You’ve Sold Your Business: 7 Tips to Make Your Windfall Work for You
March 9, 2023
Adam Yale, Partner and Portfolio Manager
Chad Clauser, CFA®, Partner and Portfolio Manager

Selling your business can be one of the most rewarding financial experiences in your life.

You’ve worked hard to build a successful enterprise, and have earned your new wealth, whatever its size. Now it’s time for your money to work for you. But making money work is hard work, too.

Many small business entrepreneurs make the mistake of failing to manage their financial windfall effectively after selling their business. However, by avoiding common mistakes and taking a proactive approach to managing your wealth, you can achieve your financial goals and maintain financial security.

By following these tips, you can ensure that the proceeds from the sale of your business can provide a solid financial future for you and your family.

We outline seven suggestions to consider after you’ve sold your business. These ideas include preparing before the sale, planning for taxes, considering your retirement and estate planning needs, allocating investments in line with your goals, and seeking professional advice to manage wealth effectively.

Welcome to the next phase of your life. Enjoy–you’ve earned it.

Tip #1: Plan Before the Sale

One of the most common mistakes entrepreneurs make after they sell their business is simply failing to plan for their financial future. Many entrepreneurs focus on building their business but don’t plan for what comes after they sell. Without a plan the “next” is likely to be financial uncertainty, confusion, and malaise. Don’t wait to plan until after the sale. It could be too late.

What do you want to accomplish next? Do you want to maintain and/or grow your assets for a comfortable retirement? Provide for your children’s and grandchildren’s future educational needs? Build a legacy? Fund or work alongside your favorite philanthropic causes? Start a new business? All of the above? Or something else?

Well before the sale of your business, create a comprehensive financial plan that outlines your short- and long-term financial goals, timelines, risk tolerance, and investment strategy.

Pro Tips:

  • Create a family mission statement. Don’t go it alone. Involve your family in developing and implementing a family mission plan. Outline your retirement planning, wealth planning, tax and estate planning and philanthropic desires.
  • Evaluate your health care options. When you sold the business your health plan may have gone away. Time to find a new plan that fits your new circumstance.
  • Regularly review and adjust your plan. Make sure it’s aligned with your current financial situation.

Tip #2: Focus on Tax Planning

So you’ve sold your small business. You’re thrilled. And you’ve made the IRS happy…potentially. Many entrepreneurs fail to consider the tax implications of the sale of their business—and how to mitigate unwanted surprises. Taxes can be a substantial burden.

Your tax planning should begin before you sell. The structure and timing of the sale can impact your tax situation. By planning for taxes in advance, you can avoid financial consternation and maintain your financial security. And before you finalize the sale, invest time to find a tax professional who specializes in business sales to ensure that you’re taking advantage of all available tax deductions.

Pro Tips:

  • Gift assets to your children or others to minimize tax liability.
  • Set up a charitable donation giving strategy, such as a Donor Advised Fund.
  • Convert money in pre-tax accounts to Roth IRAs that may reduce your overall tax burden.

Tip #3: Analyze Your Retirement Planning Objectives

As a business owner you’ve likely already established a retirement plan program, both for your employees and for you and your family. Now, as the owner of substantial liquid assets and no business to run, you may need to reassess and adjust your retirement plan. The business you spent your life building has become your largest asset. How do you structure your retirement needs now?

The answer may depend in part on your age and what you plan to do next. Your retirement planning needs may differ if you consult, work elsewhere, start a new business, or focus on your golf game.

Pro Tips:

  • Know how much retirement will cost you. Each goal likely has a different price tag and timeline.
  • Understand the risk of withdrawing too much. If your nest egg is $1,000,000 and you and your spouse expect to live 20 years or more in retirement, don’t withdraw 10% of your balance each year. Lower than anticipated returns coupled with higher-than-expected inflation can deplete your assets.
  • Expect to spend more. Thanks again to inflation, health care costs, housing, food, travel, and more likely won’t go down over time. Quite the opposite.

Tip #4: Consider Your Estate Planning Needs

Why establish an estate plan? For most individual and families, including those who have recently sold their business, the primary reason is to make sure, after your death, that the finances of your children and loved ones are well managed. An estate plan can also legally direct how your finances will be take care of if you are incapacitated. Similarly, it can govern how you want your assets to be distributed after your death.

Pro Tips:

  • Establish a guardianship for your minor children. Choose carefully; if you don’t, the state will.
  • Maintain up-to-date beneficiary designations on your insurance policies and retirement accounts. These designations may take precedence over directives in your will.
  • A financial power of attorney lets you designate a person of your choice to make financial decisions for you if you can’t. Set this up soon if you haven’t done so already.

