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Most successful business owners like you reach a critical juncture where you need to plan for the transitioning of your wealth from your business to a personal investment strategy to ensure its continued growth and preservation. Selling your business is the culmination of years of hard work and sacrifice. It should not be met with fear and trepidation over the next chapter of your life.

Having a plan in place for the transition of wealth from the business to a well-conceived investment strategy can free you to focus on living the life you have always envisioned. Beyond an investment strategy, you must take a holistic view of your wealth in terms of how you can achieve your own life ambitions and aspirations for family and legacy.

A liquidity event represents a significant magnification of your wealth in a short period of time. How do you plan now to build your estate, intentionally use your money, maintain your lifestyle, grow your assets, and select the right advisory firm?

Plan Your Estate

Pre-transfer planning should be done in coordination with your comprehensive estate plan. Among the key components to consider is trust planning. Trust planning offers a number of benefits including:

  • Ensuring wealth gets distributed according to your intentions.
  • Protecting your heirs’ inheritance from unforeseen circumstances.
  • Providing an independent trustee to help manage assets.
  • Avoiding transfer tax on appreciating net-worth post-sale.
  • Minimizing taxes.

If you already have a trust in place, you may want to revisit your designation of a trustee. Since your wealth is likely to be substantially higher than when you first established the trust, you may want to consider whether the trustee you have appointed is appropriate for managing a larger amount of money.

Although the recent tax law change doubled the federal estate tax exclusion limits, using trusts for effective tax planning is still recommended because the current exclusion limits are scheduled to expire at the end of 2025 – or sooner if a different political party occupies Congress and the White House.

Intentionally Use Your Money

According to Dr. Richard Orlando, founder and CEO of Legacy Capitals LLC “If money is properly understood and used to serve our goals and intended legacies, then we will be happier. If we misunderstand the role of money in our lives, it will lead to unhappiness and ultimately despair.”

Often neglected in the flurry of legal documents and issues that need to be addressed when selling a business is the critical discussion of the life-changing implications of a liquidity event. Having these pre-transfer discussions along with a vision for how you want to use your money is vital for several reasons:

Providing a more secure retirement. If you and your family would like to have ongoing income to support your retirement needs, there may be ways to construct the sale to do so. For example, any real estate used by the business could be held in your name, so you can receive rental income for a period of time. You also need to consider whether any other company-provided benefits, such as health insurance could be continued as part of the sales agreement.

Plan for major purchases. It’s not uncommon for exiting business owners to celebrate the “ringing of the bell” by splurging on some big ticket items, such as a luxury car or a vacation home. These purchases should be planned as part of the vision you share with your spouse in light of your other wants and needs.

Create a new vision for your future. What are your new priorities? Are they the same for you and your spouse? These discussions begin at home, but it’s often helpful to enlist professional advisers to think through the details. Sometimes there’s a need to change or add additional advisers if you have significantly more net worth than you’re comfortable handling on your own.

Maintain Your Lifestyle

How will your family meet its objectives with the new balance sheet? With the liquidation of what is typically the primary asset of a business owner’s family, the necessity to manage objectives, income and risk becomes paramount. Many families are challenged to successfully navigate the change and sustain wealth across generations.

To be prepared, careful financial modeling and testing is needed. The following basic elements of a plan should be considered well in advance of the sale of the business:

  • Define objectives with realistic values and growth expectations taken into consideration.
  • Determine the appropriate size of a safety net for the family.
  • Design a strategy to support and continue the lifestyle of family members.
  • Identify aspirational objectives and generational intentions.
  • Build a family legacy with philanthropy.

One potential option to implement is the use of a donor advised fund, DAF. Simply put, a DAF is an entity that allows donors to make charitable contributions, receive an immediate tax benefit and then distribute donations from the fund over a period of time. Typically, the maximum tax savings occurs if you gift shares of the company into the DAF before finalizing your business sale contract. That said, even if you make a gift post-closing, you still have the benefit of making a single deposit, getting a tax break, and then distributing funds to charities you wish to support in future years.

Grow Your Assets
Wealth is built through concentration, but it is maintained through diversification. Many business owners have known just one investment strategy – to invest in their business – any other strategy, regardless of how conservative it might be, may be beyond their comfort level.

While running your businesses, your comfort may come from the control you have, being able to see everything unfolding right in front of you. You can see and touch your assets; you are intimate with the cash flow patterns; and you have your own fingers on the pulse of the market.

Even if your business hits a rough patch, you are best equipped to understand the reasons why, which gives you the confidence to stick with the game plan. You are willing to assume the risk because it is all concentrated in a business you fully understand and control.