Step 3: Creating a diverse financial portfolio
stressful. As you begin to exit the business, knowing you’ve got all the money- management bases covered will allow you (and your family) to sleep better at night. As a business owner accustomed to steering the ship, it may be
It’s critical to create an in-depth financial plan that prioritizes a diverse financial portfolio before you sell your business.
Before selling your business, it’s critical to lay the framework for a diverse financial portfolio. Here’s why: In the wake of your sale, your liquidity increases substantially, but the longer these assets remain in liquid form, the smaller the benefit for your legacy. It makes sense, since uninvested money isn’t paying dividends and, as the past two years have made abundantly clear, market forces could shift at any time. While it’s possible to take a wait-and-see approach with your sale, to evaluate the market in the moment and decide where your money is best invested—this comes with the dual problems of cost and complexity. Consider a recent analysis of active U.S. equity mutual funds during COVID-19 conducted by the National Bureau of Economic Research (NBER). The paper found that active investments during this time period underperformed benchmark expectations, in turn “contradicting the hypothesis that active funds outperform in recessions.” Other funds also suffered during this time period, and while rebounds are underway, market stability is no longer a given. The takeaway? It’s critical to create an in-depth financial plan that prioritizes a diverse financial portfolio before you sell your business. This allows you to streamline the transfer of liquid assets into investments with stable performance. Diversification, meanwhile, helps ensure that even if specific funds struggle, your overall portfolio remains positive. Needless to say, selling your business is likely the biggest financial/liquidity event of your life. It can get
tempting to take on this type of portfolio planning on your own. But it’s often beneficial to connect with trusted financial experts who know this territory well, understand your business and have your best interests in mind. At California Bank & Trust, our wealth planning specialists can help you develop a wealth management plan customized to your specific financing needs. Leveraging expert advice also reduces the time and effort required on your part during the sale, in turn letting you focus on what matters: Your legacy. Step 4: Considering what comes next Preparing to sell your business is a critical step in planning your legacy. From the timing of your sale to the diversification of your assets, it’s no easy task—and it’s worth taking your time to make sure everything goes to plan. But it’s also important to consider what comes next. While selling your business lays the groundwork for your legacy, well-performing investments alone aren’t enough to ensure legacy goals are met. As a result, it’s
worth mapping out a long-term view of legacy goals along with a general sense of direction: How will you leverage assets to meet these goals? What types of trust and fund distribution frameworks make sense for any children or other family members who may benefit from your legacy? How much of your wealth will be donated to charitable causes? How do you determine the optimal timing for each of these steps?
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