Tip #5: Align Your Investment Strategy with Your Goals

Another common mistake entrepreneurs make after they sell their business is failing to align their investment allocation strategy with their goals. Many entrepreneurs may invest a significant portion of their assets in just the stock market, or in just one or two stocks, or only in tax-free bonds, or solely in real estate—without considering the importance of their financial and life goals.

For some investors, diversification is crucial to managing wealth and achieving goals. A diversified portfolio of stocks, bonds, and other assets can spread risk and minimize the impact of market volatility on your investments. Other investors believe that thoughtfully investing in a small and concentrated group of businesses is the best way to provide lasting wealth. Know what investment style works best for you and your objectives.

It is normal to seek “action” in your investments, but it is also important to weigh this against your long-term goals. Make sure that what you do first fits your objectives, allocates your assets appropriately.

What’s more, avoid investing in assets that you don’t understand or that don’t match your goals.

Pro Tips:

  • If tax-free income is your objective, consider federal or state-specific municipal bonds or funds.
  • If your intent is to minimize fees, consider investing in low-cost ETFs. You’ll also get broad diversification.
  • If your goal is to continue to build wealth over the long-term, consider low turnover, fundamentals-based investments in select publicly-traded companies.

Tip #6: Spend in Line with Your Needs

Many small business owners make the mistake of overspending after their substantial bank wire comes through. This sudden wealth can be tempting. Try not to spend it on luxury purchases and special vacations. Overspending can quickly drain your bank account.

Create a budget that aligns with your financial goals and stick to it. This budget should consider your investment contributions, expenses, and taxes. By living within your means, you’ll be better equipped to manage your wealth and maintain financial security over the long term.

Be cognizant of your spending desires relative to your current income. If you are no longer deriving a salary or current income, without proper planning you can deplete your principle quickly. This is a circumstance to be avoided.

Pro Tips:

  • Prioritize your expenses based on their importance to your goals.
  • Avoid lifestyle inflation by minimizing unnecessary luxury purchases.
  • Use a budgeting app or software to track expenses and identify areas where you can cut costs.

Tip #7: Consider Partnering with a Financial Advisor

Many business owners who’ve sold for millions (or less) make the mistake of failing to seek professional advice either before, during or after the sale. Managing new wealth can be complex, and seeking the advice of a wealth manager may help you make informed decisions that align with your financial goals.

Consider working with a financial advisor who can help you develop a customized plan. You should also work with a CPA and/or an attorney to address tax implications and estate considerations before the transaction occurs. These professionals should have expertise on how to provide advice on tax planning, retirement planning, and estate planning.

Pro Tips:

  • Choose a wealth manager who has experience working with business owners and knows the challenges and opportunities of managing wealth after a business sale.
  • Work with a fee-only manager who doesn’t earn commissions from selling financial products, ensuring that their advice is unbiased. Fees should be reasonable and based on assets managed.
  • Understand the investments and strategies that the manager specializes in or recommends. If you don’t understand them, and the advisor can’t explain them clearly, move along. Try to make sure that the advisor’s interests are aligned with yours.

Final Thoughts

At Lawson Kroeker, we spend significant time thinking about our clients’ future goals, their financial plans and our role in helping them get to where they want to be. We know our clients have many investment options available at their disposal. We also understand that sometimes life happens and that our clients need to have their resources at hand in case of an emergency.

It is important for business owners to take all of these considerations into account when thinking about how to invest after they have sold their business. We at Lawson Kroker strive to invest in and monitor the securities to build a portfolio suited to you. Managing wealth after you’ve sold your business for a good profit can be a complex lifelong program.

About Lawson Kroeker

Lawson Kroeker Investment Management, founded in Omaha, Nebraska, is a third-generation wealth management firm that helps a select group of high-net-worth clients achieve their life goals by providing investment advice and building custom solutions. Lawson Kroeker’s disciplined, patient investment management process focuses on owning the stocks and /or bonds of a focused group of individual businesses. Established in 1986, the firm has under management approximately $600 million in assets.

Adam Yale, Partner and Portfolio Manager—Mr. Yale started his investment career in 1997 with First Manhattan Co., an investment advisory firm in New York, NY as an analyst of publicly-traded real estate securities and direct real estate investments. From 2006 until the 2022 merger with Lawson Kroeker, Adam was the sole Principal at Red Cedar Capital, LLC, a Registered Investment Advisory firm he founded that employed a fundamentals-based investing strategy. He earned a B.A from the University of Michigan and a Master’s in Accountancy from the University of Denver.

Chad Clauser, CFA®, Partner and Portfolio Manager—Mr. Clauser began his investment career as a senior analyst at an Omaha-based investment advisor Tributary Capital Management, and later as vice president of the New York investment bank Credit Suisse. He earned the Chartered Financial Analyst (CFA®) designation in 2009 and is a member of the CFA® Society of Nebraska. Chad attended the University of Nebraska in Lincoln, where he received a bachelor’s in Finance and completed minors in both computer science and mathematics.

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