Will You Outlive the Cash You Received from Selling Your Business?
March 20, 2020 - 6 minutes readWill You Outlive the Cash You Received from Selling Your Business?
Selling your business may yield that end-of-career payoff that we all dream about. But will it be enough? Can you maintain the lifestyle to which you are accustomed? Will you outlive the cash you received from the sale of your business? These are always important questions, but even more so considering the current volatility in the stock market.
Of course, the answer to this question depends on a few variables:
- The sale price of your business
- The terms of the purchase (lump sum? Over time?)
- Taxes due (or paid) on the money received
- Your own financial needs, wants and habits
- Your health and healthcare costs
- The performance of your investments
Considering these variables, do you expect that the proceeds from selling your business will be enough to fully fund your lifestyle? Or do you have (or need) other income streams? For example: Pensions, IRAs, social security, annuities or rental income? If after selling your business, there appears to be any kind of an income gap between where you are now and where you need to be, let’s talk. As we wrote about last week, there are investment strategies for growing the cash you receive from selling your business.
Let’s look at two specific variables today:
- Your own financial needs, wants and habits
- The performance of your investments
Your Financial Needs, Wants and Habits after Selling Your Business
Receiving a large lump sum from a business sale can open up a new set of challenges. There is often temptation to celebrate a little too much, to reward yourself too much, or to share too much with others. It is easy to make a significant dent in the money you have received. However, if you have a plan in place before the money arrives, you can celebrate appropriately without negatively impacting your future.
A common threat to outliving your cash is chronic overspending. If you choose to provide automobiles for adult children, or college tuition for grandchildren, or maintain a vacation home, you could be setting yourself up for trouble. While all of those costs may seem manageable, that money could have been wisely invested, and your opportunity cost may be much higher than you think.
It is important to talk with financial professionals, such as Registered Investment Advisors and your CPA to help identify future income needs compared to planned expenses, unexpected expenses, and more. There’s the old saying, “It’s not what you make that matters but how much you keep.” After selling your business, this adage may become even more applicable to you.
The Performance of Your Investments
As we have seen over the last couple of weeks, due largely to the feared impacts of the COVID-19 (Coronavirus) pandemic, market downturns can come upon us quickly. As someone late in their career, or now in their post-career, significant market downturns do not leave with you as much time as others to make up for losses.
This is where a conversation with a Registered Investment Advisor is critical. With a trusted fiduciary, you can openly discuss and determine together how much risk you can or want to take on in growing your money. These discussions are intended to assess your mental, emotional and psychological comfort levels. We want to find the ideal balance between growth and your ability to sleep soundly at night. Having an experienced hand on the metaphorical steering wheel can guide you through rough times. We have the tools and skill to help our clients deal with asset allocations in very volatile market periods.
Selling Your Business? Talk with Registered Investment Advisors
As Registered Investment Advisors, we can provide thoughtful advice on how to grow your money after selling you business. As Fiduciaries, we are obligated to always put your interests first.
To learn more, click here to download our free eBook, “The 3 Questions You Should Ask an Investment Advisor Before You Sell Your Business.”
Anatoliy Cerevach is a Chartered Financial Analyst and a Portfolio Manager with Kunath Karren Rinne & Atkin, LLC. He has over 19 years of portfolio management and security analysis experience. Prior to joining KKRA, he was a Portfolio Manager and Research Analyst with Coehn & Steers. He holds an MBA in finance from Pacific Lutheran University. He is an active member of the CFA Institute and the CFA Society Seattle.