Congratulations, you did it. You sold your business. And in a weird quirk of fate, you are probably more busy now than when you owned the company outright. You might even have to continue running the business for years until you can receive the full “earn out” you are due from sale. So now what? Just keep doing everything you did as an owner, only for someone else?
Absolutely not. You now have a large resource base from which to secure and maintain your future. Whether you stay for three months or three years, your time at the business will end and the proceeds are all you’ll have left. You need to start managing them appropriately.
For most people that means providing income, security, and a legacy. As an advisor to current and former business owners, this is something we focus on regularly - so we have a few tips on how to handle the situation.
Invest the proceeds quickly. It’s very easy to receive a large amount of cash, put it in a bank or money market account, and think “I’ll invest it when I have time.” That is a huge mistake.
Parking funds in these types of accounts can provide a false sense of security. The money is in the bank earning interest, so it’s “working for you”. In reality, bank accounts like Checking, Savings, and Money Markets tend to have the lowest rates of return that don’t exceed inflation. They are also known for frequent and undisclosed rate decreases in a declining interest rate environment - which we currently inhabit.
Even worse, that sense of security makes you less likely to move the funds to higher yielding investments. As we mentioned above you are still busy winding down or transferring your business; when will you find the time to personally investigate investment opportunities?
Consider an income replacement strategy. Most owners think of business value in terms of cash flow. But when you sold your business, you traded cash flow for a lump sum. That doesn’t mean you can’t trade back.
There are a variety of investments designed to generate cash on both taxable and non-taxable bases. Dividend yielding stocks provide tax-advantaged income with no set expiration date and access to growth. Bonds can be purchased with fixed interest rates and known maturities. Annuities can be used to create synthetic pensions - providing guaranteed income for one or multiple lifetimes.
Combining these or other asset classes can create a well-diversified portfolio with multiple streams of income designed to provide partial or complete funding of your lifestyle.
Update your estate plan. Prior to selling, your estate plan should have focused on how to provide liquidity and realize the value of the business to your heirs; now that dynamic has shifted.
Consider how the beneficiaries of your estate might have changed now that you are leaving behind liquid resources instead of a business. Does that alter your thought process? The following questions are great starting points:
Do you have young children or grandchildren who shouldn’t receive large sums of cash and will need financial guidance?
Do you have a special needs family member that can’t be a direct beneficiary of your estate?
Do you have a spouse or significant other you would like to provide for in life, but leave your assets to children from a prior marriage?
Do you need to preserve assets from a beneficiary’s spouse or extended family?
Do you want to leave a sizable bequest to charity?
While not exhaustive, the above points are great to jump start your post-ownership journey. Look closely and you’ll see they all have something in common: they require action. Like owning a business, managing substantial wealth is not a passive exercise - it takes commitment, focus, and intention.
If you have recently sold your business and don’t know how to begin managing your wealth, contact us to start a conversation.
For more information on managing the sale of your business, please contact the Johnson Cotroneo Group via email at jcg@moorscabot.com
Note: Past performance is not indicative of future results.
Moors & Cabot, Inc - Johnson Cotroneo Group
999 Vanderbilt Beach Rd. Suite 102
Naples FL, 34108
239-449-7982, 239-449-7992
Investment Advisory Services provided by Johnson Cotroneo Group are through Moors and Cabot, Inc., an SEC-registered investment advisor.
Brokerage services and investment products offered through affiliated broker-dealer Moors and Cabot, Inc., Member FINRA, SIPC
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