Selling your business for cash? Deciding how to allocate and invest the proceeds after the sale of your company is a big decision that requires careful planning. If you are expecting a sudden windfall, develop a plan to allocate the proceeds and reinvest in your future. As you weigh what to do with money from the sale of a business, consider these key points.
What to do with cash from selling a business
When you own a business, your net worth is highly concentrated in one illiquid asset. A sale gives you the opportunity to diversify your investments, de-risk your financial situation, and improve your cash flow.
If you’re expecting a large cash windfall from a business sale, here’s what to do next.
Financial planning considerations
Develop a financial plan
Consider your financial goals and timeline. If you plan to retire, what are your income needs and expenses? What business expenses (such as a car, phone, etc.) will you need to pay for personally now?
Are you expecting any major purchases or new business investments? Major charitable or gifting goals? Remember to plan for various holdbacks, escrows, and potential earnouts when considering how much cash you’ll have at closing, and what you expect to receive in the coming months or even years. Don’t pre-spend the proceeds!
Not every entrepreneur wants to retire after selling their company. But for those who do, sudden wealth won’t automatically mean you’re on track to live the lifestyle you want in retirement. How much you’ll need depends mostly on your expenses, not savings. As you consider the best ways to utilize sudden wealth, remember that spending drives what’s possible financially.
Create a formal financial plan. A comprehensive financial plan can help you analyze whether the sale proceeds will allow you to maintain your lifestyle and what variables you can play with to optimize the outcome. Alongside a financial plan, consider ways to reduce tax from the sale of your business, estate planning, charitable giving, and other goals.
A key part of deciding what to do with the money after the sale of a business is understanding your risks and options. To feel confident that it isn’t too early to retire and assess the feasibility of your goals, a financial plan should include a Monte Carlo simulation. This is the best way to stress-test a retirement plan.
Will you retire after selling the business?
The decision to retire isn’t just about money, especially for entrepreneurs. Don’t discount your non-financial goals and what you plan to do after you sell. Going from running a company to suddenly retired is a difficult transition for many people. Expect a transition period and consider how you’ll spend your days when the honeymoon period wears off.
Hold off on big purchases (or gifts) until you have a financial plan
Business owners should delay major expenses or cash outlays until they fully understand the tax implications of selling a business and have considered their financial goals. This includes how to invest the proceeds.
After a major windfall, it’s easy to feel the cash burning a proverbial hole in your pocket. One knee-jerk reaction is often to pay off a mortgage or buy a new home with cash. As with nearly everything in life, there’s an opportunity cost that comes with each decision we make. Whether you share the urge to live without a mortgage or simply aren’t sure where else to put extra cash, realize prepaying your mortgage isn’t always a good idea. If you have a low interest rate, using the money to pay off your mortgage early might be a mistake.
Again, the transition from busy CEO to suddenly retired can be abrupt. So try not to gift or spend big money too quickly and before you know you can afford to. Many feel this is all I’m ever going to have. This can bring a lot of stress, so consider time-sensitive tax planning opportunities with this lens.
Estate planning
Your estate plan is likely to change considerably after selling a business. Work with a trusts and estate lawyer to draft a plan that suits your situation and family goals. Considering your assets and projected income needs, discuss options to meet your charitable goals and ways to reduce your taxable estate with gifts to family, if inclined.
Also consider techniques with trusts to accomplish various goals. For example, revocable living trusts can allow you to continue to control your assets and avoid probate while irrevocable trusts offer superior asset protection, but you often lose full control.
As with any financial strategy, it’s essential to ensure alignment with your overall objectives and priorities. Avoid making decisions purely for tax reasons.
Tax planning after selling a company
Before you can decide what to do with cash after selling a business, you need to know what the after-tax proceeds will be. The tax consequences from the sale can be highly complex.
Here are just a few factors that make calculating taxes after the sale so nuanced:
- Asset sale vs stock sale
- Purchase price allocation of individual assets (federal capital gains taxes versus ordinary income)
- Terms of the deal: cash, installment sale, seller financing, earn out, equity rollover, etc.
