Investing after a business sale

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investing after a business sale
Business Structures
By
John Liston
John Liston
Director | Adviser
March 17, 2021
5
minute read

We discuss how to plan what to do with the profits after selling your business

Selling a business is a big decision. It’s the end result of years of hard work, so you want to make sure you do it right.

When you finally get the right sale price, it’s a fantastic feeling, and can feel like the start of a new life. And with all the work you’ve put in place to build your business, and achieve your goal price, it’s critical that you have a plan in place. You want to make sure you invest the proceeds of your business sale wisely.

In this article, we’ll look at just some of the options you have when investing after a business sale, and how you can go about them.

Wherever you are in your business journey, there’s no better time to start preparing for the successful sale of your business. Contact Liston Newton Advisory today book a meeting with our business experts, and make sure your business is ready when the time comes.

1. Get your structure right

The first important step in selling your business is determining which structure you’ll use to invest your money.

You’ve got the choice of investing in your personal name, a trust, a company, or into your superannuation.

Often, as part of accessing the Small Business Capital Gains Tax concession, there will be a portion of your business' sale proceeds that get allocated to your super. So with this in mind, investing in your super is a good place to start.

Your super options

You’ve got the choice of three types of funds: an industry fund, a retail fund, and a self-managed super fund (SMSF).

If your super balance is already above $300,000, it makes sense to consider investing in an SMSF. This allows you to reduce costs, and provides you with greater flexibility and control over your investments.

[feature_link]The structure you choose depends on your personal situation. Learn more by visiting our companion article on choosing the best structure for your investments.[/feature_link]

2. Plan what you want to achieve

business sale and investment

Once you’ve decided on your structure, and before you start investing, you should get a clear idea of what you want to achieve. You’ve likely got a considerable amount of money, so you’ve got some serious options:

  • Do you want to create a passive income stream, allowing you to live solely off this income?
  • Do you want to invest in other businesses, and act as a consultant?
  • Are you keen to start a new business and begin the process again?

How you answer these questions will give you an idea of how, where, and what you should consider investing in.

Once you’ve got this plan in place, we recommend consulting a financial adviser to discuss how to deploy your money with confidence.

3. Diversify your portfolio

When you sell your business and decide to invest your proceeds you’ve got the ability to choose where and how you invest. If you’re looking to create a passive income, so you never have to work again, this is the path you would take.

This then forms the basis of your investment strategy. So, you’d then need to use a financial model to determine which investments will help you achieve this. With advice from your financial adviser, you would be able to determine what asset allocation best serves your needs.

This could cover shares, fixed interest, property, cash, or a mixture of these and more investment options.

You can also use your SMSF to build a portfolio that’s tailored to your financial goals.

4. Review your liability protection

Selling your business provides you with a significant boost in your financial assets. So it’s important to ensure that both your new wealth, and your existing assets, are protected.

You can do this by using an investment structure that provides asset protection, such as a trust or company structure, or setting up your SMSF with a corporate trustee.

Your financial adviser can guide you through the best structure for your investments that will deliver the strongest level of liability protection against external issues.

5. Consider tax free investments, donations, and gifts

This shouldn’t be your only way of reducing your taxable income. But it can be a beneficial way to reduce the amount of tax you pay — and feel good while doing it.

So if charitable giving is a passion of yours, this can be a way to manage your money after selling your business. But there are smart ways to achieve your goals.

Instead of donating all at once, you might consider setting up a foundation, or your own charity. These can help you use your business sale proceeds to donate for the long term.

But this can be complicated, so we recommend speaking with your financial adviser to understand what’s involved when setting up a foundation or charity.

6. Increase your retirement contributions

increase retirement contributions

This is another way to invest in your future after a business sale. If you don’t go down the SMSF path, you may consider making personal contributions to your existing super fund.

After-tax contributions are known as non-concessional contributions. They’re not taxed within your super fund. According to the ATO, as of July 2017, you can make up to $100,000 in non-concessional super contributions before paying tax.

While not a fast option, this could be a way of investing after a business sale that better suits your personal and professional situation.

7. Create family trusts

Creating a family trust as a holding structure for your investments enables you to essentially lock your funds into a structure that provides for your family’s future.

By setting up a corporate trustee, you’re able to access the limited liability benefits of a company, but with the flexibility that a trust provides. The assets aren’t held in your family’s name, or the name of the beneficiary, so they’re protected should you face a financial or legal difficulty.

And, as a family trust, you’re able to agree on certain conditions and rules with the trustee and the guarantor, so you can choose when and how your family members receive the dividends.

8. Set up your estate plan

With all the hard work and planning that went into the sale of your business, the last thing you want is for something bad to happen to your investments — or you.

The sale of a business can be an opportune time to update, or establish in the first place, your estate plan. Consider this an investment in the future of your investments.

When done correctly, an estate plan puts the best level of protection around your investments, and ensure your assets go to the correct people. It helps mitigate any risk associated with family relationship breakdowns.

To set things up correctly your will must be in place, you’ve nominated Power of Attorney, and you’ve chosen guardians for any children you may have.

The final word

As you can see, there’s a lot to consider when investing after the sale of a business.

The best thing you can do is to take the time to make a plan. Don’t rush into things — sit down, map out what you want to achieve, and plan the way to get there. And make sure to bring your financial adviser on board when you do.

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