SOLD! Now What to Do with The Money After the Sale of Your Business? – Post #37

CONGRATULATIONS, friend! You just sold your business!!! You’ve realized success! Assuming that the statistics from the Exit Planning Institute are true, and 80% of businesses below 50 million dollars in revenue never sell, then you’ve just joined an elite minority of small business owners. Way to go! You’ve just done something that few people have ever done. But what do you do now? If you’ve just received a financial windfall, what do you do with the money after the sale of your business?

Podcast Time Index for “What to do with the Proceeds of the Business Sale”

• 00:31 – What to do with the proceeds of the Business sale
• 00:54 – Congratulations!
• 02:08 – Money Matters
• 06:35 – What to do with the Money from the Sale of Your Business
• 11:02 – Building a portfolio – Types of Assets
• 12:56 – Type of Investment
• 15:39 – Create a Portfolio that Meets Your Needs
• 16:24 – Annuity
• 20:30 – Emotional Control
• 22:56 – Have a Cool Down Period
• 23:59 – Family Matters
• 24:51 – Be Cautious

In this article, we’ve reached the point that I start talking from my CERTIFIED FINANCIAL PLANNER™ point of view. Perhaps you’ve read through the other 36 articles and have been wondering when I’m going to start discussing financial investments. Well, I’ve intentionally delayed talking about money and investments. You see, most folks think financial guys just talk about stocks, bonds, and mutual funds. Sure, I do some of that, but since I specialize in business growth and exit planning, I do so much more than that. Friends, today is the day. Now, is when “Justin, the CFP^®,” speaks up.

Changing Things Up

Before I get into the nitty-gritty of what you can do with the proceeds of your business sale, though, let me say that the information in this article will not be specific to your individual financial situation. It is designed to give you information and ideas to discuss with your financial professional. They will be able to advise you according to your specific investment needs.

For that reason, I’m also structuring this article a little differently than the first 36 articles. I’ll be discussing financial terms and outlining types of accounts into which business owners can invest. Technically, I’ve already created multiple blog posts and YouTube videos outside of this series that define and detail that same information. Additionally, I don’t want you to get so bogged down in financial information that you lose the excitement you have after selling your business. Therefore, if you would like more details about any of today’s topics, I’m including links to other articles and videos I’ve created. Or you can contact us to discuss your own specific situation.

The Financial Windfall

According to the National Endowment for Financial Education, about 70% of people who win the lottery or receive a large financial windfall end up broke within a few years. You just sold your business. I get that you did not just win the lottery. You’ve worked your tail off to reach this point, and I realize that. However, like many business owners, you’ve probably not dealt with this size of cash money before.

Most of your life, you’ve been dealing with paper net-worth, assets listed on your Profit and Loss Statements. Yes, you’ve had this amount of money on paper, but now’s the first time you’ve seen it in your bank account. In the fell-swoops of a pen at the closing table, you’ve moved your ill-liquid assets to liquid assets. Reality has struck virtually overnight, and you may feel like you’ve won the lottery.

What You Could Do with the Money from the Sale of Your Business

If you’ve been preparing your business for sale over months, years, or decades, you should be ready for this moment. You and your financial team should have been working on your personal and business financials long before now. Hopefully, you and your team have done your personal assessment. You’ve made plans and investments accordingly. But no matter how much planning you do, your life changes dramatically when you sell your company and receive a mega-payday.

So let me give you three points that might help you decide what to do with the proceeds from your business sale. 

1. Determine how much income your money needs to earn each year.

Usually done during the exit planning process, this is where you and your financial team calculate how much principal you will use versus how much interest earned off of the principal you will use from the proceeds of your business sale… i.e. your “value gap“.

2. Build/Manage an investment portfolio to meet your determined needs.

Once you know what return you need to earn from the proceeds of your business sale, you’ll work with your CFP^® to build a tailored investment portfolio. Again, you will usually do this during the exit planning process long before you sell your business.

For more information on how to build an investment portfolio to meet your needs, you can refer to the following related articles:

How to Design an Investment Portfolio
How to Invest Money Today for Tax-free, Tax-Deferred, and Taxable Growth
What is the Best Way to Invest? 

3. Practice self-control.

When the proceeds from your sale hit the bank, make sure you follow the investment plan you’ve put in place. And before the money comes in, make a list of things you’ll buy or pay off with a portion of the money. That way, you can avoid flaunting your newfound wealth or making unwise emotional purchases. I even tell some of my clients to let their money rest six months before making any purchases over X amount of dollars.

Investment Account Options

The world of investments is extremely complex and difficult to understand. If you’re going to invest some of the proceeds from the sale of your business, you need to know where you can put your money. Therefore, I’m going to break things down as simply as possible. By no means is this an all-inclusive list of investment accounts, but it’s a good start.

Now is a critical time for keeping the money you worked so hard to earn from the sale of your business. Schedule a call with our team to discuss tax and retirement planning strategies that could work for you!

You Can Put Your Money into Qualified Investment Accounts

Qualified Accounts are those the government creates for specific purposes and taxes in specific ways. Typically, retirement accounts like the following fall into this category.

• IRAs: Traditional or Roth
• SEP IRAs
• 401(k)s
• Self-Employed 401(k)s
• Solo 401(k)s

Some people even consider the following “qualified accounts” because the government gives them preferred tax treatment.

• Health Savings Accounts (HSAs)
• 529 Savings Plans

For more information on qualified accounts, you might want to read these related articles:

Income for Life Retirement Strategy #8: Reduce Taxes on Retirement Accounts.
Picking the Best Retirement Plan for the Self-Employed Business Owner.

You Can Put Your Money Into Non-Qualified Investment Accounts

Non-Qualified accounts are those on which the government does not designate purpose or set taxable limitations. They can include the following accounts:

• Individual Checking or Savings Accounts
• Joint Tenant Bank Accounts:  Joint Tenants with Rights of Survivorship, Joint Tenants in Common, Joint Tenants in Entirety
• Money Market Accounts
• Business Accounts
• Trusts

Assets You Can Purchase through Your Investment Accounts

Once you’ve opened one or several types of investment accounts, you can now buy assets through those accounts. I’ll list several common assets in which you could invest, but again, check with your financial advisor for a comprehensive list.

Common Asset Options:

• Stocks
• Bonds
• Certificates of Deposit (CDs)
• Preferred Stocks
• Exchange-Traded Funds, ETFs
• Annuities
• Mutual Funds
• Real Estate

For more information on these types of assets, you may want to read the following related articles:

Income for Life Retirement Strategy #4: Pulling Income from Your Investments
[VIDEO] Types of Risks Involved when Investing in Stocks, Bonds, and Real Estate
Asset Allocation: There’s More to it Than You Think
Five Reasons You ‘May’ Want to Buy an Annuity
Reasons You Don’t Need an Annuity

Other Asset Options – (Also referred to as Alternative Investments)

• Master-Limited Partnerships
• Commodities
• Hedge Funds
• Real Estate Investment Trusts (REITs)
• Private Conservatorships
• Personal Collections (Comic Books, Baseball Cards, Art, Gold, etc)

For more information on these types of assets, you may want to refer to the following related articles:

Building Wealth without Stocks
Is Gold a Good Investment?

Caution!

While you’re celebrating this great accomplishment, have fun but be cautious. Lean on your trained financial advisor for sound advice about how to protect your money. If for some reason you don’t have a financial planner, GET ONE NOW! We are more than happy to set up a consultation call between you and our team to see if we are a good fit. You need strategies that can help you keep the windfall you just received.