Is your client selling a small business? Here’s how to manage that windfall event.

Not so long ago, many of our clients generated their wealth in a few common ways: a retirement rollover, selling a primary home or business, or receiving an inheritance. These events generally occurred near or after retirement. Today, that generalization feels narrow in scope and somehow outdated. 


Yes, many people are still using the funds obtained from these traditional sources for their retirement, but there are also new means of wealth generation and therefore new high net worth clients set to take the stage. Your future clients are likely to be more varied in terms of background, means of wealth, age, gender and individual planning needs. 


The ripple effect on opportunity


Take the rise of the disruptor business for instance: innovative businesses that have created new markets, processes and technology. These are a new and powerful means of wealth generation. Particularly within the technology sector, there is a geographic shift of firms moving out of Silicon Valley in California to other areas of the country such as Salt Lake City, Denver, Austin, Dallas and Atlanta.   


I’ve heard from at least a dozen advisors about small business owners—in industries such as HVAC, plumbing and trucking—being offered generous multiples of what their businesses are worth. These individuals and their families have not only put their blood, sweat, and tears into their business but it also represents a considerable amount of their net worth. Now, as they are offered an attractive exit strategy, they may have a few questions. 


How are we going to convert this money into a sustainable income for our retirement?

Is it going to be enough?

What will be do now that we no longer have a business to run?


While this will provide new opportunities, advisors will need to grapple with the question of how to best help these new clients. For many advisors, the answer may mean building a team of professionals to guide them through the process. This major change in their lives likely fills them with uncertainty and concern.  There are a few things to keep in mind to prepare to help your clients navigate this transition:


Start early


Ideally you can start the conversation around the sale of your client’s business several years before it takes place. This gives you the opportunity to help formulate a sale strategy, as well as begin to determine how the sale proceeds will fit into your client’s financial plan. Ideal does not occur accidentally, rather it comes from developing a deep relationship and high level of trust with your client. Two of the best ways to intentionally foster this level of relationship is by gaining a deep understanding of your client and their overall goals, and through consistent and frequent client engagement

Consider frame of reference

Business owners often differ from clients who spend their careers as employees—in philosophy, perspective, and in experience. There are a few areas where considering their frame of reference can be particularly helpful. 


Opportunities to save. While some business owners have fewer opportunities to build traditional tax-deferred retirement savings and will use the proceeds from the sale of the business to fund their retirement, others may have access to equity shares, private stock, or bespoke vehicles like phantom shares. Your recommended solutions may very well need to account for an earlier-than-expected liquidity event, longer time horizons, as well as a strategy for mitigating the impact of income taxes along the way.



Risk. Business owners often view risk differently. For many, the greatest risk they have taken has revolved around the success of their business. The effect of this type of risk budgeting can mean working with clients who have maintained conservative investment habits or higher-than-average allocations to cash. On the other end of the spectrum, business owners who have had experience in private investment or equity shares may be naturally more risk-seeking. Both may require a shift in perspective to align the client’s appetite for risk to the recommendations appropriate for their post-sale financial plans. 


Individualism. It’s not one-size-fits-all: the rise of the entrepreneur and evolving technology endeavors has led to a younger, more diverse client base. Couple this with the general expectation from clients for more personalized and customized recommendations. These clients likely have unique situations requiring more nuanced solutions, both in terms of investments and planning strategies. 


Prepare your resources


Of course, everyone’s needs will be different. One constant is that all will require some professional guidance. Often, the sale of a business results in life-altering, but not life-changing money. A client who nets a few million dollars (which, don’t get me wrong, is a sizable amount but it’s not the Powerball), will need to prepare and act prudently. While a $3 million windfall is exciting, if it’s poorly managed it may not last very long. Similarly, a client who nets an even more significant windfall (say in the Powerball range) frankly faces the same reality. Without guidance and prudent action, even large sums are vulnerable to erosion by means of mismanagement, overspending and costs such as taxes.


Because of the potential complexities and planning needs, you are less likely to be the sole provider of advice to these clients. Pooling professional resources demonstrates a willingness to find the best team to meet your clients’ needs. That said, you are the resource that your clients will rely on and perhaps don’t even understand how much. As the quarterback, you become the valuable connection between the plan, other advisors (your clients’ attorney, CPA, other professionals), and the strategies being leveraged to collectively serve your clients.  


Food for thought


I’ll close with a saying my father often repeated: “Failing to prepare is preparing to fail.” Having early insight can result in a totally different outcome. For business owners, perhaps early planning means negotiating a better sale price, a more tax-advantaged transfer of assets and having a plan in place with proper expectations. This also serves as wise advice for advisors providing guidance to clients. Preparing to help clients navigate increasingly complex planning situations means starting early, being mindful of perspective, and proactively embracing a wealth team approach.