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Rebecca Bettany – Thoughts for November


Liquidity events are not necessarily as fun as they might sound.

It is easy to forget that they often accompany sad circumstances such as divorce or the death of a relative. Even winning the lottery can be traumatic due to its very sudden nature. Entrepreneurs selling a business however have a different experience as they usually spend several years planning the event.

As always it is important to take sound tax advice to make sure you set aside correct amounts and that funds are held in an appropriate structure. This is the time to make sure sensible estate planning is in place and, as an extension of that, any children who you intend to benefit need to be educated and prepared.

A windfall can lead to a re-evaluation of our role in the world and our lifestyle choices. Giving up work is generally not a good idea. The concept of retirement was brought in around the time of the Industrial Revolution for factory workers but is less relevant for today’s business owners. A liquidity event could change the nature of work that we do but it should not lead to the removal of work in its entirety, as that sometimes leads to boredom and depression.

Selling a business can be difficult as many business owners find themselves effectively unemployed after years of intense service and emotional investment. It becomes necessary to contemplate what one’s identity is without one’s business. For entrepreneurs who see their business as an extension of themselves, this is very hard.

Many individuals use liquidity events as an opportunity to set up a charity. This can also help with the creation of a new identity as well as legacy.

One of the riskiest things that can happen is an entrepreneur starts a new business believing him or herself to have the Midas touch after their previous success. It is not unusual for entrepreneurs to lose their entire fortune within a few years of a windfall.

It is important to consider your cash flow requirements and budget accordingly. You should only invest money that you are willing to lose. However, you should also be mindful that not investing at all can lead to the relative erosion of wealth by inflation. These varying risks can be managed by creating a diverse portfolio. A range of investments can also lead to difficulty in remembering what you have and where. Regular, accurate and consolidated valuations become imperative.

Central to all of these criteria is whom to trust. New friends and advisors will circle like vultures – not to mention family members you have never even heard of. The creation of a thoughtful family office structure is a useful way of relieving this burden.

Only once you are confident all of the above have been properly considered should you look to upgrade your plane, chalet and yacht.