After You Sell

A recent survey, entitled the National Survey of Canadian Business Sellers, revealed that selling a business was an exhausting ordeal that left people with little time to think about themselves or their new circumstances.

The survey, conducted by investment firm Newport Partners, polled 500 Canadian entrepreneurs who had sold businesses. The research objective was to better understand the challenges and needs of entrepreneurs through the entire sales cycle.

One of the more significant findings was that fewer than 25 per cent of the business owners had pre-planned the sale of their business.

Those surveyed also confirmed that the selling process was both distracting and tiring. Given the circumstances, it’s no surprise that many of them needed considerable time to re-engineer themselves and their money after the sale.

As a result of the research findings, ten practical suggestions were developed:

1. Take a breath, a very long breath
The sale of your business can create a void that will take time to replace. It 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.

2. Recognize your new reality
You are not any wealthier than you were prior to the sale. However, your balance sheet has changed dramatically.  And, 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 is not getting the same attention it received before the sale.

3. SEEK Professional cash management
The survey confirmed that a large proportion of business sellers “park” their funds in cash for three months to a year. Bank branches are for “retail” clients. And there are several layers between the branches and the wholesale money market. Ensure you are dealing with someone with direct access to the money market and can get you the rates you deserve. 

4. Draw up a new balance sheet
There’s no better time than now 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 spouse and kids. A detailed balance sheet will 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 find themselves overwhelmed with the paperwork. You might want to consider hiring a part-time bookkeeper. That person will more than pay for themselves at “tax time”.

6. Communicate your new reality
Many business sellers 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 you can avoid the unpleasant consequences. After all, the sale is a positive event.

7. Get an estimate of the taxes owing
You must obtain an estimate of your tax liability. It may be due over several years and some of it 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. DEAL WITH Charities
Yes, charities know you’ve sold. And they probably know the details. 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 types of requests for them, so they don’t have to.

10. Develop an approach for loans
You may be asked for a loan by a family member or a friend.

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 Corporation. Mercantile is a mid-market mergers and acquisitions brokerage firm (www.mercantilemergersacquisitions.com ).

Newport Private Wealth is one of Canada’s largest independent full-service wealth management firms serving high net worth individuals. To download the business seller survey visit www.newportprivatewealth.ca