(Part 5 of 6)
In the previous article in our series on succession planning, we looked at how to avoid the post-sale blues. Now it’s time to talk about how to best manage the assets you have obtained as a result of selling your business or ownership stake.
If everything has gone as planned, you now have a sizeable amount of liquidity with which to invest, and possibly more cash coming your way per the provisions of the sales agreement. The next step is for you and your family to take a hard look at what to do with these funds, both in terms of investing the proceeds and passing it on one day.
The first thing you should do is comprehensive estate planning. This includes important matters such as a will, a living trust, a power of attorney for healthcare situations and a living will. Decisions must be made on how the estate will be bequeathed to your beneficiaries, whether family members or charitable organizations.
We recommend that you revisit estate planning every three to five years, since circumstances can change greatly over that span of time. New charities may have cropped up that you want to give to. Someone who had agreed to serve as trustee could be having second thoughts. You may have had a falling out with Uncle Joe.
It’s not just about emotional relationships, but who can best serve in the role of trustee. A friend or family member may have been a solid choice when your estate was small, but now that it is flush with the proceeds of a sale, it might make more sense to turn to a co-trustee, bank or trust company to oversee the risk of a larger cash pool.
Estate planning requires some hard thought on what sort of lifestyle you want to have in retirement, how much income that will require, and what sort of philanthropic choices you want to make. Many families set up a private family foundation as a vehicle for charitable contributions.
The next stage is to determine how to invest the money. Many successful business owners have kept the large bulk of their personal wealth tied up in their company, and can be unsure how to leverage the proceeds into a reliable income after they retire. You will need to assess your tolerance for risk, as well as your spouse’s, to help determine where your money should be invested in the various market channels — such as public stocks, bonds, private equities or alternative investments.
It’s prudent to hire an investment advisor to give you professional counsel. In selecting them, you should pick someone who meshes well with your personality, has an investment approach similar to your goals, and who you feel you can work with in the long run. It may make sense to interview at least three candidates before making your final choice.
In the accounting profession, we call the sale of a business a “liquidity event,” since it usually results in the quick acquisition of a large amount of liquid funds. For most people this is an once-in-a-lifetime occurrence, so you want to be in a position where everything from an investment and estate planning perspective is well managed.
Your investment choices should be appropriate for your age, stage of life and risk tolerance. If you retire at age 65, your life expectancy is around 87. With 22 years of life left, that’s a long period of time to plan and prepare for to make sure your money lasts. A lot of people will see that they’ve got a couple of million dollars banked and think they’re set for life. But that is not always the case, especially with unforeseen circumstances like a medical crisis or a downturn in the market.
Some people are not comfortable with equity markets, and can’t handle swings in volatility. Just this past week we’ve seen the Dow Jones fluctuate by several hundred points. The real test of your investment approach is if you can sleep well at night and not worry constantly about your nest egg. You worked hard to build your business and find the right buyer, so you deserve peace of mind.
If you have any questions about how to manage the post-succession process, please call Nick Hopkins at (317) 608-6695 or email [email protected].