By: Brian Sak CFP®, CLU®, ChFC®
Selling your business is a monumental milestone, often accompanied by a wave of emotions and critical financial decisions. For many exiting business owners, this moment represents both the culmination of years of hard work and the start of a new chapter. But what happens after you've shaken hands on the deal?
In this comprehensive guide, we'll walk you through the essential steps to take after agreeing to sell your business. From tax-saving strategies to proper investment planning, we'll cover some important considerations you need to know to secure your financial future. Let's get started.
The Emotional Roller Coaster of Selling Your Business
Understanding the Emotional Impact
First and foremost, it's essential to recognize the emotional toll that selling a business can take. You've poured your heart and soul into building your enterprise, and letting it go can be bittersweet. It's normal to feel a mix of excitement, relief, and even sadness.
As the initial excitement fades, it's vital to embrace a sense of purpose in this new chapter. The post-sale period can be a time of transformation, presenting opportunities to redefine your goals. Prepare yourself for a journey that may differ from your expectations, but offers a chance to grow and adapt.
During this transition, reaching out to professional advisors is important. Their support can provide fresh perspectives and help you navigate the complex landscape, allowing you to focus on spending more quality time with loved ones, exploring charitable endeavors, and discovering new opportunities for fulfillment.
Tax Savings Strategies - Pre and Post-Sale
Pre-Sale Tax Planning
Effective tax planning before the sale is essential to maximize your net proceeds. Work with a qualified exit planning advisor to explore strategies such as structuring the sale to take advantage of lower capital gains tax rates or deferring taxes through installment sales. Deciding whether an asset sale or a stock is most appropriate is usually the first step in a transaction.
In the event of an asset sale, allocating proceeds of the sale to specific assets can sometimes be advantageous to the seller such as personal goodwill, or real estate that may then be eligible for 1031 exchange planning.
Post-Sale Tax Considerations
After the sale, you'll need to consider how to manage the tax implications of your proceeds. This may include strategies such as tax-loss harvesting, charitable planning, maximizing retirement contributions, 1031 exchange opportunities, opportunity zone investing, and utilizing tax-efficient investment vehicles such as private placement life insurance (PPLI) and more.
Investment Strategy with Proceeds
Assessing Your Financial Goals
Before making any investment decisions, it's essential to assess your financial goals. Do you want to generate a steady income stream, preserve capital, grow your wealth, or a combination of those three? Your investment strategy should align with your financial objectives.
Diversifying Your Investments
Diversification is key to managing risk and achieving your financial goals. Consider a mix of cash, stocks, bonds, real estate, and alternative private market investments to create a well-rounded portfolio. Working with a financial advisor can help you develop a customized investment plan.
Monitoring and Adjusting Your Portfolio
Regularly monitoring and adjusting your portfolio is essential to ensure it continues to meet your financial goals. This may involve rebalancing your portfolio, adjusting your asset allocation, and staying informed about market trends and economic conditions.
Estate Planning and Asset Protection
Establishing a Trust
Setting up a trust can provide significant tax advantages and protect your assets from potential creditors. There are various types of trusts, each with its own benefits and complexities. Consult with an estate planning attorney to determine the best option for your situation. More can be read about trust planning HERE:
Mitigating Estate Tax: The Role of Spousal Lifetime Access Trusts (SLATs)
Gifting Strategies
Gifting assets to family members can reduce your taxable estate and provide financial support to your loved ones. Be mindful of annual gift tax exclusions and lifetime gift tax exemptions to maximize the benefits of your gifting strategy.
Protecting Your Assets
Asset protection strategies can safeguard your wealth from potential creditors and legal claims. Consider options such as insurance policies and limited liability entities to protect your assets from unforeseen risks.
Building a Legacy
Philanthropic Endeavors
Many business owners choose to give back to their communities through philanthropic endeavors. Establishing a charitable foundation or donor-advised fund can provide significant tax benefits while supporting causes that are important to you.
Planning for Future Generations
Estate planning should include provisions for future generations. Consider how you want to pass on your wealth to your heirs and the values you want to instill in them. Thoughtful estate planning can help ensure your legacy lives on. We always say, it takes no planning to leave an inheritance. You just have to die owning something. It takes planning to turn that inheritance into a lasting legacy.
Engaging Professional Advisors
Working with professional advisors can help you navigate the complexities of estate planning and asset protection. Consider engaging a team of experts, including financial advisors, tax professionals, and estate planning attorneys, to develop a comprehensive plan.
Conclusion
Selling your business is a significant milestone, but it's just the beginning of your financial journey. By implementing tax-saving strategies, managing your investments, and planning for your estate, you can secure your financial future and build a lasting legacy. Remember, seeking professional guidance is crucial to making informed decisions and achieving your financial goals. Take the next step today by booking a consultation with one of our advisors, who can help you create a customized plan tailored to your unique needs and aspirations.