Sharon Olson is the founder of Olson Wealth Group, a multi-family office and independent wealth management firm focused on legacy planning.
It’s sometimes referred to as “sudden wealth,” but more often than not, it’s been years in the making. Many business owners and entrepreneurs spend decades building their businesses, plowing their profits back into the business while living a rather modest lifestyle themselves.
They don’t consider themselves wealthy by any means. Then, inevitably, the day approaches when it’s time to sell the business and transition it to new owners.
Suddenly, their lives are about the change. The fruits of their years of labor are poised to be realized by a liquidity event. In other words, these hard-working, humble business owners are about to experience the phenomenon of “sudden wealth.”
Sounds great, right? A well-deserving family now has the resources to live the lives they’ve always dreamed of without a care in the world. Not so fast. With wealth comes complexity. And if not managed well and clearly thought through, that wealth can quickly dissipate, or worse, create havoc within the family.
Sadly, I’ve seen it happen many times. The problem is many of these first-generation wealth creators don’t know what they don’t know. They don’t even know what questions to ask. Thankfully, by getting ahead of it with careful planning and the right team, sudden wealth can be a blessing rather than a curse. The following are four key steps to get started.
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Assemble your team.
Don’t try to go it alone. Significant wealth (in multiple millions of dollars) requires a highly coordinated team of skilled professionals to manage it effectively. Accountants, attorneys, investment bankers, financial advisors (specifically those who offer the capabilities of a multi-family office), business succession planning specialists and maybe even a life coach. Again, wealth brings complexity, and those who have or are about to experience a liquidity event will have greatly increased complexity in their lives. Don’t underestimate your needs. The last thing you want to do is wing it and make poor decisions early on that prove to be irreversible.
When selecting a team of advisors, take the time to ensure they are on your side of the table. By that, I mean do your due diligence to make sure they, and their firms, don’t have conflicts of interest or aggressively push products that aren’t in your best interests. Your success and happiness should be their only objective. If you sense any ulterior motives, that’s a red flag.
Your team of advisors should also be willing to take the time to deeply understand what is important for you and your family, your goals and aspirations, both short term and long term. If they don’t make that attempt, that’s another red flag. Finally, any advisor you work with should be able to demonstrate their experience guiding families like yours who have gone through similar liquidity events.
Define your personal and family goals.
Any qualified advisor will quickly want to explore what you want to achieve as a first-generation wealth creator. What is its purpose? What pitfalls do you want to avoid? That needs to come from you. Don’t rush this. Reflect deeply on what you want your life, and that of your family, to look like going forward. Be specific. Beyond your immediate lifestyle needs, how else would you like your wealth to impact future generations and the causes you care about?
When envisioning your desired lifestyle and greater philanthropic goals, carefully define your income needs. Budget realistically for what it will cost to fund the lifestyle you desire and the causes you want to support. What is your time horizon? If you are relatively young and healthy, that could be decades. Even with several million dollars in the bank, those funds can be depleted well within your lifetime without careful planning. Once you have clarity around your aspirations, bring your family into the conversation at the right time. Invite their input as to the purpose of the family’s wealth. After all, the responsibility of managing the wealth will likely one day fall to them. So, get them excited. Give them a voice. That is critical to ensuring a lasting legacy.
Evaluate your risks.
Wealth not only brings complexity, but it also brings risk. Risk in the form of increased taxes, lawsuits and litigation, divorce, cyber security threats, and the list goes on. It’s not the most fun activity, but it’s important to conduct an inventory of all the risks you could face. Doing so might justify raising your personal liability insurance limits. It could mean implementing a robust cyber security software solution for your family. Perhaps it will result in changes to the physical security of your home. The point is, don’t leave anything to chance. It’s best to think through worst-case scenarios and take steps to mitigate the likelihood they will come to be.
Align around the greater impact of wealth and what’s next.
One of the biggest surprises for successful business owners and entrepreneurs who go through a liquidity event is just how emotional the whole experience is. It’s seismic—to say the least. To let go of your business, your baby, is a lot to process. It requires a redefining of self and purpose going forward. This can easily take a year or two of fits and starts to really feel good about who you are now and how you want to spend your energies going forward.
For some, there is even a feeling of guilt around what can be viewed as excess wealth, the money above and beyond what you need to live your desired lifestyle. It’s okay, and not uncommon, to feel that way. Channel those feelings into what you can accomplish with that wealth—working with a multi-family office or similarly qualified advisor, finding purpose in philanthropy, giving back and launching new entrepreneurial pursuits. Doing so can be incredibly helpful in realizing the lasting reward of sudden wealth.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.