The exit is the point at which value previously tied up in a business becomes hard cash that is available to the entrepreneur. Clearly the money should be managed wisely but as Andrew Haigh advises, there is no need to rush into the wealth management process.
From one perspective, the money realised through an exit is a tangible reward for years of hard work. But viewed from another angle it’s a little like winning the National Lottery. For those exiting a business successfully for the first time, it is often the first taste of real wealth. It’s a watershed moment.
And as such - paradoxically perhaps – the period immediately following an exit can be stressful. Yes, there is money available to buy the dream car, take a long holiday and begin an exciting new phase of life, but the pool of cash - even if it’s a very large amount – won’t be unlimited. Once you’ve exited a business, the proceeds of the sale will be your financial mainstay and whether you intend to embark on a long retirement or use the money to fund further entrepreneurial ventures, it is important to manage your wealth according to a personalised plan.
But what does that mean in practice?
Well the first thing to be said is that there will be no shortage of proffered guidance. Following an exit, the chances are you’ll be approached by a great many people from the wealth management industry, all offering advice and investment services. It can be a very confusing time. Entrepreneurs are wealth generators, not experts in investment portfolios, so talking to finance professionals about investment strategy can raise more questions than answers.
RELAX AND TAKE STOCK
So my advice is to take time out. The money is safe in a bank account. It’s not going anywhere, so the first thing you should do is reward yourself with a well-earned-break from worrying about business or money. Buy a new car, enjoy a holiday, and taste the fruits of your success.
And after a while you can begin to take stock. Before you begin to invest your money, you need to be clear about your life goals. For some, the next stage will be starting a new business. Others may wish to become involved with third party businesses through investment or non-executive directorships. And for another group, the priority will be retirement, perhaps laced with philanthropic pursuits. Your investment options will spring directly from these lifestyle choices, so it’s important to take time to think things through.
EDUCATE YOURSELF
With a lifestyle plan sketched out, you can begin to talk to wealth managers or financial advisors. It’s worth taking time to do your homework before you get into serious discussions. At Coutts we recommend and indeed help our clients get to grips with the financial terms and the characteristics of the range of investment options available. Those who learn the finance and investment basics are much better placed to have an informed discussion with their advisors. Indeed, insist that your advisors provide you with some coaching about the jargon and the mechanics of investment management and some clarity around what your expectations should be.
INVESTMENT POTS
Once broad lifestyle objectives have been established you can begin to draw up a detailed financial strategy. The approach we take is to divide the available money into asset pots that serve specific purposes within the wider portfolio. Typically, this will break down into five categories:
The percentage put into each of these pots will depend not only on the individual’s lifestyle objectives but also his or her tolerance for risk.
The allocation of cash and resources into these categories is not a ‘one time’ process. An entrepreneur’s goals and expectations will certainly change over time and the portfolio should be reviewed regularly. This planning process should cover the totality of wealth, matching the resources available to the new objectives.
Andrew Haigh, Managing Partner, Coutts Entrepreneurs
