Source: Mark Borkowski, Mercantile M&A
Selling your business is an exhausting and totally consuming ordeal that leaves you with little time to think about your business, yourself, and your post-sale circumstances.
But, the sale will end, and the future is uncertain. Will you stay in the business? If so, for how long? Will you start a new business? Or will you buy a vacation property? There are countless questions and it usually takes time to think these issues through. Be prepared for this period of transition to take years rather than months. And only you will know when you are ready to return to the fray, if at all.
After 31 years in the M&A business, I’ve learned that fewer than 25% of entrepreneurs have pre-planned the sale of their business. They also confirmed that the selling process was both distracting and exhausting. Under these circumstances, it should be no surprise that many of them need considerable time to re-engineer themselves and their money after the sale.
As a result, nine practical suggestions were developed. They come from two credible sources – entrepreneurs that have already experienced the “sale” and research findings from specialized firms like the North Shore Advisory Inc. Here are the nine suggestions:
- Take a breath, a very long breath – The sale of the business is so time consuming that, after it’s completed, it can create a “void” that will take time to replace. This transition period can take a year or more before you declare yourself “ready” for the next challenge. The management of your funds needs to reflect this new plan. It is likely that you have had little time to develop this new plan – both for yourself and for your money.
- Recognize your new reality – You are not any wealthier than you were prior to the sale. However, your balance sheet has changed dramatically. And, if you are working for the new owner, your wealth is no longer lodged at your place of work. It is at the bank! How you manage this money will change and requires careful recognition.
- Seek out professional cash management – I confirmed that a large proportion of business sellers “park” their funds in cash for 3 months to a year. Bank branches are for “retail” clients and there are several layers between the branches and the wholesale money market. Each layer “carves out” a slice of the investment return before it gets to you. Don’t wait to seek out the help of a professional money manager — the sooner you can ensure that you are dealing with someone with direct access to the money market, the sooner you can ensure that you are receiving the rates you deserve.
- Draw up a new balance sheet – There’s no better time than now for you to take stock of your balance sheet. Your affairs are probably more complex than you would like — you need funds to live, and you need to understand which funds are best accessed from a tax perspective. You may be surprised to learn that the funds in the family trust belong to the beneficiaries (i.e. your wife and kids). A detailed balance sheet will give you an accurate overview and help you identify issues that require immediate attention.
- Get organized – Your money may be in several places such as a family trust, a holding company and several family accounts. Many business sellers tell us that they are overwhelmed with the paperwork and it is very difficult to “keep score”. You might want to consider hiring a part-time bookkeeper. They will more than pay for themselves at “tax time”.
- Communicate your new reality with key family members – Many business sellers have emphasized the importance of communicating their new reality with key family members. Throughout a sale, so much has changed and misunderstandings can easily arise. Recognize this possibility to avoid unpleasant consequences. After all, the sale is a positive event.
- Get an estimate of the taxes owing and when – You need to obtain an estimate of your tax liability. It may be due over several years and some may be deferred indefinitely. There are many strategies available, including insurance and philanthropy, and you should understand each. Focusing on these issues may be the best way to increase your net worth in the short term.
- Do an audit of your current estate plan – It is very likely that your estate plan including your will and insurance do not match your new circumstances. Does your will include provisions dealing with shares of a private company now sold? Are your current executors capable of handling the complexity of your new affairs? In my view, these are “immediate concerns”. You should make the necessary changes so that your current plan works. More sophisticated changes can wait.
- Develop an approach for loans to family – You may be asked for a loan by a family member or friend sooner than you think. They may think that the loan is trivial to you. Sadly, they may feel the same way about repayment. Do you take security? Or document the loan? Will it set a precedent? These are sensitive issues. A simple solution? Buy yourself time by telling them that your money is tied up with your advisors.
About Scale Finance
Scale Finance LLC (www.scalefinance.com) provides contract CFO services, Controller solutions, and support in raising capital, or executing M&A transactions, to entrepreneurial companies. The firm specializes in cost-effective financial reporting, budgeting & forecasting, implementing controls, complex modeling, business valuations, and other financial management, and provides strategic help for companies raising growth capital or considering M&A/recapitalization opportunities. Most of the firm’s clients are growing technology, healthcare, business services, consumer, and industrial companies at various stages of development from start-up to tens of millions in annual revenue. Scale Finance LLC has offices throughout the southeast including Charlotte, Raleigh/Durham, Greensboro, and Southern Pines with a team of more than 45 professionals serving more than 120 companies throughout the region.