I Sold My Business, Now What? Life After Selling Your Business
Sep 16, 2021
You spent years building your small business and almost as much time finding the right buyer to take over your enterprise. After the ink has dried on the contracts and the champagne bottles have been popped, you may be left with questions about what exactly to do next.
If you find yourself thinking, “I sold my business, now what,” you’re not alone. According to research published by Coutts Bank, 26 percent of owners who sell their business have no idea what they plan to do after the sale, and 40 percent of those individuals regret not creating a more robust plan. Consider these possible opportunities for your next adventure as you prepare for the potential long-term consequences of selling your company.
Understanding the consequences of selling a business
Many entrepreneurs do not completely realize the wide-ranging impact this type of major transaction can have on personal, professional, and financial well-being. Thoughtful preparation for these possibilities will increase the chances of a smooth transition.
Shield the proceeds of your sale
After closing the sale of your business, you’ll need to protect the profits from the transaction from tax consequences and market risks. While the exact method of protection will vary based on your personal financial situation and objectives, as well as your plans for the next phase of life, most financial experts recommend building a diverse portfolio that combines vehicles such as stocks, bonds, real estate, mutual funds, and money market accounts.
Understand your tax obligations
You’ll also need to work with a tax professional to fully understand the tax implications before you mark the business as sold and move on with your professional life. The IRS typically considers the sale of each individual asset associated with the business rather than the sale of the company as a whole. You must categorize each sold asset as either inventory, real property, depreciable property, or capital assets, then determine the gain or loss for each and pay the appropriate capital gains tax. If you keep an ownership stake in the company, which is common when a private equity firm buys the business, the tax situation becomes even more complex and requires the advice of a tax accountant with experience in business transactions.
Prepare for emotional transformation
Many entrepreneurs experience a sense of loss after selling a company they’ve owned and operated for years. Understanding these possible psychological effects can help you prepare for the emotional impact of this significant change and cope with these feelings in a healthy, productive way as you care for yourself, take up new interests, and spend time with friends. After a short transition period, most people flourish as they embrace the next phase.
Choosing the right path for your next venture
As an entrepreneur, you’ve never been short of ideas—but now that it’s time to plan your life after the business sale, you’re stumped. Seek inspiration from some of the most popular post-sale paths for business owners.
Focus on personal fulfillment
In a survey from the National Federation of Independent Business, more than 71 percent of business owners said they take fewer than ten vacation days per year. Sound familiar? If you’ve had limited leisure as an entrepreneur, consider pursuing old or new hobbies and interests and deciding how much time to dedicate to these areas. You may also want to put effort into connecting with friends and spending more quality time with family. Thinking objectively about these desires can help you avoid getting swept into a new, equally time-consuming venture.
Harvard Business Review recommends creating a game plan with three to five manageable goals for the first six months after your business sale. For example, you may want to choose one destination you’ve always wanted to visit, select one new skill to learn, and identify a new community group to join. This guide can help inspire your next steps, large or small.
Start or purchase a new company
Business owners in their 40s, 50s, or younger often jump right into the next big thing after selling a profitable company. Harvard Business Review speaks to the power of reinventing yourself and taking your entrepreneurship in a new direction. If you’re deciding between a few different avenues, leverage the professional network you’ve built as a business owner to learn more about areas of interest. Whether you plan to create a new enterprise from the ground up or purchase an existing business, careful due diligence will help shield you from potential missteps.
Stay on in an advisory role
Often, business owners end up working for their former ventures in an advisory capacity for a specified amount of time after the transaction. The extent of this engagement depends on the agreement you reach with the new owners in negotiations. If you suspect you might feel the itch to move on when the company is no longer under your control, make sure to limit your role as a consultant to less than a year.
On the other hand, some former business owners appreciate the opportunity for a less intense but still involved place in the business they built and choose an indefinite advisory term. Either way, if you decide to stick around, your experienced presence must add value to the final transaction price. The financial impact of this type of arrangement varies based on whether you will be a partner, an employee, or an independent consultant.