How to Invest After Selling Your Business: A Guide for Entrepreneurs Planning Retirement

Selling your business marks more than the end of an entrepreneurial chapter; it begins your transition from builder to steward of wealth. Whether you’ve walked away with a lump sum or a structured payout, your next financial decisions will shape your long-term security, lifestyle, and legacy.

This guide offers a practical framework for post-sale investing and financial planning, blending tax strategy, lifestyle planning, investment design, and wealth protection.

1. How You're Paid Matters

The structure of your payout: lump sum, installment sale, earnouts, seller notes, or equity rollovers has major implications for liquidity and taxes. Each scenario changes how and when income is taxed and impacts your flexibility.

Key Considerations:

• Lump Sum: Immediate access, but can trigger a large one-time tax bill. Plan carefully to manage the tax burden and avoid overconcentration in a single year.

• Installment Sale: Spreads income (and tax liability) over time, providing a steady cash flow but requiring ongoing tax strategy adjustments. This can be ideal for smoothing income and managing tax brackets.

• Earnouts/Seller Notes: Tied to future business performance, which involves less control and delayed liquidity. Consider the risk and potential for deferred gains, which may affect your immediate financial plans.

• Equity Rollovers: You maintain exposure to the company’s success (and risk), affecting diversification. Balance this with new investments to mitigate risk and ensure liquidity.

Tax Planning Opportunities:

• Time income strategically to avoid higher tax brackets, coordinating with your CPA and Financial Advisor to optimize tax efficiency.

• Use Donor-Advised Funds (DAFs) or Charitable Remainder Trusts (CRUTs) to reduce taxable income and support philanthropic goals, if desired. 

• Explore Qualified Small Business Stock (QSBS) treatment if applicable, offering potential tax exemptions on gains up to $10 million, a significant benefit for eligible business owners.

• Consider opportunity zones or installment sales to defer or smooth tax exposure, though these require careful consideration of risks and rewards. These strategies can be particularly valuable for high-net-worth entrepreneurs.

Pro Tip: Coordinate with your CPA and advisor early, even before closing, to structure the deal in a tax-smart way. This proactive approach can save significant taxes and enhance your financial flexibility post-sale.

2. Build a Fresh Financial Plan from the Ground Up

You’re no longer reinvesting profits; you’re now managing a large, investable pool of capital. That shift requires a new mindset and plan, focusing on preservation, growth, and distribution.

Key Questions:

• What’s your lifestyle budget today and in retirement? Define a realistic budget that accounts for current needs and future inflation, ensuring sustainability.

• Are you fully retired or planning a “second act”? This influences your income needs and investment risk tolerance, affecting how you allocate your capital.

• When will you need to start drawing income, and how much flexibility do you have? Timing affects your investment strategy and tax planning, requiring careful modeling.

• Do you have legacy or charitable goals? Estate planning becomes critical to align with these objectives, ensuring your wealth supports your vision.

Strategy Notes:

• Debt Management: Evaluate existing debts (e.g., mortgages, personal loans) and consider the rates of interest tied to each of these liabilities. 

• Second Act Influence: If planning a second act, such as consulting or launching another venture, factor that into your cash flow and portfolio risk level. The investment strategy of your portfolio should reflect and work in sync with all your other investments. 

• Scenario Modeling: Work with an advisor to simulate different retirement paths, market returns, and spending levels. This helps you prepare for various outcomes and build a robust plan.

This is the time to define your lifestyle, income, and estate priorities with clarity. Consider working with a financial advisor to model different scenarios, ensuring your plan is robust and adaptable to changing circumstances.

3. Design a Long-Term Investment Strategy

Many entrepreneurs struggle with watching market volatility in real time. Unlike your business, this wealth needs to grow passively, steadily, and sustainably, requiring a disciplined approach.

Key Principles:

• Diversification: Build a balanced global portfolio across stocks, bonds, and alternatives to reduce concentration risk. Avoid recreating the risk profile of your former business by spreading investments widely.

• Asset Allocation: Early retirement may require equity-heavy portfolios to combat inflation. As you age, you shift gradually toward stability with bonds, but maintain enough growth to outpace inflation over decades.

• Tax Efficiency: Align investments across taxable, Roth, and IRA accounts to minimize annual tax drag. For example, hold tax-inefficient investments like bonds in tax-advantaged accounts to enhance after-tax returns.

• Withdrawal Strategy: Use guardrails or dynamic withdrawal rules to avoid emotional or poorly timed decisions, ensuring sustainability during market downturns.

Notes:

• Longevity and Inflation Risk: With potential lifespans extending into the 90s, ensure your portfolio grows sufficiently to outpace inflation. Consider annuity products, such as deferred income annuities, to guarantee income in later years. Your withdrawal strategy should account for sustainable growth rates, balancing the need for stability with the risk of outliving your assets.

• Global Economic Trends: Stay informed about global economic trends, such as interest rate environments and geopolitical risks, to ensure portfolio resilience. 

Common Mistakes to Avoid:

• Holding excessive cash out of fear or uncertainty can erode purchasing power over time and miss growth opportunities.

• Becoming overconfident in private investments or one-off opportunities, which may lack diversification and liquidity, exposes you to undue risk.

• Concentrating too heavily in real estate or a single asset class, replicating the risk of your former business, and undermining portfolio balance. Diversification is key to long-term success.

4. Plan for the “Gap Years” (Before Age 65)

If you retire in your 40s or 50s, you face a long planning window before Medicare and Social Security begin. These pre-65 years are critical for proactive planning, offering flexibility to optimize your financial position.

Strategic Moves:

• Roth Conversions: Convert traditional IRA funds into Roth accounts during lower-income years to reduce future tax liability and provide tax-free growth, a powerful tool for tax-efficient wealth management.

