All your hard work over the years has finally paid off and you’re selling your business. This is an exciting time, but it’s also full of decisions that will impact you for the rest of your life. No matter how large your payout, making it last requires planning. Here’s what you need to know to make your funds last a lifetime.
One of the most important things to consider if you’re currently selling your business or have recently sold your business is how to limit your tax burden.
If you receive stock from the sale, as long as the deal is structured properly, you should have the ability to receive that stock tax-free. The long-term capital gains tax on the sale of stocks is better than that of ordinary income, which may also impact how you choose to structure the deal. Taking a loss on other investments before year end may also help offset some of the gains from the sale of the business.
Diversify Your Investments
Whether you received your payout in cash, stock or a combination of both, it can be beneficial to make sure all your eggs aren’t in one basket. If you received a payout in cash, it may be valuable for you to invest those funds in such a way that produces a personalized and diversified portfolio. The right portfolio for you will likely depend on your age, risk tolerance, size of your portfolio, long-term goals and current financial needs.
If part of your payout included stock in the company, you may find it useful to figure out a plan for hedging for the downside. When so much of your wealth is tied up in a single company, your financial future may rely on how well you prepare to mitigate potential risk. Working with a financial advisor can help you figure out the best downside hedge for your unique situation.
Plan for the Future
If you earned millions of dollars from the sale of your business, you may feel comfortable retiring, but that money may disappear quickly if not handled responsibly. While a general financial plan is a good idea, three specific concerns you may wish to address include healthcare, retirement and charitable donations.
Healthcare: If you’re under the age of 65, you generally won’t be eligible for Medicare, which means you’ll need to figure out your other insurance options. You may also want to consider long-term care insurance
Retirement: After years and possibly even decades spent building your business, the idea of fully relaxing may sound appealing, but many retirees grow bored quickly. Especially if you’re younger, you may find the transition more difficult than you anticipated. Eventually, you’ll probably want to find more fulfilling ways to spend both your time and your money. Thinking through your plans and discussing them with family beforehand can make for a much more graceful transition into retirement.
Gifting and charitable donations: If you’re charitably inclined, you may want to create a plan for supporting the people and causes you care about. Do you want to set up a 529 plan to help cover college expenses for a grandchild? Do you have organizations you wish to support? Creating a strategic plan for your gifting and charitable donations can help you do so in a more tax-efficient manner, which helps both you and those you wish to support.
Consider Working with Financial Professionals
With so much extra time on your hands you may think doing your own taxes or managing your own portfolio is a way to fill that time while also saving money. If you have a financial background and enjoy the nuances of taxes and finances, this may be the right option, but for many people, it’s not worth it.
Handling your own finances is time consuming and tedious, and the constant updates mean that even if you were an expert five years ago, your knowledge may now be outdated. Additionally, professionals can help limit your tax burden, create a personalized portfolio, help you map out your long-term goals, and keep you financially accountable.
Ready to sell your business? Contact us: We are happy to help you envision what happens next.
Additional Sources for Investment Planning:
Although Carnegie Investment Counsel does not provide legal, insurance, or tax services, we are happy to coordinate services with your preferred attorney, insurance or/and tax professionals.
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If you are currently looking for help with investment planning, contact us. We are happy to schedule an introductory meeting at your convenience.