How to balance your savings and investments after selling your business

If you’re planning to sell your business, you likely have a detailed exit plan for the transaction itself, but have you considered what comes next?

After selling your business, it can be tempting to leave all the proceeds in cash while you decide what to do next. While taking time to make such important decisions is a good idea, leaving too much money in cash for too long can expose it to inflation and may hamper your long-term growth.

Conversely, investing it all, whether through pensions or investment accounts, could leave you open to risk and may not be the best option for your immediate needs.

So, deciding how to structure your wealth post-sale is crucial and can improve your financial security while also giving you greater flexibility in the years ahead.

Read on to explore how to balance savings and investments after selling your business.

Determine what the proceeds need to achieve

One of the first things to consider after selling your business is what you need the proceeds to do for you.

The sale may mark the end of your regular salary and dividend income. So, it’s important to establish how much income you’ll need going forward and which of your goals will require access to cash in the short, medium, and long term.

This speaks to the key challenge you’re likely to encounter after a sale: balancing your immediate needs for cash with the longer-term goals of generating growth and income.

Once you’ve established your targets, it’s worth considering how to hold your wealth to keep it as tax-efficient as possible. This could include making use of your ISAs, pensions, and other planning opportunities.

Cash savings can support your short-term security and goals

Cash savings are a key part of any financial plan, and it’s important to understand how they fit into yours after a sale, particularly as you may no longer have earnings from your business.

While returns on market investments are unpredictable, interest on your savings accounts is guaranteed. Moreover, any funds you hold in an FSCS-protected account are covered for up to £120,000.

Because of this certainty and security, cash savings can be great for supporting your short-term goals and immediate needs. However, it is not without a trade-off.

Cash is particularly susceptible to inflation, and it can lose its real value over time if interest rates fail to keep pace.

For example, research by Schroders found that cash had a 55% chance of beating inflation over 10 years, while stocks and shares had an 87% chance. Over 20 years, cash reached a 65% chance, while stocks and shares rose to 100%.

Because it tends to lose value over time, cash is typically better suited to short-term needs, such as building an emergency fund or setting money aside for major expenses you plan to cover in the next few years.

How big you want your emergency fund to be varies, but many choose to keep enough to cover three to six months of full expenses. Larger, short-term costs might include setting aside funds for school fees, tax liabilities, or property renovations.

It’s also a good idea to hold as much cash as possible within a Cash ISA so that any interest you earn remains tax-free.

A financial planner can help you decide how much cash is appropriate for your needs, ensuring you balance short-term security with the importance of keeping some of your wealth invested for the future.

Investing is typically better for your long-term goals

Investing typically gives your wealth the best chance of growing over time, though it comes with some level of risk.

Investment returns are not guaranteed, and markets regularly experience periods of short-term volatility, making them less secure than cash. However, markets have historically outpaced inflation and cash over the long term, as you read earlier.

Despite this, investing can be challenging during market downturns, and it can be tempting to exit during significant declines to avoid further losses. Due to the potential for short-term volatility, investments are usually best suited for your long-term goals, such as retirement or legacy planning.

It’s also important to remember that different types of investments can be used for different timeframes.

For example, lower-risk investments may suit goals in the three-to-five-year range, while higher-risk investments are generally more appropriate when you have a longer time horizon to ride out market volatility.

As you get closer to a goal, it often makes sense to gradually reduce risk and move money into more stable assets, and eventually into cash.

A “bucket” approach can offer a framework for your savings and investment plan

The right mix of savings and investments will look different for everyone. It depends on your personal circumstances, time horizons, and what you ultimately want your wealth to achieve.

However, one popular approach is known as “bucketing”, which involves dividing your savings and investments according to their purpose and time horizon.

A bucket approach might look like:

Cash bucket – This is held in savings accounts and includes your emergency fund and expenses to cover the next 2 – 3 years.
Medium-term investment bucket – These are investments with a lower level of risk and are aimed at supporting your goals that are 3 – 5 years away.
Long-term investment bucket – These investments have a higher level of risk and growth potential and are aimed at supporting your goals more than five years away.

Get in touch

A financial planner can help you create a plan that balances your security and growth, providing confidence and clarity for the path ahead of you after a business sale.

To speak to a financial planner, get in touch.

Email [email protected] or call us on 01625 466360.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.