I spoke recently with Peter Churchill-Smith, managing director of Newport Private Wealth, one of Canada’s largest independent wealth managers. Peter has worked with entrepreneurs for the better part of his 30-year career as a wealth management professional and along with his partners decided to conduct a survey of entrepreneurs who had sold a business.
The research objective was to better understand the challenges and needs of entrepreneurs through the entire sales cycle – pre-sale planning, closing the sale, the transition period, and the development of a new long term plan for themselves and their investments.
The survey, conducted for Newport Private Wealth by Capital C Communications, determined that for the majority of business owners the sale of the business was an exhausting and totally consuming ordeal that left them with little time to think about their personal needs and new circumstances. Then there is the aftermath. If one is still running the business, one’s personal affairs often take a back seat to priorities such as staff and customer issues that have been deferred.
To help, 10 practical suggestions were developed. They come from two credible sources – entrepreneurs that have already experienced a “sale”, and the research findings.
The Ten Suggestions
- 1. Take a breath, a very long breath – The sale of the business often creates 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.
- 2. Recognize your new reality – You are not any wealthier than you were prior to the sale. However, your balance sheet has changed dramatically. If you are working for the new owner, your wealth is no longer lodged at your place of work. It is at the bank! And it is not getting the same “24/7” attention that it received before the sale.
- 3. Professional cash management – The survey confirmed that a large proportion of business sellers “park” their funds in cash for 3 months to a year. For a large amount of money, you should have access to wholesale rates. Be like the majority of our surveyed sellers; deal with someone with direct access to the money market who can ensure you are receiving the rates you deserve.
- 4. Draw up a new balance sheet – There’s no better time than now for you to take stock. 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.
- 5. 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.
- 6. Communicate your new reality with key family members – Many business sellers have emphasized the importance of communicating their new reality with key family members. So much has changed and misunderstandings can easily arise.
- 7. Get an estimate of the taxes owing - 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. Focusing on these issues may be the best way to increase your net worth in the short term.
- 8. 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 our view, these are “immediate concerns”.
- 9. Charities – Yes, they know you’ve sold and they will now be soliciting you for a large commitment. Many entrepreneurs find it helpful to have a gatekeeper who will handle these requests.
- 10. Develop an approach for loans to family – Sooner than you think, you may be asked for a loan by a family member or friend. They may think that the loan is trivial to you. Sadly, they may feel the same way about repayment. A simple solution? Buy yourself time by telling them that your money is tied up with your advisors.
By: Mark Borkowski, is president of Mercantile Mergers & Acquisitions. Mercantile specialize in the sale of privately owned Canadian companies. He can be contacted at firstname.lastname@example.org or www.mercantilemergersacquisitions.com