Post-Liquidity Event: Building a Family Office

Selling a business can change your finances almost instantly. The company you worked hard to build turns into capital, which brings new questions, decisions, and even some unexpected new friends. Here’s a practical way to approach your first year.

A family office doesn’t have to mean a big office with staff and a receptionist. Some larger families do run it that way, with an investment team and their own deals, almost like a private equity firm. But for many families after a sale, it’s much simpler: it’s just the people and systems that handle the money, administration, and decisions, some things in-house and some things outsourced.

Ideally, you started before the sale

The best time to start this work is before the deal closes. Some estate and gifting strategies work best before a buyer and a price are on the table, and can get harder or lose their benefit once a deal is far along. Family conversations are also easier while the money is still hypothetical. If you can see a sale coming, even a few years out, get your CPA, estate attorney, and wealth advisor talking early, and decide who will quarterback the whole thing.

But deals don’t always happen on your timetable. An unsolicited offer comes through, a partner wants out, a buyer moves faster than you anticipated. If the sale has already gone through, you haven’t missed the boat. You just start now.

Give yourself time

Right after a sale, you might feel a strong urge to do something with the money, and fast. Sometimes that pressure comes from others, like an old college buddy with a big idea or a brother-in-law with a restaurant plan. But a lot of it comes from within. After years of making quick decisions, sitting still can feel uncomfortable.

It’s okay to slow down. A good wealth advisor will often be the first to tell you that, and can help you put a short-term plan in place for the proceeds while you work out what the family actually wants. Getting out of a commitment you don’t want to be in is often slower and more expensive than taking a few extra months up front. One thing that shouldn’t be put off is planning for the tax bill on the sale, before anything else gets committed. Year one is about clarity, not about getting busy.

Start with what the money is for

Before anyone talks about allocation, the family needs to answer a few basic questions:

• +What is this capital for? Income, preservation, growth, the next generation, philanthropy, the next venture, or some mix?
• +What’s the time horizon, and is it the same for everyone?
• +How involved does the family want to be? Some families want a seat at every table. Others want simple and quiet.
• +Who’s in the decision making? Just you, you and your spouse, the next generation, or the whole crew at Thanksgiving?
• +How comfortable is the family with illiquid, direct, or concentrated investments?

Your advisors can’t put together a good plan around goals no one has said out loud.

Build the advisor team on purpose

A lot of families pick up advisors as needs come up, collecting them a bit like souvenirs along the way: the attorney who handled the sale, the CPA from the business days, someone a friend recommended. After a sale is a good time to step back and decide what you need covered. The core is usually tax, legal and estate, investment, accounting, and insurance, with trust administration, banking, valuation, and philanthropy added as things grow.

You get to choose, so pick people you actually like working with. Know what each advisor covers, how each is paid, and who’s in charge of herding the cats. Families often find that everyone does their piece well, but there’s a gap in how the pieces fit together.

Get the structure right while things are simple

Entities, trusts, and estate plans are much easier to get right at the start than to untangle later. Give this real attention in the first year, with your tax and legal advisors at the table, before layers of entities and investments get built on a structure that wasn’t designed for them.

Set up governance before anyone needs it

Decision-making rules are much easier to agree on when nothing is at stake than in the middle of a disagreement. Worth putting in writing at the outset:

• +Who decides what, and at what dollar thresholds
• +How capital gets allocated, by whom, and through what structure
• +How decisions get made and recorded
• +How often the family meets, and who’s in the room
• +When and how authority passes to someone else
• +How and when the next generation gets involved
• +What happens when family members disagree

It can seem like overkill when everyone’s getting along. That’s exactly when to do it. Murphy’s law doesn’t send you a calendar invite.

Decide what you want to see before you need to see it

Once capital is deployed across accounts, entities, managers, and asset classes, it’s difficult to get a clear picture if you haven’t planned for it. Work out early what you want to track and who’s responsible for putting it together. Consolidated reporting keeps everyone looking at the same numbers when performance and allocation questions come up. Having a system in place saves someone a reporting job they never wanted.

Have the family conversations, including the awkward ones

A liquidity event affects the whole family, and everyone will have their own interpretation of what it means to them. One person is probably already thinking about a lake house. It’s better to get expectations out in the open early than have them bubble up later and cause friction. It’s uncomfortable, and it may cause some tension, but it’s one of the most valuable things you can do in year one (or before the exit).

This article is a general overview for educational purposes only and is not tax, legal, accounting, or investment advice. Every exit is different, every family is different, so talk with your advisors before making decisions. If you don’t have the right team in place, reach out and we can help you put one together.

The bottom line

The first-year priorities, in short:

• +Slow down, and work with your advisors on a short-term plan for the proceeds
• +Agree as a family on what the money is for and the time horizon
• +Build the advisor team on purpose, and name who coordinates it
• +Get entity and estate structure right while it’s simple
• +Put governance in writing
• +Set up reporting before complexity piles up
• +Have the family conversations, including the awkward ones

Almost all of it is easier and cheaper in year one than it is in year five. If the sale is still ahead of you, it’s easier now.

ProDelta Advisors works with families before and after a liquidity event to build structure, governance, reporting, and advisor coordination from the ground up.