You Sold Your Business...Now What?



Earlier this week I was reading a post from Ben Carlson, CFA and head of Institutional Investments at a large Registered Investment Advisory firm in NYC, relating to his commentary on how to invest proceeds from the sale of a business.


This post spawned from a question posed by one of his podcast listeners who is 32, makes $120k/year, has a modest mortgage of $85k at a 3.5% interest rate and recently received $1,000,000 from the sale of a small company. Yes, you read that right.

His question was, "What do I do with this cash? Betterment? 50/50 stocks/bonds? Help!"


This is a great question and one that most business owners face after exchanging their business for a slug of dough

Ben's post is well thought out and detailed. He highlights the importance of patience, time and averaging into the market. He touches on pre-funding future expenses such as weddings and a down payment on a home. He asks what this person wants from an early retirement and clarifies financial planning involves much more than numbers and spreadsheets.


While this is undeniably good financial advice, I couldn't help but wonder why there was no elaboration of the business sale. $1,000,000 in cash (Less taxes, but still) at age 32, and you're asking for financial advice? Maybe you should be giving it.

Unfortunately, I don't know the complete story here but can assume that this individual is, in some form, an entrepreneur. I'll assume this "small company" wasn't family owned nor inherited, but rather built with blood, sweat and tears.


I'll also assume this person graduated college in his early 20's and started, or invested in the business at or around that time. It's impossible to say what the initial investment was but given the $120k/year in annual income at age 32, I'll wager to guess his salary was much less 10 years ago, leading me to believe any cash outlay was minimal at best.


To summarize the assumptions thus far, we have a 20-something who started a small business, or made small investment in a start-up that in 10 years, resulted in $1,000,000 cash in his pocket. I guess my question is, why not replicate this?


Sure, this could be a unicorn-like story. He could have gotten extremely lucky and timed everything perfectly (Like how we envision most entrepreneurial success stories). Or maybe he, like most small business owners, failed ten times over before achieving massive success. Maybe instead of savings 4% of his salary in a 401(k), he consistently invested in a small business that afforded him more control and influence over, than say the S&P 500.

Whatever journey this individual took to achieve $1,000,000 by age 32, I am certain it's one that most people never consider, and am confident most financial advisors never explore when consulting with clients. And that's the journey of entrepreneurship.


Entrepreneurship is challenging not only because of the high failure rates and levels of risk, but because it's difficult to establish an effective rate of return for financial planning purposes. It's easy to look back and say the stock market returned 8% on average per year over the past 50 years, but entrepreneurship is different. Often, monetary returns are foregone in the beginning and after many years of more downs than ups, massive returns, i.e. $1,000,000 in cash, are realized. So as a financial planner/advisor, it makes it challenging to advise/recommend "entrepreneurship" as an investment option which is why most neglect to consider this as a viable recommendation.

Getting back to this person's story, why not consider taking a portion of the proceeds and starting, or investing in another small business? Why not use the knowledge and skills you've obtained in amassing $1,000,000 at age 32 to do it again, or better yet, create a business that teaches others how to do what you did?


To clarify, there's nothing wrong with investing in a 50/50 stock/bond portfolio or using Betterment or dollar-cost averaging into the market. I agree with everything Ben Carlson says for a portion of your wealth and believe everyone should visualize what their ideal retirement looks like first, then build a diversified portfolio of investments from there.


However, I can't ignore the role entrepreneurship plays in creating, and maintaining financial freedom and believe advisors, especially ones working with small business owners, should add this wealth generating juggernaut to their financial repertoire.

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Image by Aaron Burden

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