What to Do Once You Receive a Large Sum of Money

“Hey Mike, I just sold my business for five million dollars. What do you typically recommend someone like me do next?” Discover the behavioral risks when you receive a large sum of money from selling a business, receiving a large inheritance, or even winning the lottery.  

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What is How to Retire on Time?

Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, and more. This show is an extension of the book How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretireontime.com.

This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.

Mike: 00:05

Welcome to How to Retire On Time, a show that answers your retirement questions. My name is Mike Decker. I'm the founder of Kedric Wealth. And joining me in the studio today is my colleague, mister David Franson. David, thanks for being here.

David: 00:15

Glad to be here. We're gonna be

Mike: 00:16

taking your questions. Text them right now to [phone]. Again, that number, [phone]. Let's begin.

David: 00:25

Hey, Mike. I just sold my business for $5,000,000. What do you typically recommend someone like me to do next? Nothing.

Mike: 00:34

For the short little while, do nothing. Okay. That might not sound financially prudent, because you could have FOMO of, oh, I could invest in the market and grow my money, but you also could invest in the market and lose money. It could be, well, I'm gonna put a bunch of money in the CDs. I mean, that's not that bad of an idea of short term CDs just to kinda keep up with inflation, but the idea is do nothing for a short but deliberate period of time.

Mike: 00:59

Here's why. When you sell your business or when you receive a lottery, if if you're one of the few that win the lottery, if you settle a large settlement and you've received a windfall of cash, if you did not have a lot of money for a long term period of time in your life, and then you just received a large inheritance, whatever it is, when you receive a large sum of money that you're not used to managing, you will distort your reality.

David: 01:24

I can imagine there would be like a kind of a rush of like, oh, what is this? This is like, maybe you're on a high of

Mike: 01:29

Yeah. There is anxiety associated with it. Mhmm. And so because of that, we make quick decisions. We have adjusted our behavior to this new reality.

Mike: 01:39

And so for many times, the answer is quite literally, do nothing for a little bit. Let the reality settle in. Now that doesn't mean you don't do research. You should do research. But it's not the kind of research of, I'm gonna talk to this guy real quick, and he's gonna put me in this product, and we're gonna solve this within the next week or so.

Mike: 01:58

You need to understand your new reality. Too often, what I see happens is they will get a large sum of money, and they'll shop different advisers, and it's just too big of a decision because they don't wanna lose it. And so they end up saying, well, I'm just gonna buy a bunch of CDs, and they ladder out the CDs for the rest of their life or their treasuries for the rest of their life, and they've made a reactive investment decision because they talked to a few salespeople that were trying to push a product that didn't sit right with them. Too often I see people that say, well, I'm I'm gonna put in the market and all this well, and and then when the markets go down, they panic, they sell, and they just took a huge loss. Too often, I see people say, well, I'm gonna be industrious, and I'm gonna buy businesses.

Mike: 02:34

It's almost always the same thing. I'm gonna buy franchises and car washes. Do you have experience in the franchise business? Do you have experience managing a car wash? Do you know how to price a car wash?

Mike: 02:44

Is that a profitable car wash, or is there a good reason why they're trying to sell the car wash? Do you know what it's like to be a landlord? So for those who receive a large sum of money, understand that your behavior in that moment is probably not congruent with what you need to do to properly manage those funds. Slow down. Explore the options.

Mike: 03:08

It is important to educate, but you're going through an educational process to understand your options and then sit on it.

David: 03:17

Yeah. How long should someone sit typically? Does that vary by person?

Mike: 03:20

Or It depends on each person.

David: 03:22

It could be months. Could it be a year? Could it be

Mike: 03:24

years, plural? I don't know if more than a year

David: 03:27

Okay.

Mike: 03:27

Is needed, but everyone is different. I mean, really, if I'm gonna put the psychologist hat on for a moment, your behavior is based on the experiences you've had. So if you've struggled financially for a lot of your life, even if you're a business owner, but you got the capital calls, you've got payroll you're trying to make, you've got the next deal you're trying to close, and it was always this hustle and this panic, which most small business owners experience. Now that you've got this freedom, it is such a paradigm shift. It's not gonna happen overnight.

Mike: 03:58

And for the business owners that are selling their business, they might be so exhausted from their business that they're just looking for a quick deal. That's also a bad situation because you need to take your business, and they need to separate it. Do you own the real estate associated with the business, the office space? Because if you do, then in the deal, you don't wanna make a quick deal because you're exhausted. You wanna separate and say, okay.

Mike: 04:17

Let's let's sell the business specifically, the property, and maybe you move that over to something like a Delaware statutory trust, so you've deferred the taxes. So you just sold a $10,000,000 business. $2,000,000 was was office space. $2,000,000 was deferred to this thing that can maintain your cash flow. And then the rest of it, the goodwill, the assets, all of that, you can sell it, and then there's tax in a different way.

Mike: 04:41

But you you wanna slow down the sale, make sure you set it up correctly, and then you sit on it. You can take cash out of CDs or treasuries or or cash accounts. And, yeah, I know inflation's a risk, but you know what also is a risk? Taking an emotional decision quickly and then regretting it. The emotional behavior, the discipline, the slowing down in doing research is such an important part of financial planning, and I don't think it gets enough credit because admittedly, many financial advisers, they want the next deal, they want the new client, and they wanna move on to the next one.

Mike: 05:15

There's nothing wrong with that. They're running the business too. But when you have a four one k that you've slowly gotten used to over the years, you know what it is. You know, you put in your blood, sweat, and tears to grill this asset. You're aware of it, and you've kind of been exploring your options along the way.

Mike: 05:32

But when something comes out of the balloon, you have this new paradigm, this new reality, you have to digest it. So I would be cautious with people making investment decisions quickly when they've had a large sum of money come to them.

David: 05:47

So that seems to be the bottom line here. The one major takeaway to answer this question is don't rush.

Mike: 05:54

Don't rush. And maybe you can figure it out in a month or two. Maybe it takes a year. Everyone's going to be different, but the idea is it's okay to pause, take a breath, and consider the different options, and really spend time doing your research. Because it is a blessing to have a windfall of assets come to you, whether it's through inheritance, a sale of business, or whatever it is.

Mike: 06:17

Don't squander it. And don't think that you're the smartest person in the room. I'm not saying anyone would think that, but a lot of people do. Well, I have the money, so I must have done something right. That's true.

Mike: 06:27

But that doesn't mean you know how to do the financial investment part of it. Right? It means you know how to make those funds exist. You know how to grow a business, but you're trying to start another business and grow it again. You just left that.

Mike: 06:38

And if you really wanna do it again, then why'd you sell it in the first place? So slow down, digest, make sure you're fully aware of what's going on, and just take your time. You've got all the power in the world to just you have that luxury. And then if it makes sense, when it makes sense, and you've slept on it for many, many nights. And if it still feels right, if it still checks off all the boxes, then proceed, but do not rush.

Mike: 07:08

That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcasts. Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility.

Mike: 07:33

This is not your ordinary financial analysis. Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date, go to www.yourwealthanalysis.com today to learn more and get started.