What to Do After You Sell Your Business
Selling your business requires a huge investment of time and effort. You have to manage daily operations, and invest time to find potential buyers, and go through the due diligence process. Closing a sale is exciting, but the process may leave you exhausted.
Many owners don’t have a personal or financial plan for life after the sale.
This article will help you start to plan for your new life. You’ll read about planning for how you’ll spend your time, and how to plan for taxes and investments. You can take steps before the sale to make the transition easier, and to avoid (natural) feelings of regret.
Learn and Experiment
Growing your business may have limited your ability to pursue hobbies, and maintaining relationships with family and friends may be difficult. If you’re starting the sale process, set aside time to address any issues.
Your time is limited, but fit in time to try a new hobby, or to reestablish an activity you already enjoy. You might start playing music again, or decide to train for an athletic event after the sale.
Reconnect with family and friends by making time to socialize. If you’ve always thought about volunteering, start to look into organizations that interest you.
You can find peer groups, such as Tiger21, that are designed for entrepreneurs who have sold their businesses.
Be selective about your future plans, and don’t take on too much. If you start to think about your options, and experiment with personal activities before the sale, the transition to your post-sale life will be much smoother.
Sales Structure & Emotional Recognition
The type of sale you agree to may impact the emotions you feel after closing.
If a portion of your sales proceeds are based on future earnings, you may be required to remain at the business for a period of time. Some sellers are paid a consulting fee to help transition the firm to the new owner.
In both instances, the seller is no longer in charge, which can be emotionally difficult. The buyer may make changes that you disagree with, or let go of employees that have been with the company for years.
If you sell the business and give up all responsibilities, you may feel a lack of purpose, or feelings of loss. Take time and consider how you’ll feel after the sale. Talk to family and trusted friends, so you’re better prepared for the emotional impact.
Your business sale may be the biggest financial decision you ever make, and you can take a number of steps to preserve your wealth and generate income. Financial planning includes investing and tax planning.
Protecting your sales proceeds
You can use several strategies to maintain your wealth for years after the sale.
Diversify your investments into different asset classes, including stock, bonds, real estate, and other types of assets. Each asset class has a different set of risks and rewards. Stocks, for example, increase in value as the economy improves. On the other hand, bonds may outperform stock returns in a recession.
You reduce the overall investment risk in your portfolio when you diversify. An event that forces down stock prices, for example, may increase the value of your bond portfolio. By diversifying, you can limit the financial impact of any particular risk.
Many sellers receive the purchaser’s stock, rather than cash, and a decline in the stock price can decrease the value of your sales proceeds. This happened to many tech founders who sold companies in exchange for stock when the dot-com crash occurred in the early 2000s. In some cases, you may have to hold the stock for a period of time before you can sell and diversify your holdings.
You can manage this risk by hedging the decline in the stock price. Speak with a financial advisor and find out how you can protect the value of your assets.
Planning to minimize your tax liability
Find an experienced accountant to help you plan for the tax impact of the sale. Here are some factors to consider:
- Capital gains vs. ordinary income: Tax laws change over time, but the tax rate on capital gains is often less than the rate assessed on ordinary income. When you sell a business, it’s likely that the transaction will generate a capital gain. If you’re paid as a consultant, however, the fees may be taxed as ordinary income.
- Annual tax planning: Charitable deductions, medical expenses, and other costs are deductible on your tax return each year, with some limitations. Make sure that you take full advantage of all available deductions.
- Retirement plans: If you continue to work after the sale, you can make annual contributions into a retirement plan. Your earnings will grow tax deferred until retirement.
Work with a CPA and discuss the tax impact of your business sale.
Work with a Trusted Advisor
The decisions regarding life after your business sale may feel overwhelming. The advisors at Raincatcher have been there many times, and they can help you through the process.
75% of former business owners have regrets about selling 1 year after the sale finalizes. So, before you decide to sell, it’s a good idea to assess your Personal Readiness Exit (PRE) score. At Raincatcher, we have created a simple, free, confidential, and insightful questionnaire that can determine your PRE score and help evaluate your readiness to sell.
Raincatcher works with other professionals, which may include an exit advisor, valuation expert, accountants, and attorneys. They use industry-leading proprietary valuation resources to value your business, and have worked with dozens of owners. They bring a wealth of knowledge and experience to the table.
Raincatcher will be your trusted advisor throughout the entire sale process, so you can sell your business at an attractive price without any regrets.