Transcript

[00:00:00] Intro: Welcome to Retirement Unlocked with Larry Heller, your life, your way, unlimited possibilities. Join us as we explore how tailored financial planning and investments can help you navigate life transitions with confidence. Let’s dive into this week’s episode

[00:00:22] Bill Tucker: Welcome back to Retirement Unlocked with Larry Heller. For many entrepreneurs, selling a business represents years or even decades of hard work finally paying off. The deal closes, the proceeds arrive, and suddenly you have more liquidity than you have ever had. But here’s the reality. A successful sale does not automatically transfer or guarantee into a successful retirement.

In this episode, Larry talks about the common mistakes that business owners make after selling their business and the lasting impact that it can have on their [00:01:00] financial future. Larry, good to be with you. Love this topic.

[00:01:03] Larry Heller: Yeah. Hi, Bel. Great topic. Good to see you again. Um, yeah, we’re gonna talk about a lot of different mistakes that we’ve seen over the years that I’ve been doing this.

So, uh, so I figured let’s share some of the mistakes that I’ve seen business, um, people that have sold- Yeah … their practices.

[00:01:20] Bill Tucker: Good, because, I mean, it’s a well-known fact that change, especially big change, is really kind of disorienting. Mm-hmm. And if you’ve spent, if you’ve spent 20, 30 years running, building and running a business and being successful and you sell it and suddenly you’ve got more money sitting in that bank account at any one time than you’ve ever had before, it can be a little overwhelming and I would imagine, like, a, a little bit disorienting in terms of w- w- what do I do with this?

[00:01:47] Larry Heller: Right. It’s not just, um … And really some of the mistakes have nothing to do with money, but we are gonna talk about the money.

[00:01:53] Bill Tucker: Yeah.

[00:01:53] Larry Heller: And we’re gonna talk about some other, and we’re gonna talk about some other things that we’ve seen, uh, over the last numerous years that I’ve been [00:02:00] doing this.

[00:02:00] Bill Tucker: Well, let’s start with the money then.

Okay. Let’s start with the money. I just sold my business. I’m sitting on a big pile of cash I don’t know what to do with, and I may, in fact, be tempted to say, “Hey, Larry, I’ve never been this liquid before and I’m a little nervous about-” What to do with this much money

[00:02:17] Larry Heller: Yeah. So, I mean, that happens, especially, y- you know, if you’ve struggled.

We’ve s- you know, seen people, you know, based upon their original lifestyle and approach and, and, and, and money and their spending habits and having to sacrifice and grow, and now th- now they’re flush with cash. Mm. So, but there’s some of them still a fear of making the wrong decision. Sure. You know, what, what should I, what should I do with this?

How much should I spend? I mean, that, that becomes another big thing. So some people are afraid to spend too much. Yeah. So we have some of those conversations. Um, we’ll talk about the other mistake in a second, but, you know, not [00:03:00] spending, not spending enough because they’re concerned about really sometimes even running out of money even though they have so much money from this sale.

They don’t know what the right amount is that they should spend. They don’t know- Right … the right amount they sh- they should do t- for big purchases that they may wanna do. They don’t know how they should invest the money- Yeah … and maybe, you know, I have all this, how much should I put into the market? Do I need to put any in the market?

So the, you know, the, the, they’re concerned about the market volatility, um, and now they have an emotional attachment to wanting to preserve these sales because a lot of instances, uh, you know, maybe right away, but maybe, uh, a year or two after their sale is done, um, there’s no more money coming in. Yeah.

So, so they’re worried about that. They’re worrying about running out of money, especially if they’re younger, and a lot of people are selling businesses at a young age. Um, so, you know, sometimes [00:04:00] we talk about is inflation and, um, we’ll talk about taxes in a few minutes, but estate taxes, income taxes. So, you know, the risks and sometimes it’s like the deer in the headlights.

They don’t know kind of what, you know, what to do. So, you know, so we wanna kind of come up with a, a better approach. We wanna kind of- Yeah … build an appropriate cash reserve while putting excess assets to work. We wanna take time before making these major investment decisions and making sure that we’re putting together a structured investment plan, and we wanna kind of match their investments to their future income and spending needs.

Yeah. And also talk to them about their goals. You know, what is their goals? What do they wanna do with now, their future? And a lot of business owners that have selling are in a lucky position where maybe they can provide for their children and their grandchildren, and how do we do that? And how do we do that [00:05:00] with sometimes they don’t w- they don’t, they’re concerned about taking the drive from their children and their grandchildren.