• Capital Gains Harvesting: Take advantage of lower brackets before Required Minimum Distributions (RMDs) kick in, manage your tax bracket effectively, and smooth income over time.

• MAGI Management: Control Modified Adjusted Gross Income (MAGI) to qualify for Affordable Care Act (ACA) subsidies or avoid higher Medicare Income-Related Monthly Adjustment Amounts (IRMAA) brackets. This requires careful income planning and coordination with tax professionals.

Notes:

• Psychological Transition: Selling your business is not just a financial event but a profound personal transition. Many entrepreneurs experience a sense of loss or uncertainty as their identity and daily routine shift. This can lead to risk aversion or impulsive decisions. Be diligent in your decisions following your business sale and consult your financial and tax professionals. 

This window is powerful; use it to reposition your assets tax-efficiently before RMDs begin, ensuring long-term tax optimization and financial security.

5. Secure Health Insurance Coverage

Without employer coverage, finding affordable, effective health insurance becomes a top priority, especially during the gap years. This is a critical consideration for business owners selling their businesses, as health care costs can significantly impact your retirement budget.

Options to Explore:

• ACA Marketplace Plans: Potential subsidies based on taxable income (not assets). Model expected premiums into your retirement budget, as this can be a major expense. Income management is key to maximizing subsidies.

• COBRA Coverage: May offer a bridge for up to 18–36 months post-sale, but it’s often expensive. Consider it a temporary solution while exploring other options, ensuring continuity during the transition.

• Health Sharing Ministries: For some, these can be a cost-effective alternative, though coverage and legality vary by state. Research thoroughly before committing, as these plans may not cover all medical needs.

• Health Savings Account (HSA): If you have a high-deductible health plan, consider an HSA. It offers triple tax advantages (deductible contributions, tax-free growth, tax-free withdrawals for medical expenses) and can be used for non-medical expenses after age 65 (taxed as income), providing additional flexibility and long-term savings potential. This is particularly valuable for early retirees.

6. Protect Your Wealth

A liquidity event can make you a target for lawsuits or creditors. Proper asset protection and estate planning ensure your wealth stays yours.

Key Strategies:

• Estate Planning: Update your will, trust, and powers of attorney. Consider legacy and philanthropic goals, as these influence your estate plan. Ensure beneficiary designations are current and aligned with your intentions, avoiding costly mistakes.

• Asset Protection: Use LLCs, umbrella liability insurance, and trust structures to shield assets. For example, in Florida, Tenants by the Entirety (TBE) can protect jointly owned marital property. Work with an attorney to ensure proper titling and separation of personal and business assets, reducing vulnerability.

• Trust Structures: Revocable or irrevocable trusts may align with legacy, privacy, or asset protection goals. Irrevocable trusts, in particular, can remove assets from your estate, reducing vulnerability to creditors and enhancing estate tax efficiency.

Notes:

• Cybersecurity: As a high-net-worth individual, you’re a target not only for litigation but also for cyber threats. Implement robust digital security measures, such as two-factor authentication, secure account management, and regular monitoring of financial accounts. Work with your advisor to ensure your wealth protection strategy includes these safeguards, protecting your digital assets.

• Family Dynamics: Wealth transfer involves complex family dynamics. Consider family governance, such as family meetings or trusts with spendthrift provisions, to ensure smooth transitions. Educate heirs on financial management to prepare them for inherited wealth, reducing potential conflicts and ensuring your legacy is preserved.

Wealth preservation matters just as much as growth after a major liquidity event. Regular reviews with professionals ensure your strategy remains effective over time, attracting business owners seeking long-term security.

7. Don’t Rush Into the Next Thing

After years of working hard to build a business, the instinct to “deploy capital” quickly can be strong. But this is a season for stewardship, not speculation, a key insight for business owners selling their businesses and seeking to preserve their wealth.

Exercise Caution With:

• Angel Investing or Startups: Illiquid, hard to vet, and highly risky. Assess these opportunities carefully, as they can tie up capital and expose you to undue risk, deterring business owners from impulsive decisions.

• Real Estate Overconcentration: Don’t recreate business ownership dynamics with active management burdens. Ensure any real estate investment fits within your diversified portfolio, avoiding the pitfalls of your former business.

• Friends and Family Ventures: Emotional investments are harder to unwind—be selective and structured. Prioritize capital preservation over the allure of another entrepreneurial venture, a valuable lesson for business owners transitioning to retirement.

Final Thoughts: Steer, Don’t Drift

Selling your business gives you freedom, but it also requires discipline. You’ve moved from owner to investor. Now’s the time to:

• Understand your deal structure and plan accordingly, ensuring you’re prepared for the financial implications.

• Build a thoughtful financial plan that aligns with your lifestyle and legacy goals, providing a clear path forward.

• Invest with a long-term, diversified strategy, not emotion or fear, ensuring sustainability and growth.

• Take advantage of the tax planning window in your early retirement years, optimizing your financial position.

• Secure health coverage, protect your wealth, and think before leaping into the next venture, attracting business owners concerned about their post-sale future.

At Atlantic Edge, we specialize in helping entrepreneurs navigate this exact transition, strategically, securely, and with purpose. If you’re planning your next chapter, we’d be honored to help you build it.

Disclaimer: The information provided in this article is for educational and informational purposes only and should not be construed as personalized financial, tax, or legal advice. Every individual's financial situation is unique, and decisions should be made in consultation with qualified financial advisors, tax professionals, and legal experts. The content reflects our understanding as of the publication date and may not account for future changes in laws, regulations, or market conditions. Atlantic Edge Wealth does not guarantee the accuracy, completeness, or timeliness of the information presented. Past performance is not indicative of future results, and investing involves risks, including the potential loss of principal. Always seek professional guidance before making financial decisions.