Upon the sale of a privately owned company (often referred to as a ‘liquidity event’), the owners find themselves facing a unique challenge: sudden liquidity of their wealth.
To manage this transition, sellers of companies can work with trusted wealth managers who can develop portfolios and investment strategies over time. While investment strategies can be developed over time, the cash proceeds received on closing day should never be left to ‘just sit’ for any amount of time.
Accordingly, we always advise our clients to have a well-crafted plan of exactly where the closing proceeds will be invested, long before the closing day. The key is to have a plan for the cash in place long before closing day.
Too many times we have seen sellers skip this critical step in the sale process. We have seen clients literally have tens of millions of dollars of cash sitting in their bank accounts earning ‘next to nothing’ for weeks while they think about where to invest these funds. As an example, if a client could have earned 2% more by thoughtfully investing their $30MM in cash immediately after closing, that equates to more than $10,000 per week in lost income.
When business owners have a liquidity event, immediate management of the resulting liquid wealth is paramount. Long before closing, have an immediate plan for the cash; don’t just let it ‘sit in the bank’ while you think about what to do.
Post-sale wealth management is also comprised of estate planning and portfolio development. Those topics will be covered in future Deal Notes®.
Have a great day everyone.
Ryan Kirby
Vice President
