Selling a business is a milestone that many people hope to attain. Think about it: after all the sleepless nights, payroll worries, emotional rollercoaster of highs and lows, and long years of pouring your heart and soul into building a business, you succeeded, and now you’re making your grand exit. And you’re walking away with a tidy sum.
But after you’ve banked the check, what’s next? How do you manage this sudden wealth so that it doesn’t disappear into thin air? Believe it or not, it happens more often than you’d think. Take the NBA, for example; up to 60% of former players go broke within just five years of retiring.
If you know how much NBA players earn over their careers, you’ll understand why this number is staggering. For context, John Stockton, the NBA’s all-time assists and steals leader, earned a whopping $65 million over his career (he didn’t lose his, in case you’re wondering).
Now, imagine selling your business for $5 million. How can you do better than someone who earned ten times that before retiring?
The thing is, selling a business is often the easier part. Managing the proceeds? That’s where things get tricky.
Selling Your Business Is Just the Start
As we’ve already established, selling your business is easy enough. What happens after is the tricky part. After years of being the CEO of your business, you now need to be the CEO of your financial future.
That’s where high net worth wealth management comes into play. The goal here is to make your new wealth work for you and your family for generations.
To help you get started, we’ve outlined five essential steps to help you manage your new wealth wisely. Follow them to protect it, and grow it, so your hard work today pays off for decades to come.
5 Essential Steps to Manage Your Wealth After Selling a Business
Just sold your business or planning to do so? Here’s how to make your money last.
1. Understand Your Tax and Financial Obligations
The first thing you should do when you come into any money is to study your financial obligations. What do you owe the tax man?
According to the IRS, selling a business is like selling a bunch of items at once, and each item has its own tax rule. Cash, equipment, inventory, buildings, and goodwill: all these are treated differently. Don’t factor them in, and you might not know how much you’re really going home with.
And no guessing, too. You need to get an expert involved to help ensure that you don’t get this first part wrong.
2. Avoid Impulsive Spending
You’ll likely make a tidy sum from selling your business, and while it’s okay to celebrate, be careful about how you start spending. The urge to finally get that schooner or sports car will be powerful, no doubt, but try as much as possible not to give in to the temptation.
Here’s why: once you start splurging, lifestyle creep can sneak in without you noticing. This is the habit of upgrading your lifestyle as your income increases. Entrepreneur.com calls it “the silent financial freedom killer,” and they’re right.
In this case, however, you aren’t exactly earning money, and so, in very little time, the proceeds of the sale will vanish. The result? Debt and bankruptcy.
3. Pay Off Your Debts
This one is simple. You’ve just come into a lot of money (at least on paper), so why carry high-interest debt? Pay it off.
According to Debt.org, the average American owes roughly $263,923 in mortgages, $24,373 in auto loans, and $6,730 in credit card debts. Those are just personal debts. Add business-related debt, and all the interests that’ll accumulate over time, and you can almost see the freedom you’ve just earned slipping away.
Clear these debts, and your nest egg will not be weighed down by interests and repayments. It’s one of the ultimate steps in financial security.
4. Invest Wisely and Diversify Your Wealth
The absolute worst thing you can do with sudden wealth is take it all and put it in a single venture.
As a business owner, you’ve had your chance to keep all your eggs in one basket, and lucky you, it paid off. Now, you’ve got the opportunity to diversify your investment, and that’s exactly what you should do. As the experts at Richard P. Slaughter Associates put it, true wealth isn’t just about having more; it’s about having your wealth work intentionally for the life you want.
The goal here is to build a diversified portfolio so that risk can be spread across many different investments. When one stumbles, you’ll have others to fall back on.
That said, this is not something you should tackle on your own. That you were a successful business person doesn’t automatically make you a skilled investor. You must work with a fiduciary financial advisor who’ll help you find the right mix of assets and ensure that your emotions don’t get the better of you.
5. Protect Your Wealth
The final piece of the puzzle is making sure that your money lasts. This is not just about investing; it’s about asset protection, insurance, and generational planning.
Estate planning is another big one. What happens to your money if something happens to you?
Incidentally, while quite a number of Americans know how important things like these are, barely 33% of adults even have something as simple as a will. The truth is that now that you have a substantial amount of money to your name, you can’t afford to be in that percentage.
Work with an expert who will structure things according to your choice and preferences.
Final Thoughts
Selling your business can change your life. But the discipline that made you such a successful entrepreneur should now be transferred into managing the wealth you’ve earned for yourself.
You’ve already proven that you have what it takes to build something valuable. Now, it’s time to show that you’ve got what it takes to grow and preserve it, and hopefully, the ideas contained in this article will give you a good place to start.
