What to Do with the Money after the Sale of Your Business?
What to do with the money after the sale of your business? Even though it might feel like you’ve just won the lottery, don’t act like it. Ironically, those who actually do win the lottery are far more likely to end up bankrupt than those who have not won the lottery.
We get it. For years, your business has likely been valuable on paper, in the form of assets on your Balance Sheet, but not exactly liquid. But if you receive a lump sum payout, it might be the first time you’ve seen that many zeros in your personal bank account. But, lotteries aside, let’s ensure you have a desirable long-term outcome after selling your business.
Hopefully You Already Had a Plan in Place
If you have been preparing for the sale of your business, you and your financial advisor(s) should have plans in place. However, it is common for business owners to be too busy to take the time to look down the road and make plans. The earlier you can have discussions with trusted advisors, the better things will be for you, post-sale.
As we explained in a previous blog post, having a plan in place before you sell the business can prepare against the temptations to spend on things that reduce too much of your principal and damage your long-term outlook.
So, What to Do with the Money after the Sale of Your Business?
If you sell your business and you’re wondering what to do with the proceeds, consider these steps:
Determine how much income your money needs to generate for you each year.
How much income do you want or need? Will you be spending more, the same or less on your lifestyle?
Based on the answers to those questions, you can see how to use the proceeds from the business sale. Perhaps those proceeds will allow you to live off interest or dividends earned from investments. Or maybe you will use the proceeds themselves to fund your life after the business?
Build an investment portfolio to support your income needs
Once the need or want is quantified, speak with a Registered Investment Advisor. Ask about creating or adding to an investment portfolio to support your income needs for your life after the business. Do you want a specific amount of money deposited into your checking account every month? Or do you want the flexibility to withdraw variable amounts at different times? A Registered Investment Advisor can help you make it happen.
Make a plan and work the plan.
When the proceeds from the sale of your business show up in your bank account, stick with your plan (remember the fate of the lottery winners!). It’s human nature to make emotional purchases and celebrate too much when receiving a significant windfall.
Successful business owners dream of the day when they sell their business. They are driven by the vision of receiving a big payoff and the resulting sense of accomplishment. It’s the “why” behind all the hard work. Thoughtful planning before that big day, with the help of a team of Registered Investment Advisors can help make the future as rosy as your big payday.
Ned Karren is a Chartered Financial Analyst and a Registered Investment Advisor. He is a founding partner at KKRA, opening the firm in 1983. Ned earned a degree in Economics at BYU (1967) and an MBA degree from Northwestern University (1969). He is a portfolio manager and holds primary responsibility for the KKRA’s Growth Equity Strategy.