avestar Capital, emphasizes the need to have a post-sale plan in place even as you prepare to sell your business. Unplanned and disorganized wealth management will mean that years of dedication to your business will be for nothing. With your newfound wealth comes new responsibility for how you want to spend your money- spending on healthcare needs, charitable giving, etc.
A Readiness Survey conducted by Exit Planning Institute found that 75% of business owners “profoundly regretted” selling their business a mere 12 months after closing the deal. Business owners and entrepreneurs are bound to feel a deep sense of loss of identity and community since it is a major transformation in their lives. After dedicating decades to nothing but your business, you might struggle to fill up your days. In the time leading up to the sale, try engaging in other hobbies and interests, spend time with your family or connect with friends. This will help you deal with this monumental change in your life and process your newfound freedom much easier. Some business owners might consider staying on in an advisory capacity for some time after the sale. Remember that depending on the amount of time you decide to stay on with your venture, your experience will add value to the final transaction price. It will depend on whether you stay on as an independent consultant, employee or partner.
To begin with, if you are exiting the business before being eligible for Medicare at 65, it is important for you to have a comprehensive healthcare plan in place. Seeking insurance on the open market can be rather expensive. If you are being covered by a company-sponsored plan or through your spouse’s employment, it is time to work with a team of experts to find another plan at an affordable rate. You can consult a health insurance broker to analyze your options and forecast the costs to project your retirement cash flow.
You may generate enough profit from the sale to live off the cash for many years or you may have accumulated a large sum of savings in your retirement account. One strategy that could be implemented is to convert a large sum of money in pre-tax accounts to Roth IRAs to stay below the higher income tax brackets. After the sale, you need to protect the profits from taxation and market risks. The strategy you use to do this will depend on your financial situation and your end goal; however, financial experts will always recommend building a diverse portfolio of stocks, money market accounts, mutual funds, bonds, real estate, etc. In the case that you receive stock instead of cash, you can hedge against a downside on the stock. Find a financial planner that will help you plan your hedge strategy even before you close the sale of your business.
Many entrepreneurs have seen their portfolios grow exponentially with rising stock markets over the past decade. This makes it the ideal vehicle for a long-term charitable giving strategy. Setting up donor-advised funds will allow you to make charitable contributions and receive a tax deduction. This is extremely beneficial in the year of the sale because it offsets income taxes from the sale. Furthermore, you can involve your children or grandchildren in the activity and establish a legacy of charitable giving. This philanthropic endeavor is also a tax-smart investment solution. You may even consider gifting as a way to save on taxation.
Selling your business gives you the chance to diversify your investments, prepare for your next venture or simply plan for your retirement to maintain the lifestyle that you have been living. One of the key aspects is keenly understanding your risks and options so that you will know what to do with your money after the sale. In order to feel confident that you are absolutely ready to retire, your plan can have a Monte Carlo simulation to take into consideration the market volatility. This is the perfect way to stress test your retirement plan.