When Everything Changes – Wealth Management After a Company is Sold

For a great many – perhaps the vast majority – of entrepreneurs, the sale of a business represents a genuinely transformational moment.  After years of hard work, the value of the company is realised into hard cash. And if the business has been successful, the sums involved can be life-changing. As such, an exit is a pivotal event.  A time to reflect and celebrate on success achieved thus far, but the point at which it’s important to look forward to the years ahead. And, of course, it’s also a time when a founder will have to consider a range of wealth management and investment options.  

The sale of a business is not always a totally straightforward event. Although headlines in the trade press might point to a sale price of five, twenty or even one hundred million pounds, the release of that money may well be staggered over a number of stages – possibly over several years – with the actual sum on offer being dependent on subsequent performance, as defined by an earn-out agreement.  

A Chain of Choices   

So even before the ink has dried on the contract, the departing owner has a number of things to consider. How much will he or she receive, both instantly and over the course of any earn-out arrangement? How much will be left after taxes and legal fees? And to what extent does the sum of money received dictate what happens next in terms of the recipient’s future life and career.  

We could, for example, be talking about an exit deal that will allow the entrepreneur to buy a new house and a dream car while falling short of providing the additional amount required to retire comfortably and confidently. There may, therefore, be a requirement to make the money work – perhaps by using some of it to start a new, revenue-generating business and investing the rest, either for growth, income or a mixture of the two.

In other cases, there may be no requirement to work again. But again there are questions and choices. Investing in, or starting other business remains an option and many will want to do just that. But then there is the question of asset allocation. What role should angel investment play within a wider portfolio? What is the correct balance between investments offering high returns and potentially safer options? What steps can be taken to preserve wealth through turbulent economic times?

But it’s not all just about investment per se. There is also the tax liability to consider, both immediately after the sale and ongoing. And those with a family may often be keen to ensure that as much wealth as possible cascades down to the next generation.  

In other words, selling a business is not simply a pivotal moment. It is an event that sets in motion a chain of wealth management and investment choices.

Relax and Think

The first step is simply to put the proceeds of the sale into a bank account – preferably one that pays a high rate of interest – and then take time to relax and think.

Everyone is different. Some entrepreneurs are already looking beyond the exit event, even years before the sale, when they are still building their companies. Others, however, will wake up on the day after the sale with no clear idea of what they are going to do next.  

Either way, it’s important to take enough time to clearly define what your goals are for the future. This may take a while and the goals may change. An initial impulse to retire early may be replaced – perhaps over a period of weeks or months – with a growing feeling that it is important to stay involved in the world of business.

Equally, the initial goal might be lifestyle related. Taking a year or two to travel, perhaps to make up for plans that were pushed aside when an opportunity arose to start a business in the first place.  

Or the objective might simply be to spend as much time as possible with a growing family.

Underpinning Your Objectives  

Of course, goals change over time.

The key to a successful wealth management and investment strategy is to map a financial plan onto your own objectives. This will involve looking at a range of investment options and selecting those that are most aligned to the things that you want to achieve in life.

And as priorities and goals change, the wealth management strategy should be adapted accordingly. It’s an ongoing and dynamic process.  

In that respect, it is vital to find a wealth management company that does more than offer a range of financial products.  In an ideal world, the advisor should work with the individual to create a plan that is goal-based.

That’s what The Route – City wealth club sets out to do. Serving High Net Worth Individuals -including entrepreneurs – The Route offers its Members two reviews a year with the aim of ensuring that financial planning is always aligned to current goals. In addition to providing access to a range of investment opportunities, The Route operates its own Private Debt Platform – enabling Members to participate in secured lending investment opportunities to SME business – and also offers access to advice on tax, wealth preservation and estate management.  

Entrepreneurs are used to making choices – and often very tough ones – but the sale of a company opens up a series of new and unfamiliar questions about how best to deploy the money that has been realised.  There may be some complex choices up ahead, but having clear goals will aid the decision-making process.

To find out more about Membership, please call: 020 3141 9040