Selling a business can be a very rewarding and exhausting experience. You spent years putting your heart and soul into growing your business to get it to the point where you can monetize your investment. And you’ve navigated all the twists and turns of negotiating the sale. What happens now?
You want to ensure that your post-sale process is smooth, and that you are set up to move into the next stage of your life. Creating a game plan to go forward can be challenging. We’ve successfully guided several clients through this process and seen them embark on their next venture, so we assembled a few tips that we feel may be helpful in your journey, too.
Assemble Your Professional Team
It is critical to have a qualified attorney, CPA, and financial advisor/CFP assist you in your overall planning. Bringing in your professionals early helps to make sure that things go smoothly later. You probably already have legal counsel for your business, and you may have a CPA, but you’ll need professionals that specialize in transferring equity ownership. There are different legal implications during and after a sale and having a tax-professional that is proficient in the tax considerations now and for your future income stream is important and can save you money. You may be able to get a referral from one of your existing professionals for these key relationships.
A financial advisor/CFP can serve as a quarterback throughout the transaction and will be positioned to create a post-sale financial plan that furthers your financial goals as you transition your income stream. Share the contact information with all your team members so they can communicate well with each other and establish your overall game plan.
Clarify Your Future Income Stream
Most business sales usually fall into one of two categories, either installment payments or a lump sum payment. In most cases, having a lump sum payment is a cleaner way of transitioning since you are able to break all ties at once. It is important to make sure that all debts are paid off, your name is removed/released from any financial obligations and liabilities, and responsibilities are reassigned. You don’t want to continue to get phone calls or emails from the business once it has transitioned away.
If you are being paid over installments, you may need to monitor the business via its financial statements, if possible, to ensure that obligations can be met. If you worry about the company not paying your installments, your attorney can assist you in making sure that you are properly secured and potentially collateralized in the event of a default.
Preparing to Pay Necessary Taxes
It is important to get with a CPA early to do the necessary calculations for any capital gains and income tax from the sale of your business. Your CPA can help you determine your cost basis, potential depreciation recapture, and help you set aside enough cash to pay the taxes due. Isolating funds for tax purposes early on is a good strategy as it will allow you to understand what remaining funds are available for your personal use. We typically do not recommend aggressive investing for funds earmarked for paying taxes, especially if they are due within a short period of time.
Update Your Financial Plan
A thorough planning exercise can help you identify what things will look like after the sale of the business. This will help you determine what level of financial independence you have achieved and how much time you can afford to take off. If you have reached complete financial independence, this will provide you with peace of mind and determine a reasonable monthly spending budget that is sustainable for your lifespan and goals.
Take a Sabbatical if Possible
If your finances allow, it is often very helpful to take some time off to re-calibrate. It can often take six months to a year after the sale of a business to begin to have the mental clarity to formulate your next chapter. Take this time to explore what ideas interest you. We often use the term “re-purposing” rather than “retirement,” as we have discovered that our clients typically have the highest quality of life when they can align their activity with a sense of purpose.
Get Ready for Your Next Chapter
If you choose to go back to work, it can be helpful to consider your process similar to if you lost your job. Reconnect with your professional and personal network and determine if there are avenues within your skillset and existing relationships. Consider obtaining additional training or education as this might be a great opportunity to pursue a second career.
Entrepreneurs who have been self-employed often prefer to stay independent. This may allow you an opportunity to start a new business. For many people, this second act is a way to take an avocation and upgrade it to a vocation. Others use the experience gained to create a “next gen” business that builds on past experience but takes it into a new direction. If you have achieved financial independence, you have a wider set of options available. You can continue to work, or you can turn your creativity and passion into helping others, pursuing your hobbies, interests or caring for loved ones.
The Bottom Line
Navigating major changes in life can be complicated. The sale of a business is both financial and emotional, and it can be difficult to keep all the balls in the air. If we can be of assistance to you, please do not hesitate to reach out to us to schedule a time to connect.