Avoiding common mistakes after selling your business can be a challenge. People tend to make decisions through their own lens of experience, and chances are if you have started or run a business and are now selling your business, you may want to do it again. What do you need to consider before redeploying your assets into a new venture? There are three keys to a successful transition from business liquidation to the re-deployment of your assets:
- Have a plan.
- Consider your liquidity needs.
- Decide what you are willing to risk and what you need to preserve.
Have a Plan
Redeploying your assets and knowing how to maximize the benefit from your business is the key to your long-term success. At a minimum, you need a plan for what you are going to do next. If you don?t have a plan, the money will disappear. I know it seems crazy now, but that is what money does. If you don?t have a plan, the money will be gone and you won?t have much to show for it. Often times a business liquidation can feel like winning the lottery or inheriting a large sum of money. Statistically, 44% of lottery winners have spent their entire winnings in less than 5 years1. Worse than that, the average inheritance is spent within 17 months. Don't let yourself become a victim of these types of statistics, and have an action plan for how you are going to redeploy your assets.
Consider Your Liquidity Needs
So you have made it to level two, and you have a basic plan. Your tendency as a business owner who likely knows your field is to re-deploy 100% of your assets into another company right? While it is a really good decision to continue to invest in yourself and possibly a new business venture, you need to make some very serious decisions about your long-term liquidity needs. You have a unique opportunity to consider paying down debt, diversifying your exposure, or taking a short break to make sure you maximize what you do next.
Decide What You Are Willing to Risk and What You Need to Preserve
Congratulations you've made it to level three! You have a plan, you have evaluated some short-term liquidity concerns and are beginning to address them, but how do you decide how much to keep in safer more liquid investments? This is a much more complex question that needs some acute attention. Much of this conversation is going to depend on your age, goals, and quality of life desires later in life. There is no such thing as a perfect rule, but try this out. Figure out how much you need to live in a given year, and multiply that number by 25. This will give you a quick and dirty estimate of how much money you would need to retire today. No matter how much money you have, you are probably going to want more, but deciding how much is enough to cover your needs before you redeploy your assets can be a huge benefit to your confidence and quality of life down the road.
Sources: 1 http://www.statisticbrain.com/lottery-winner-statistics/ 2 http://www.401klatte.com/blog/average-inheritance-spent-in-17-months/
Guest Blogger: Daniel is an investment advisor representative with Weatherstone Capital Management LLC. He earned his CERTIFIED FINANCIAL PLANNER designation in 2012 and is currently their Director of Financial Planning. He is experienced in complex business and retirement planning for small business owners and would be happy to help you with any of your financial planning or investment needs.
Daniel J. Graff CFP, Director of Financial Planning
Phone: 303.452.4374 Cell: 803.665.1399 Fax: 303.452.4377 Email: dgraff@weatherstonecm.com
