Wealth planning following the sale of a business

Selling a business is a major life event, which makes it the ideal time to create or revisit your financial and estate plans to help you achieve what you want.

Most business owners have a few ideas about how they might use some of the sale proceeds: maybe it’s providing financial support to dependents or acquiring a recreational property.

But owners should also use the recent sale event as a chance to think longer-term about their needs and wants, based on their age, life stage and family values.

“Post-sale is a great opportunity to focus on overall wealth and estate planning,” says Jag Gandhi,

vice-president of wealth planning at Gluskin Sheff. “It’s a time to review, with fresh eyes, what you’re going to be doing for the next five, 10 or more years and to create a plan that supports you and your goals.”

For some, it may be allocating a portion towards long-term investments, while for others, it could be reinvesting a portion of the proceeds into another business venture. Other options include setting up a family trust for the next generation or donating some of the proceeds to charity through a donor advised fund or family foundation.

The goal for many will be to ensure the proceeds are used in the most tax-efficient and meaningful way possible. A wealth plan can set the guardrails and act as a GPS for the business owner’s new financial reality, Gandhi adds, especially now that the composition of what they own will look much different.

Three post-sale planning priorities

Mark Chan, a vice-president of wealth planning at Gluskin Sheff, says entrepreneurs should

continue to work with professional advisors—just as they did before and during the sale process—to stay on track with their post-sale priorities. He points to three key areas of focus, including cash-flow planning, uncertainty planning and legacy planning.

1. Cash flow planning:

Even before a business owner has stepped away from the company following a sale, they should think about their future sources of income for their next stage of life, Chan says.

For instance, if they plan to take some time off or retire; they should speak to an advisor to devise an investment strategy that takes into account their desired lifestyle needs, liquidity, tax efficiency, diversification and risk management.

Entrepreneurs will need to understand what their future sources of income will look like and to budget what they expect to spend when they’re not working, whether for a few months, years or the rest of their lives. And how might their spending increase now that they’re not working?

“Do you have more travel and leisure in your plans? Do you hope to provide financial support to your family members and other dependents?” are some of the questions Chan says are worth asking when creating a post-sale plan.

2. Uncertainty planning:

Business owners are used to planning for financial and other risks in their companies, but it’s different when it comes to personal finances—and looking out for loved ones. For instance, having an emergency fund is recommended for life’s unexpected costs, while life insurance can mitigate the financial hardship arising from the death of a family member.

These needs may change after selling a business, Chan says. For instance, a former business owner may need to review their life insurance needs based on the change in the composition of their estate and how they wish to transfer wealth to the next generation.

To better prepare for an emergency situation, it is often recommended that business owners compile a list of financial assets and beneficiaries, key contacts and essential documents (e.g., wills, powers of attorney, deeds of ownership, investment statements, life and disability insurance policies).

3. Legacy planning:

For many business owners, the sale of their company is an opportunity to contribute more to their family’s future or give more meaningfully to charities and causes close to their hearts.

Chan says many former business owners are interested in leaving a legacy, either while alive or as part of their estate—or both.

He also recommends working with an advisor and other professionals, such as lawyers and accountants, to see what changes may need to be made in wills and powers of attorney  so that your wishes are reflected in the estate plan. It may mean establishing a trust or revising planned donations to charities.

According to Gandhi, post-sale is an ideal time to understand how the various pieces of your estate plan, such as your wills, powers of attorney, and trusts all fit together like a puzzle to help you achieve your overall goals during your lifetime and upon death.

The sale of a business is also an opportune time to look at establishing a donor-advised fund, Chan says.

“A donor-advised fund can provide some structure to your goals, and this can be a part of your family

legacy going forward,” he says. A business owner can consider making a donation to a donor-advised fund in the year of a sale to reduce the tax liability associated with it and then take their time to decide which and how to support causes that are important to them.

Many donor-advised funds also provide flexibility with respect to succession, which can allow future family generations to carry on the business owner’s philanthropic goals as part of their legacy.

Experts can help create your next stage in life

Selling a business is a major life milestone. And, just as business owners hire experts to help run

their operations over the years, they should also enlist the right professionals to help steer them into their post-sale stage of life.

Working with professional advisors will ensure the entrepreneur’s assets are managed in a way that helps them achieve their next-stage life goals, provide peace of mind in the event of an emergency and leave a legacy that is consistent with their values.

“When someone sells a business, their life goals often change, so advisors can help – whatever your goals and values are—you achieve them,” Chan says.