Dealing with deal fatigue: financial tips for post-business exit planning

The sale of your business can bring a life-changing sum of money, but it can also take a significant emotional toll. The transaction process can involve many months of the potential buyer poking holes in your company in an attempt to lower the purchase price.

At the end of all this it’s no wonder that many entrepreneurs feel the heavy weight of ‘deal fatigue’ and generally are not in the right frame of mind to jump into the personal financial planning process.

To make the best long term financial decisions, it’s important that post-exit entrepreneurs have time to decompress. However, at the same time you will want to ensure the sale proceeds are safe, which is easier said than done when dealing with potentially millions of pounds.

Here, we’re looking at how you can create that space to reset, while allowing your funds some security and stability against inflation and market volatility.

The period after a transaction is complete is a good time to pause and reflect on both the past and the future. This has obvious benefits from a mental health and well-being perspective, but even for the most practical people it is useful to provide some much-needed time to think about what’s next.

It’s not just about the sale of your company, it can also bring with it a whole new lifestyle, which forces you to reassess what’s important and what you want for the future. To create a financial plan and an investment strategy that’s right for you, it’s important to first take the time to understand exactly what you want life to look like.

Otherwise, you risk making hasty decisions that don’t serve you in the future, or require costly unwinding when plans change.

One of the key ways we help entrepreneurs in this situation is to provide some structure around this holding pattern. You don’t want to feel like you’re doing nothing with your money, but you need time to clarify and organise your next steps.

A structure I often use is the ‘four box approach.'

Instant access

The first box is your emergency fund, and it’s imperative regardless of your life stage. Having a liquid safety net means that you never have to worry about the unexpected, as you have a buffer to provide you with short term cash when you need it.

Typically, this is simply kept in an instant access saver account. It won’t provide you much in the way of interest, but as long as you’re mindful of the £85,000 Financial Services Compensation Scheme (FSCS) limit, it’s safe and easily accessible.

Lost income replacement

The second box is to provide for the fact that most entrepreneurs will see their regular income reduce once a sale goes through. Often as a founder you will be asked to stay on in the business as a leader or consultant, with a salary that is likely to be less than the income you were drawing from the business pre-sale.

For example, you may be going from annual business drawings totalling £200,000, down to a salary of £80,000. This second box provides for the shortfall over the near term to ensure you can maintain your living standards.

Capital expenditure

Of course, a major win like the sale of a company calls for a celebration. Many of our clients like to reward themselves and their family with a trip or their dream car. You may also need to pay off the big exit tax bill in the next tax year, or to clear a mortgage when a fixed rate deal ends within the next two to three years.

This box is designed to set aside funds for these costs, so that they can all be budgeted and accounted for.

Long-term investments

The final box is your long-term investments, and it’s this area where we often strongly recommend that you don’t rush into making decisions. It’s arguably the most important component when it comes to securing your financial future, and it can be easy to make less than optimal decisions in the heat of the moment.

For example, your attitude to risk directly after a transaction is likely to be different from the level it will be once you have had time for normality to return to your life. The issue for these last three boxes is that cash is almost certain to lose value in real terms in the face of inflation, but the volatility inherent in the stock market could mean your funds have fallen in value right when you need the money.

One solution we often consider is known as a ‘gilt ladder.’

A gilt ladder is a strategy where we take UK government bonds (gilts) and create a portfolio that aligns with your income needs. Gilts can be bought with a wide range of different maturities, and matching these with your income requirements can provide the potential for a better return than cash, without the risk of equities.

For example, consider the above £120,000 annual income shortfall in box two. If you are expected to stay with your past company for the next three years, a gilt portfolio could be created to pay out £120,000 in year one, a further £120,000 in year two, and a final £120,000 in year three. This figure could also be adjusted for inflation, so that the payment increases each year to compensate.

At the same time, other gilts could be purchased to cover expected future capital expenses, as a holding position for long-term investments, or any other manner of options which align with your need for income or capital in the future.

You should bear in mind that gilts, particularly ones with longer maturities, can fluctuate significantly in value with interest rate changes. There are other solutions to look at too, which is why it makes sense to consult a professional adviser.

The sale of a business is a life-changing event, often bringing significant financial gain but also emotional overload. A structured approach, such as the four-box framework, helps secure and organise the proceeds of the sale, while giving entrepreneurs time to decompress and consider their next moves.

To speak to Evelyn Partners about how to align your business exit planning with your personal financial plan, book a free initial consultation.