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Planning For a Liquidity Event: Steps to Take Before & After Thumbnail

Planning For a Liquidity Event: Steps to Take Before & After

Whether you’re the owner of a small business or a C-suite executive, you’ve worked hard to help your organization grow and succeed. You may have accumulated valuable assets along the way, but it’s estimated that as much as 80% to 90% of them are tied up in your company.1 And if you’re one of the 48% of business owners without an exit strategy, that could make things difficult when you plan on retiring or otherwise stepping away.2

A liquidity event like going public, merging, or selling your business is something that many executives must face at some point in their careers, and it allows founders and early investors to liquidate a portion or all of their shares. There’s a lot that goes into planning for these liquidity events, from ensuring your business is properly valued to navigating the regulatory environment to allocating the funds you receive from the liquidation.  

To help you prepare for a liquidity event, here are a handful of steps you should take leading up to and following a liquidity event:

1. Assemble a Team

Leading up to the sale, merger, or IPO of your business, the first thing you should consider is building a team of trusted professionals who can lend expertise in areas you may not have it in. These should include roles such as: 

  • Financial advisor
  • Corporate attorney
  • Certified public accountant
  • Estate planning attorney 

This list isn’t exhaustive, and your individual circumstances may necessitate adding additional resources to your team. Assembling this team can help alleviate some of the pressures and challenges that come with building an exit or liquidation strategy. The right team can also help you eliminate financial inefficiencies and navigate the various legal and regulatory complexities of the process.

2. Update Your Estate Plan

It’s also important to establish and update your estate plan before a liquidity event. A carefully considered plan can help you safeguard your assets and designate how your wealth will be allocated, whether it be to your heirs, taxes, philanthropy, or something else. Your estate plan should leverage written documents and other legal entities to minimize the tax burden imposed on your beneficiaries and streamline the probate process.

3. Evaluate Your Life Insurance Needs

While you’re planning for your business exit, it may also be a good opportunity to revisit your life insurance policy. Life insurance can provide your family or your business with liquidity when it’s needed most, allowing for debts to be paid off or business operations to resume. Some opt for term life insurance as a form of low-cost protection for their assets. Others opt for permanent life insurance because it has a cash value component that can accumulate over time. Be sure to review your life insurance coverage to see if your policy aligns with your current goals and the needs of your business.

4. Reassess Your Investment Strategy

Once you liquidate, you may have a sudden and substantial influx of cash. What do you plan on doing with it? This is the perfect time to review your investment objectives and make changes to your portfolio allocation if any are necessary. If your investment horizon, risk profile, or long-term financial goals have evolved, your financial advisor can help you align your holdings with your new reality.

5. Identify Cash Flow Needs

As you decide how to deploy your funds following a liquidity event, think about what your cash needs will be in the near term as well as the long term. Leaving the business may mean that you’ll no longer receive a wage, in which case you’ll need to use income-generating investments to cover your needs. Do you have any significant expenses coming up, such as buying a home or paying medical bills? Do you plan on gifting a portion of your wealth to your children or grandchildren? Achieving a clear picture of your cash needs can help you determine how best to allocate your funds between liquid and illiquid assets to support your lifestyle.

6. Develop a Charitable Giving Strategy

Interested in using a portion of your newfound liquidity to advance your charitable goals and potentially earn favorable tax treatment in the process? Partnering with a specialist in the charitable giving space can help you make efficient use of your charitable dollars. We can help you take advantage of different vehicles like donor-advised funds (DAFs) and private foundations that may allow you to support the causes you believe in while receiving tax breaks for doing so.  

An effective charitable-giving strategy may help you offset some of the taxes associated with receiving a windfall following a liquidation event, either allowing you to make an upfront income tax deduction or spread that deduction over a handful of years.

Need help planning for an upcoming liquidity event? We can work with you to prepare an effective exit strategy, guiding you through the process and helping you make informed decisions. Book an appointment today to get started.



This material is intended for informational/educational purposes only and should not be construed as tax, legal or investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Certain sections of this material may contain
forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results. Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption of any kind. Please consult with your financial professional and/or a legal or tax professional regarding your specific situation and before making any investing decisions.
Asset Allocation does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.


1 Munk, C. (December 29, 2022) The biggest mistakes owners can make when selling their business. CNBC, https://www.cnbc.com/2022/12/29/the-biggest-mistakes-owners-make-when-selling-their-business.html
2 Mscari, N. (January 27, 2023) When should business owners start developing an exit plan? Here’s what you need to know. Entrepreneur, https://www.entrepreneur.com/leadership/when-should-business-owners-start-developing-an-exit-plan/442711