The First 10 Things You Must Do After Selling Your Business

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Peter Churchill-Smith, Managing Director of Newport Private Wealth, is one of Canada’s largest independent wealth managers. He 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 to provide a perspective on what the experience is like.

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.

Such distractions may be a blessing in disguise. For most business sellers, the future is uncertain. Many are not sure how long they will stay with the business.

Will I start a new business?  Or buy a vacation property?  It usually takes time to think these issues through. Entrepreneurs should be prepared that this period of transition can take years rather than months.  And only you will know when you are ready to return to the fray, if at all.

A national survey of Canadian business sellers was conducted by Newport Private Wealth.

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.

One of the more significant findings was the admission by entrepreneurs that fewer than 25 per cent of them had pre-planned the sale of their business. They also confirmed that the selling process was both distracting and exhausting.  Under these circumstances, it should not be a surprise that many of them need considerable time to re-engineer themselves and their money after the sale.

Ten practical suggestions were developed.  They come from two credible sources –  entrepreneurs that have already experienced a “sale”, and the research findings.

The Top 10

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.  It is likely that you have had little time to develop this new plan – both for yourself and for your money. 

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 three 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; ensure that you are dealing with someone with direct access to the money market that can ensure that 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. 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.

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.  They will more than pay for themselves at “tax time”.

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.  Recognize this possibility so as to avoid the unpleasant consequences.  After all, the sale is a positive event.

7.    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. 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”.  We suggest you make the necessary changes so that your current plan works.  More sophisticated changes can wait.

9.    Charities. Yes, they know you’ve sold.  And they may know the sale price. You have moved up their list and they will now be soliciting you for a large commitment.  Again, recognize your new reality and be prepared. 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. 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.

Mark Borkowski, is president of Mercantile Mergers & Acquisitions. Mercantile specialize in the sale of privately owned Canadian companies. He can be contacted at mark@mercantilema.com or www.mercantilemergersacquisitions.com

By Mark Borkowski

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