Congrats! You Sold Your Business—Now What?

Whether you spent the last year or last 20 years building your business, the transition after selling can be challenging for any entrepreneur. The goal, of course, is to net the most profit from the sale and then multiply that profit in future years. Accomplishing this requires careful planning and strategizing with advisors to preserve capital, minimize your tax liability and strategize your investments in a way that will support this new way of living you have been dreaming of for so long. Initiating this process can be overwhelming, though, and you may not know where to start.

Ideally, you should start the planning process far in advance of the sale, but it’s not too late to devise a solid tax plan if the transaction has already closed. You will want to consider the following points to give yourself the best chance of maximizing your sale proceeds and protecting your assets.

1. Secure a financial planner.

One of the most daunting considerations of selling your business is determining how to incorporate your new assets into your overall financial plan. A financial plan is the key to ensuring you can indulge in your future plans while striking the optimal balance with how much you should invest knowing the investment should grow exponentially year to year. There are many ways you can invest your money, and every choice matters—especially if you’re preparing to retire.

Contacting an experienced financial planner is a great first step. They will guide you through long-term management decisions for the sale proceeds that will save you time, money and stress.

2. Review your estate plan.

If you don’t have an estate plan in place yet, make this priority No. 1. Estate plans should be updated frequently, especially in circumstances of significant change, including selling a business. In the case that you already have one, you likely need to review your designations for trusts, minors, healthcare proxies, powers of attorney, and your living will with a wealth manager and estate planning attorney to ensure your assets will be properly handled and according to your wishes.

Proceeds from the sale of your business may increase your overall net worth, so you will also want to ensure your estate plan still aligns with your goals while minimizing estate taxes. Your wealth manager may propose new strategies, such as gifting, trusts or charitable donations, based on your new net worth to more effectively manage your new assets.

3. Refrain from making substantial changes to your spending habits.

Although it may be tempting to go on a spending spree to celebrate your accomplishment of a successful sale, you would be wise to live within your means, or even slightly below it, for the first six months after the sale. This helps deter “lifestyle inflation” and gives you time to prepare for any unforeseen costs and financial obligations. If you are establishing a passive income stream from the sale proceeds, this period will also give you time to settle into a new budget and routine.

4. Work with your CPA to navigate tax liabilities.

As you can imagine, the tax consequences of selling a company can fluctuate considerably depending on many factors. Since the IRS requires an accounting of every individual asset sold with the business and each sale has unique conditions, anticipating how much you will owe in taxes when all is said and done can be extremely complex and sometimes surprising. Consult a qualified tax professional to account for your liabilities and create a tax strategy tailored to your circumstances. There should not be any surprise tax bills come April!

5. Diversify your portfolio.

Investing in a diverse mixture of low-cost, tax-efficient assets that complement your overall portfolio can help put you on track toward achieving your future goals and retirement plan. If you receive cash from the sale, consider investing proceeds into a combination of mutual funds, municipal bonds, money market accounts, and real estate, as well as no-marketable private funds, like venture capital and hedge funds. Your financial planner can help you decide the best areas of investment based on the amount of the proceeds, your risk tolerance, other assets, spending habits and age.

Don’t delay – every minute counts

There are many perspectives to consider when selling your business, such as how it will affect your financial future, career, and family. Even if you have yet to decide what your future holds, your post-sale income requirements and goals will dictate how you should handle the proceeds from selling your business. Your advisors will have different recommendations depending on your goals, such as whether you want to create an income stream or increase your charitable giving.

The sooner you establish your goals and decide on a tax strategy with your advisors, the better protected your assets and future will be. If planning feels like an insurmountable task, consider meeting with a certified tax professional to get started today.

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Optimize your tax strategy with Aprio’s Business Tax Services and Advisory. Our comprehensive business tax services can help you align your tax strategy to your business goals. Let us help you reduce and manage your tax obligations by creating a strategic tax plan and identifying opportunities for reinvestment. Schedule a consultation today and achieve what’s next at Aprio.com.

Aprio is the brand name under which Aprio, LLP, and Aprio Advisory Group, LLC, deliver professional services. Since 1952, clients throughout the U.S. and across more than 50 countries have trusted Aprio for guidance on how to achieve what’s next. As a premier business advisory and accounting firm, Aprio Advisory Group, LLC, delivers advisory, tax, managed and private client services to build value, drive growth, manage risk and protect wealth, and Aprio, LLP, provides audit and attest services. With proven experience and genuine care, Aprio serves individuals, entrepreneurs, and businesses, from promising startups to market leaders alike. Aprio has grown to 2,000+ team members providing solutions to clients in industries including manufacturing and distribution, non-profit and education, professional services, real estate, construction, restaurant, franchise and hospitality, government contracting and technology and blockchain.

Meredith Kowal works with companies all over the world from startups to multinational corporations to save money and fund innovation through tax savings strategies.