So how do you set things up and what do you give them now? What do you give them in the future? Um, and a, and a lot of people wanna wait, but is it, can, if you can help out when they’re younger. So having a lot of cash comes with a lot of different decisions to make.

[00:05:21] Bill Tucker: Yeah, it really does, especially because I would imagine for most business owners, their biggest investment has been their business.

And, you know, while certainly they probably have some money in the stock market, uh, you know Selling the business was their big investment. So, you know, I would i- I would imagine that, one, people are really tempted to keep a lot of that money in cash, and two, on the other side of it, suddenly you’re flush with cash and you’re thinking, “Hey, I can

I’ve got money to spend.” Do you see that much as a problem?

[00:05:56] Larry Heller: Yes. So un- unfortunately, we’ve seen both sides of the [00:06:00] equations, that they have this now, and all of a sudden now they wanna kinda go ahead and buy that house- Yeah … and buy that mansion, and spend money, and give money away, and celebrate, um, uh, you know, giving money to family members, and without really thinking about, well, this money has to last them the rest of their lives.

And I’m not talking about, you know, a few hundred thousand. I’m talking about people that have sold businesses for $20 million.

[00:06:31] Bill Tucker: Yeah, yeah.

[00:06:32] Larry Heller: And even at $20 million, we’ve seen people that just don’t listen. Their, their spending habits have been so great, and they wanna kind of, you know, take advantage of what they had and buy certain things, and they don’t kinda look at, “Hey, this money’s gotta last you 30, sometimes 40 years.”

They don’t understand some of the tax ramifications. So this could become a really big problem. Um, and, [00:07:00] you know, trying to talk to, you know, clients or trying to, or potential clients about this issues, um, it takes a … It’s a, it sometimes can be a challenge because it’s their money. They can decide what they wanna do with it.

Right. So showing them kinda a, a game plan and a strategy and showing that, hey, you know, why this could become a problem, or talking about making some questions up, ask about certain decisions before you make a, a major purchase.

[00:07:31] Bill Tucker: Yes.

[00:07:31] Larry Heller: So, um, so all these kinda things are all important questions to ask.

Sometimes we start talking about this even before the sale. So we understand you wanna enjoy the rewards, the success of the sale of your, your business-

[00:07:45] Bill Tucker: Sure …

[00:07:46] Larry Heller: but you wanna be able to make certain spending decisions that are intentional and not emotional.

[00:07:53] Bill Tucker: Well, yeah, I mean, part of your job here, and I think what probably what a lot of your clients are looking to you for, is to provide a little bit of structure A [00:08:00] little bit of guidance when you’ve got this sudden windfall in.

I would imagine another one of the things in, and this has to be a conversation before the sale, uh, and it continues afterwards, you alluded to the three-letter word earlier, but, uh, tax.

[00:08:17] Larry Heller: Yeah, let’s talk about, let’s talk about, you know, tax. So, you know, a lot of business owners that we’ve seen, they’ve grown the business from scratch.

So what does that mean if you grow the business from scratch, Bill? What do you not have?

[00:08:29] Bill Tucker: If you have grown it from scratch, I think one of the things that you’re probably used to is you’re used to running a lot of things through your business, and your tax bill is probably really, really different than you’re gonna find that tax bill looks after you’ve sold your business.

[00:08:47] Larry Heller: Maybe, but what you, what I’m kind of alluding at, what you don’t have is you have zero cost basis.

[00:08:53] Bill Tucker: Ah.

[00:08:54] Larry Heller: So now when you’ve sold the business, okay, and especially if you [00:09:00] live in a higher tax state such as New York, one third, about one third could go to taxes. Yep. So you might have s- sold for 30 million, but you’re only gonna net 20 million.

I know it sounds like a, a, a big number, but- Ooh … that’s $10 million worth of capital gains tax that you could possibly have. And- That hurts … if you’re an active owner versus a passive owner, you may actually have a net investment income tax on top of that. That’s a whole nother discussion. But like I said, we c- it could add up to about a third that could go to taxes.

So one of the missed opportunities is planning for that. And there are strategies out there to help you minimize or actually lower your capital gains tax through certain investment strategies, through certain charitable giving strategies. So having those conversations, and again, start thinking about them before the sale-

[00:09:59] Bill Tucker: [00:10:00] Yes

[00:10:00] Larry Heller: so that you can take advantage of that. And many of them can add significant dollars. We’ve seen some of these strategies, um, i- i- in place that have definitely a big impact on the capital gains tax that you are going to have to pay. Obviously, a lot of things are variable, depend, depend upon what you’re investing in, depending upon some of the strategies, will they work, will they not work in there.