- Multi-state tax implications depending on the footprint of the business
- Structure of the business (C corporation, S corporation, partnership, LLC)
- Tax laws in the business owner’s home state, including special surtaxes such as the Massachusetts Millionaire Tax
Work with your legal and tax advisors to understand the tax implications from your exit. During negotiations, there are ways to reduce tax for the seller, but sellers need to ask.
Strategies to reduce tax
On the personal side, there are still planning opportunities to consider when trying to reduce tax after a large payout. Here are some key options.
- QSBS. If your company is a C corporation, you might be able to sell your business tax-free if you qualify for Section 1202 – qualified small business stock.
- Charitable tax deductions. If charitable giving is a goal, making a big donation the year you sell your business can really pay off. For example, donor advised funds are a great tool to help investors maximize the tax benefits of charitable giving. Again, use caution before making irrevocable money moves right after a sale.
- Deferring gains on real estate. If there’s real estate involved, weigh the pros and cons of doing a traditional 1031 exchange or 721 exchange utilizing a Delaware Statutory Trust (DST) to defer gains from the sale of investment real estate. These are complex and nuanced vehicles with liquidity and investment risk, and cost components, that should be evaluated thoroughly.
- Deferring gains with Qualified Opportunity Zone investments. The original QOZ rules trigger gain recognition at the end of 2026. The recent tax bill (OBBB) refreshed the potential tax benefits and changed some key rules, including adding a rolling five-year tax deferral after the initial investment. But given these changes don’t come into effect until 2027 and there’s only a 180-day reinvestment window, it is too early for business owners currently exiting to consider the many pros and cons of this strategy.
Investment strategy
A liquidity event is a great opportunity to develop a long-term investment plan. As a business owner, growth was probably a top priority. After the transaction is complete, consider ways to protect and grow the wealth you’ve built.
Key considerations for investing a large cash windfall
- Dollar-cost averaging versus lump sum investing. Short-term market swings can be significant. Volatility can cause otherwise rational investors to consider emotionally-charged responses. Investors expectations of how they would react to a hypothetical correction can look quite different from their actual response, especially when the proceeds from their life’s work is at stake. Mainly for these reasons, we advocate a phased approach to investing cash from a business sale. By investing cash in the market over several months, it can smooth out short-term swings and make for a better investment experience.
- Income needs and liability timing. Using Treasury ladders to match income needs and upcoming liabilities like tax payments is a great way to keep cash safe while still earning some return. Financial advisors can also use ladders to have more control over the timing of sales for tax purposes and market conditions.
- Revisiting risk. In coordination with your financial plan, discuss your risk capacity versus appetite. Also consider the pros and cons of a bucketing strategy, whether splitting risk profiles across accounts or different trusts.
- Direct indexing and tax-loss harvesting. A component strategy to consider is direct indexing. In buying the underlying stocks versus the index in an ETF for example, it can reduce taxes as losses can be isolated and harvested. As with anything, there are many caveats and considerations, including how aggressively losses can be harvested and acceptable drift from the target strategy. This strategy isn’t limited to the year of the sale, either.
- Concentration risks. Depending on the nature of your exit, you may still have significant exposure to a company or industry. Here are ways to diversify a concentrated holding.
Financial advisor for exiting business owners
You can only spend a dollar once. So it’s critical to have the support from a professional team when deciding what to do with the money from the sale of your business. Our Private Wealth Management Program aims to help business owners manage their personal finances while running a company and eventually successfully transition to retirement. If you’ve recently sold a business or are in the process of exiting, speak with a Darrow Wealth Advisor today.
Book a no-obligation consultation with a wealth advisor today.
Articles by Darrow Wealth Advisor Kristin McKenna in Forbes:
Business Brokers Share Tips On How To Maximize The Sale Price
How To Sell Your Business: What To Do Before, During, And After The Sale
[Last reviewed September 2025]
