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Financial Advice | Financial Planning | Investing | Alternative Investments
A liquidity event is a way in which investors or shareholders can convert their investments or shares into cash. This can happen through an initial public offering (IPO), a merger or acquisition (M&A), or a sale of the company to a strategic buyer.
Investors in private companies such as venture capitalists always have future liquidity events in mind, as this is the reason they are in the game – for the hope of receiving a windfall from liquidating shares.
However, many successful business owners have never considered such an event. Usually, founders are so focused on growing their business that they don’t have time to think about potentially cashing in on a sale or going public. For family-owned businesses, a liquidity event is less common, as it is generally expected that family members will work for the company and hence the asset is passed down to the next generation.
If you are considering, or perhaps already waiting to cash out of an investment or business, there is preparation and planning that needs to be done and it requires a team of experts to advise you on different aspects.
Regardless of whether you are planning a liquidity event or you are waiting for one to complete, there are several things you need to do to prepare:
In addition to the tax implications that you will need to take into account, such as capital gains taxes and taxes on distributions to shareholders, you need to consider any options open to you to mitigate these.
The pre-liquidity event process can be complex and time-consuming, but broadly, it comprises the following key steps:
Once the liquidity event has occurred, you will need to focus on the post-liquidity event process. Primarily, you will need to manage the substantial sum of cash you have generated from the liquidity event. This may mean investing the money, starting a new business, or making charitable donations.
When an individual receives a large injection of cash, it can be quite overwhelming. Beyond lifestyle drift, this is a high-risk time of knowing where to put your money. A wealth manager can play an important part of outlining your new financial goals and planning a route towards them.
It is not all about money. You may be left with more time on your hands, and discovering what lies ahead is an important part of self-discovery. It may be having more time for old hobbies, exploring philanthropy for the first time, or perhaps starting up a new business venture.
A liquidity event can be a life-changing event for a business owner, but it’s important not to spend your money before you get it. Liquidity events can be long and gruelling, so it’s vital to get the preparation spot on. To do that, hire an experienced team, be rigorous with the financials, and uphold transparency in your communication.
If you are preparing for life after a sale, get in touch with our team who can coach you on your journey and ensure you achieve your financial objectives.
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