Sure. But at least having those conversations with a sophisticated investment advisor who kind of knows some of these strategies, where your accountant probably has no idea that these even, even exist. So a big mistake is not working with an investment advisor that can dr- help dramatically or help to talk about how you can reduce capital gain tax.

So that’s one mistake. Another mistake, and h- this is hopefully one that your accountant will pick up, but you know, waiting until tax season to plan. Mm. You don’t wanna wait, ’cause that could be the following year. You [00:11:00] wanna kind of plan the year before. So you wanna make sure that you’re coordinating with your tax, you know, the, your tax professional.

So and then there are other opportunities that you may wanna, you know, you may wanna do. So, you know, n- planning this out from a tax standpoint, from making sure that you’re doing some multi-year tax planning, uh, ’cause a lot of times if you’re selling a business, you’re not just getting all of it all at once, and maybe it’s, there’s different years of taxable planning, charitable gifting strategies, tax efficient investment management, and then tax strategies to offset capital gains.

Huge planning opportunities, and unfortunately we’ve seen people that wait a year afterwards and then it’s gone. A- and they’ve lost that opportunity, and that’s kind of hard sometimes when we see that happen, ’cause we, n- with the right planning. So getting the, the knowledge out to a business owner that is thinking about selling and getting to that point, [00:12:00] start talking about this and start having some of these strategies in place that you can use once the, the sale is in place.

[00:12:08] Bill Tucker: Yeah, I would imagine that, you know- You, I’m sure, have counseled your clients. You say you’ve spent these many years building this business. You, you have earned this money. Don’t, don’t waste it. Take the time to plan it because you know the old saw is it’s not how much you earn, it’s how much you keep at the end of the day, right?

[00:12:32] Larry Heller: Exactly, and you know, unfortunately, taxes are a big number that can come out of that. So, uh, if you can minimize the taxes, more is gonna stay in your pocket.

[00:12:43] Bill Tucker: The other thing I think would be a big piece of cha- th- th- this would be just huge. For let’s say 30 years, you have run a business. Your business has been your purpose.

You have now sold your business, and y- your purpose as you knew it [00:13:00] has changed, and I, I suspect, not having b- owned a small business my- myself, but I suspect that you probably have a lot of your clients Finding lack of purpose in their retirement planning now as well, just because everything has changed so dramatically.

[00:13:17] Larry Heller: Yeah. So we’ve talked about the, you know, the possibilities when you’re talking about financially too much cash, not e- enough cash planning for retirement. Well, there are a lot of people that understand that, and we get that part of this problem solved, and they know exactly- Yeah … what they’re gonna do, and they have a great investment strategy.

They’ve minimized taxes. They know exactly what they can spend, what they can buy b- big, big purchases on. But the… What they haven’t figured out is what to do with their time. Yeah. And in the beginning everyone says, “Oh, you know, I’m gonna play golf. I’m gonna relax at the beach. Like, I’m gonna do all that.”

Yeah. And then a lot of times some people can do that, but a lot of times that’s good for a short period of time, but then they start to [00:14:00] lack a purpose because they could’ve been w- this business was their identity for a lot- Yeah … for a lot of business owners, and that’s what they did sometimes for 30-plus years.

And now that’s gone, and they don’t realize it sometimes until they actually are having some emotional type of, you know, issues with that because they’re not prepared for that. Um, I did a podcast, I can’t remember, a long time ago. Maybe I’ll… If I can find, I’ll put in the notes about, there are professionals out there to help with this, and one of them wrote a book and I did a podcast on them.

I’m sorry, I don’t remember the, the name of it. We’ll put

[00:14:37] Bill Tucker: it in the show notes. I mean, g- yeah, absolutely.

[00:14:39] Larry Heller: We’ll put it in the show notes.

[00:14:40] Bill Tucker: Yeah.

[00:14:40] Larry Heller: Um, so really trying to feel what that is and trying to figure out what they can do with their, you know, with their time so they don’t feel disconnected after years of leadership and decision-making.

You know, maybe it’s, you know, volunteering in certain areas or starting a charitable event [00:15:00] or something, or giving back to entrepreneurs or teaching or whate- whatever it is. Trying to figure that, figure that out so they can have a purpose in life. Um, and again, it could be 20, 30 years and, you know, we found if some of these businesses don’t, that they have a big, they have a big problem with it.

