I'm Becoming a Millionaire

Derek Notman |

Tips on how to prepare for and manage your millions after selling your start-up

Becoming a millionaire is a vision many people pursue, but, as we all know, unless you happen to win the lottery or inherit a significant lumpsum, it takes a lot of hard work and dedication to become part of the mega wealthy.  Being an entrepreneur and choosing to start a business is probably one of the most precarious journeys you can take, but the potential rewards are worth it.  So what route should you follow when your start-up has grown in significance and you’re ready to sell?

First and foremost, consider enlisting experts like a certified financial planner, accountant, and estate planning attorney.  This team, and yes it should be a team that works together instead of in silos, will be able to help you build and implement a plan that helps you realize everything that is important to you.  The decision to sell your business should not be taken lightly and there is usually a lot at stake so make sure you are working with professionals that are experienced in working with business owners like yourself.  Equally important make sure you actually get along with your team.  If you don’t then it won’t matter how smart they are.

What being a millionaire means?

According to the dictionary, a millionaire is someone who has a net worth of a million dollars in assets. It's not just cash. It could be cars, stocks, bonds, houses, websites, IP or any number of things that count as assets and not liabilities.  For entrepreneurs the largest part of their net worth is usually their business, but it doesn't really seem real until you are about to sell it.

As an entrepreneur who is about to unlock the value of your business you are about to come into a large sum of money, liquid money.  You may have had millionaire status before but now you have it with a much bigger bank account.  This presents its own set of challenges and opportunities.

Pending sale…

There are many reasons to consider selling your business.  Perhaps you want to turn the business over to your children, but they’re not that interested.  Or you may have that itch to move from running a mature business to creating a new start-up.

Another option to consider is to sell your business, but remain on as a senior leader, advisor, or consultant.  Given your existing relationship with suppliers, customers, and key employees, such an arrangement can increase the value of your business. Potential buyers could pay more for your business if you agree to stay on because it reduces their risk and lessens disruption.

Founders who sell their company should consider reassessing their plans for personal finances that were in place prior to the sale of the company.  This is an opportunity to adjust for the new and improved reality of what will transpire upon the sale of the business.

Whatever your reasons, apply some careful deliberation. The sale of your company represents a significant one-time event.  As with most things in life, of course, there are some pitfalls to consider.

Some benefits of selling your business include:

  • Structuring a deal that transfers your business to new owners and generates liquidity for you but allows you to remain involved in the business if you so choose.
  • Taking advantage of opportunities. It may be the right time to sell your business at the highest possible price.
  • Providing an opportunity to maintain your involvement with the business you’ve worked hard to build, by serving as a senior executive or advisor to help the buyers ease the transition to new ownership.
  • Diversifying your personal finances. If the equity in your business represents your most valuable asset, selling it allows you to turn some or all of those assets into more liquid and more diversified investments.

Possible pitfalls of selling your business:

  • Engaging in highly complex transactions that require extensive negotiations.
  • A potential requirement that you sign a non-compete agreement, which could limit your ability to consult with similar businesses or start another business over a specified period.
  • Possible need to finance a portion of the transaction, which can leave some of your assets at risk. If you remain involved with your business after a sale, however, new owners face less risk and may be willing to finance more of the sale price on their own.

Consider the following salient points to ensure your millions are protected:

Protect Your Proceeds

The most important step you should take after successfully selling your business is to protect the proceeds.

  • Here are three ways to do that:
  1. Diversify Your Holdings:  If your sale resulted in a cash disbursement, chat to your financial advisor about a diversification plan for the proceeds. Your financial planner will guide you on your diversification plan which in part will depend upon the amount of proceeds, your other assets, and your age.
  1. Hedge Your Bets:  If your sale resulted in stock instead of cash because of the sale of the company, enlist the help of your financial advisor to best determine the way to hedge against a downside on the stock you receive. Do not let yourself be caught in a situation whereby you perceive what might be a significant return, is in reality, your stock plummeting.  Start planning your hedge strategy even before you close the sale of the business.
  1. Review Your Liability Protection:  Discuss what exposure you have to liability with your financial advisor. Ensure you have appropriate insurance coverage.  Analyze whether you are exposed to personal financial risk in any other businesses you own.

Minimize your taxes on the sale

A main consideration connected with the sale of the business concerns minimizing taxes that result from the disposition. Here are a few points to consider:

  • Structure the Transaction Beneficially

If you are receiving stock instead of cash from the sale of the company, you could be able to receive the stock tax-free if the transaction is structured correctly.

  • Seek Capital Gains Treatment

Capital gains on the sale of stock receive much better tax treatment than ordinary income tax treatment.  Review your options with your financial advisor and accountant.

  • Take a Loss on Other Investments

Prior to year-end, consider selling a losing venture or losing stock to offset some of those gains from selling your business. 

  • Consider Tax-Free Investments

If you are a high-income individual, consider investing some of your money in tax-free government or municipal bonds for at least a portion of your portfolio.

  • Remember Charitable Donations

Consider making donations towards year-end to lower your tax bite and remember to retain receipts.

  • Consider Gifts

As of 2018, you can give up to $15,000 a year away tax-free to each person you choose. (By combining their gifts, married couples can give up to twice that amount.) You may even be able to utilize lifetime gifting exception amount of $5,600,000 (individual) or $11,200,000 (married couple) per updated IRS rules in 2018.  Make sure to consult with your tax and legal advisors before making any gifts.

  • Max Out Your IRA or Other Retirement Plan Contributions

This is a legitimate way to lower your taxes for the year, so ensure you have taken advantage of IRA, 401k, or other retirement plan contributions that you are entitled to.


Remember, financial advice should always be personalized.  In the 13+ years I have been a financial advisor I have never come across two clients that had the exact same needs.  Solid financial advice should be administered through a qualified financial advisor (Certified Financial Planner©) that can have an open dialog with you. 

Thank you for reading!