Wealth Management Concerns When Selling Your Business

While there are a multitude of issues facing a business owner when they decide to sell their business, one of the most important areas that often gets overlooked is creating a financial plan.  The transition of having plenty of income from your business to meet your cash flow needs to one in which an investment portfolio now supports your spending needs can be a challenge for an owner after a sale.  The way to gain peace of mind on this issue and a road map for success is to create a detailed financial plan based on the facts of your current financial position.  While financial goals may differ from person to person, the process of creating a tailored financial plan to achieve your financial independence is the same.

This process begins with assessing your current balance sheet, consisting of your various assets and liabilities including cash, taxable investments, retirement accounts, real estate, outstanding loans/debt, life insurance policies, and other personal and business assets. In addition to taking an inventory of your assets, a discussion should also be had regarding unique factors that play into your long-term investment strategy, including current age and your ability to stay disciplined in both up and down capital markets.

Upon establishing your current financial position and investment considerations, you will then want to project forward various financial factors including your expected personal income, current and anticipated retirement expenses, and various other individual financial considerations.  This list should include all of your expected costs in the future such as new cars, children’s weddings, and annual vacations.  While we cannot predict exactly how your financial future will unfold, we can calculate a range of potential results based on likely scenarios. 

Once a financial base case has been established, you can then begin the value-add process of changing assumptions to assess their impact on your long-term financial plan. You will want to look to address the following “what if” questions, including:

• Will my current assets be enough to meet my long-term spending needs? If I retired earlier or later, what impact might that have on my investment portfolio in retirement?
• What if my income were to increase in the future?  What impact would that have on my financial position?
• What if I spend more during the first 10 years of retirement and then I reduce my spending later?
• What if my investment portfolio grows at a faster or slower rate than I anticipated? What is the corresponding impact to retirement age, spending, savings rates, etc.?
• At what age should I file for social security? What is the impact if I file before my full retirement age or after?

This process will “stress test” your financial plan to make sure that it can handle a multitude of different scenarios and still take care of your spending needs for the rest of your life.  The process of analyzing your current financial position and projected financial future from an income, spending, and savings perspective greatly improves your chances of being successful over time. A financial plan, constructed as described, should serve as your financial road map and inspire confidence in achieving your long-term personal financial goals.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice.  Individual situations can vary, therefore, this information should be relied upon when coordinated with individual professional advice.