The… So they have a successful financial retirement, like, but they are having some other issues along those lines. You wanna kind of try to address this, whether you can do it on your own, whether you need some help, whether the… You’re reading some books on this. So, uh, you wanna align your finances with your personal goals, but also focus on purpose, relationships, fulfillment.

So y- y- you know, retirement isn’t an ending, it’s a transition to, we always call the second act. So- Yeah … trying to figure, you know, figure that out. So it’s not just about having enough money, it’s about having something meaningful [00:16:00] to retire to.

[00:16:01] Bill Tucker: Oh, no. I, yeah, there, there you are, you’ve got all the money in the world and, and you’re not getting up, uh, in the morning to do the same thing.

So suddenly it’s all changed. And y- I think you’re really, you know, I think business owners really need to think about that and, um, g- y- you know, and get that guidance so that they’ve got something to move on to in that second act you talk about. Is there anything that gets ignored sometimes in this process?

[00:16:26] Larry Heller: Yeah, I mean, we talked about, we talked about income taxes, but there’s another tax that can come back to bite you, and that’s called estate tax.

[00:16:33] Bill Tucker: Mm.

[00:16:34] Larry Heller: So, so, you know, a lot of times this gets over- overlooked, and, you know, the existing estate documents are years old, or the owners are focused on the transition itself.

So there’s some, you know, great wealth transfer considerations and significant increase in liquid assets. So there’s new tax planning opportunities after a sale. So, yes, you wanna … Obviously, the income [00:17:00] tax is may- maybe a little bit more timely, but you wanna still address the estate planning u- updates and not really ignoring them.

You know, do you need updates in your design- your beneficiary designation, your wills? Do you need some new trusts? Uh, powers of attorney. We, we talked about gifting and, and putting together possibly a family gifting and legacy planning, and how does that done and done in a, in a manner that makes sense.

So, uh, so, you know, you don’t, you don’t wanna have family conflicts later on, so, um, which could be a potential- Yeah … you know, consequence when people will be inheriting, you know, potentially millions and millions of dollars, and how do you minimize some of the taxes that may go to your heirs? Um, so don’t let this go.

Make sure that you’re, you’re, you’re meeting with, you’re talking to estate, uh, tax attorneys that can put together the right, the, the right plan for you. And, um, so don’t, don’t ignore this, ’cause [00:18:00] a major liquidity event, you know, should definitely trigger a complete estate planning review.

[00:18:05] Bill Tucker: No, no, really fair point.

So why don’t you give us some of the key takeaways that listeners could, uh, should, in fact, make note of and remember?

[00:18:12] Larry Heller: Yeah. So don’t let fear keep your wealth sitting in cash for years and waiting too long to enjoy the, enjoy that money. Um, avoid lifestyle inflation. Uh, that’s a nice way of s- don’t spend too much money-

which could jeopardize your long-term financial security.

[00:18:30] Bill Tucker: Yep.

[00:18:31] Larry Heller: Be proactive about tax planning before and especially immediately after the sale. Uh, be proactive with your investment strategy, and create a retirement plan that includes purpose, not just finances. And finally, update your estate plan to reflect your new financial reality.

We’ve seen all these problems in all, in, on a lot of our clients and business owners that have sold businesses, so I wanted to get the word out there for [00:19:00] those that are close to selling a business or just about selling a business, that these are definitely items that you should consider at that time.

[00:19:09] Bill Tucker: Yeah, and the beauty about this is, and just to put a real line underneath it all, you can do something about all of it, as a matter of fact. Just sit down with your financial advisor, with your, with your accountants, and plan.

[00:19:24] Larry Heller: And we’re here to help.

[00:19:26] Bill Tucker: Um, I know you are. I know you are- … as a matter of fact, and I’m sure you’ve got countless clients who would testify to the fact that you have been a big help to them.

And so listeners, thank you for listening to Retirement Unlocked. Selling a business is a tremendous achievement, but that’s only one part of the journey. The decisions you make after the sale, as you have just heard, can be just as important as the decisions that helped build the business in the first place.

If you have sold a business or are preparing for an eventual exit, Larry and his team would be happy to help you navigate the financial opportunities [00:20:00] and challenges that come with it. Schedule a free 20-minute consultation with them to learn more. If you’ve enjoyed today’s episode, subscribe to Retirement Unlocked and share it with a friend or family member who you think might benefit from some retirement tips.

And remember, please note that Heller Wealth Management is now a part of Savant Wealth Management. Savant is a registered investment advisor. This content is provided for informational and educational purposes only, and should not be construed as personalized investment advice. We will catch you next time