Dealing with deal fatigue: managing your finances after selling a business

Selling a business can be both financially rewarding and emotionally exhausting. After months of negotiations, scrutiny and stress, it’s common for many entrepreneurs to experience ‘deal fatigue’. This is a state of mental and emotional burnout that makes it difficult to immediately tackle personal financial planning.

Yet, with potentially millions in proceeds at stake, it’s crucial to protect your wealth while giving yourself space to reflect and plan your next steps. Here’s how to strike that balance.

Take time to reflect

The period following a business sale is ideal for pausing and reassessing your goals. Beyond the financial windfall, the sale often marks a major lifestyle shift. Before making long-term financial decisions, it’s important to understand what you want your future to look like.

Rushing into investments or commitments without clarity can lead to costly mistakes or the need to unwind decisions later.

The four-box framework

To help navigate this transitional phase, a structured approach can provide both security and flexibility. One effective method is the ‘four-box framework,’ which segments your funds based on short and long-term needs:

1. Instant access

This is your emergency fund. It’s liquid, safe and ready for unexpected expenses. Typically held in an instant-access savings account, it won’t earn much interest but offers peace of mind. Just be aware of the £85,000 Financial Services Compensation Scheme (FSCS) protection limit per person, per bank, were the bank to fail. Note that FSCS protection does not apply to NS&I, but these accounts are guaranteed by HM Treasury.

2. Lost income replacement

Post-sale, many entrepreneurs see a drop in regular income, especially if they stay on in a reduced capacity. This box covers the shortfall, ensuring you can maintain your lifestyle while you transition. For instance, if your income drops from £200,000 to £80,000, this fund bridges the gap.

3. Capital expenditure

This box is for planned expenses such as celebratory purchases, tax bills, mortgage repayments or other large outlays expected in the next few years. Setting aside funds for these ensures they’re accounted for without disrupting your broader financial strategy.

4. Long-term investments

This is where your future wealth grows. However, it’s wise not to rush into investment decisions immediately after a sale. Your risk tolerance may be temporarily skewed, and markets can be volatile. Taking time to develop a thoughtful investment strategy is key. Investment firms also fall under FSCS protection, but this is only applicable if the firm fails, not if investment underperform. Remember, investments carry risk and you could get back less than you invested.

Using a gilt ladder

To manage these medium-term needs (such as those outlined in points two and three earlier) while avoiding the risks of equities or the erosion of cash by inflation, a ‘gilt ladder’ can be a smart solution. This involves purchasing UK government bonds (gilts) with staggered maturities that align with your income or capital needs.

For example, if you need £120,000 annually for the next three years, you can build a gilt portfolio that pays out that amount each year. These can also be adjusted for inflation. Additional gilts can be used to cover future expenses or serve as a temporary holding place for long-term investment funds.

While gilts are generally lower risk than equities, their value can fluctuate with interest rate changes, especially those with longer maturities. That’s why it’s important to seek professional advice when building a gilt ladder or exploring other investment options.

Creating space to plan what’s next

Selling a business is a major life event. The financial gain is significant, but so is the emotional impact. A structured approach like the four-box framework helps you secure your wealth while giving you the breathing room to consider your next chapter, whether that’s retirement, a new venture, or something entirely different.

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Article written by Alison Fitzsimons at Evelyn Partners – alison.fitzsimons@evelyn.com

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