Selling a business
A business sale can turn an illiquid balance sheet into significant personal wealth in a very short period of time.
That creates a different financial-planning problem.
The owner may need to move from concentrating risk in one business to managing liquidity, tax, investment, retirement, estate and family objectives across several jurisdictions.
Josh Clancey works alongside corporate-finance advisers, M&A professionals, tax advisers, lawyers and other specialists where a business sale creates wider personal financial-planning decisions.
The planning should begin before completion, not after the proceeds arrive
Once a transaction completes, some decisions may already have been made.
Where possible, the owner should understand before completion:
- likely sale proceeds
- transaction structure
- expected tax liabilities
- timing of consideration
- whether any proceeds are deferred
- earn-out terms
- retained equity
- currency exposure
- existing personal assets
- future spending and retirement objectives
The tax, legal and corporate-finance advisers should establish the transaction and tax position.
Financial planning can then focus on what the owner should do with the wealth personally.
Common planning areas when a client sells a business
Liquidity
A transaction can leave the client with more cash than they have ever held personally.
That capital needs a deliberate short-term and long-term plan.
Investment strategy
A former business owner may be moving from concentrated entrepreneurial risk into a diversified investment portfolio for the first time.
Retirement
A sale may make work optional or bring retirement forward significantly.
Estate planning
The sale can materially increase the client's taxable estate and change family wealth objectives.
Currency
International transactions can leave sale proceeds denominated in a currency different from the client's future spending.
Retained equity or earn-outs
The client may still have significant exposure to the buyer or former business after completion.
Questions to ask before and after a business sale
How much will the client actually receive?
Headline transaction value and personal net proceeds can be very different.
When will the proceeds be paid?
Cash at completion, deferred consideration, earn-outs and retained equity should be separated.
What tax liabilities need to be reserved?
The tax adviser should quantify expected liabilities before the client commits capital elsewhere.
Does the owner still need employment income?
A sale can materially change the client's retirement and lifestyle options.
How much capital should remain liquid?
Near-term spending, property purchases, tax and other commitments should be funded before long-term investment.
Is the client comfortable moving from business risk to market risk?
The investment strategy should reflect the owner's new financial position and behavioural preferences.
What should happen to the wealth on death?
The transaction may create a need for new estate, gifting and beneficiary planning.
Useful resources for advisers working with business owners
The Professional Adviser's Guide to Business Exit and Liquidity Planning
A broad guide to the financial-planning issues that arise before and after a business sale.
Financial Planning Before and After a Business Sale
A focused technical brief covering liquidity, investment, retirement and estate-planning considerations around a transaction.
Business Sale and Liquidity Event Checklist
A practical checklist for reviewing the financial-planning issues before completion and once proceeds are received.
Concentrated Share Positions for International Clients
A useful companion resource where the owner retains equity or receives buyer shares as part of the transaction.
The Professional Adviser's Guide to Cross-Border Financial Planning
A wider guide where the owner, company, assets or future residence span multiple jurisdictions.
International Estate Planning Coordination Checklist
A useful resource where the sale materially increases the client's personal estate.
A sale can change the client's entire risk profile
Before the transaction, the client's wealth may have been heavily concentrated in one private company.
That concentration may have been deliberate and commercially rational.
After completion, the problem changes.
The client may now need to decide how much capital should be:
- kept in cash
- invested
- used to repay debt
- allocated to property
- reserved for tax
- set aside for children
- used for future business opportunities
- retained for lifestyle spending
- earmarked for philanthropy or gifting
The objective is not necessarily to eliminate risk.
It is to ensure that risk is intentional and appropriate for the client's new financial position.
Liquidity events are often behavioural events as well
Business owners can be highly comfortable with risk inside a company they understand.
The same person may feel very differently about investment-market volatility after selling.
That matters.
A post-sale investment strategy should consider:
- capacity for loss
- future spending needs
- time horizon
- investment experience
- need for liquidity
- emotional attachment to cash
- willingness to diversify
- future entrepreneurial plans
Cash-flow modelling can help separate capital needed for lifestyle and commitments from capital that can genuinely remain invested for the long term.
That can make the investment strategy easier to understand and easier to stick with.
When should the referral happen?
A referral can be useful where the client:
is preparing to sell a business
has received an offer
is entering exclusivity
expects a large liquidity event
will receive deferred consideration
is retaining equity
is deciding whether to retire after the sale
needs to invest significant proceeds
wants to plan for children or beneficiaries
has cross-border personal or business interests
Early involvement can be particularly useful before the transaction completes.
Have a client approaching a business sale or liquidity event?
If the client needs to understand how sale proceeds should support retirement, investment, family and estate objectives, an initial discussion can help establish where personal financial planning should sit alongside the transaction, legal and tax work.