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Selling a business represents the validation and culmination of years of hard work. For the owner, it is often the most significant financial event of their lifetime. Yet, a successful exit requires far more than maximizing transaction value; it demands intense preparation, reflection, and follow-through. Sound advice sits at the center of such a transition.
According to the Exit Planning Institute’s (EPI) 2023 National State of Ownership Readiness Report, roughly $14 trillion of private business wealth across 4.5 million businesses is expected to transition over the next decade in the U.S. There is significant urgency to this movement: EPI reported that nearly 75% of business owners want to exit their business within the next 10 years, and about 50% want to do so within the next five years.
This landscape represents a significant potential practice growth opportunity for financial advisors who are prepared to help clients navigate the friction points of a liquidity event. More importantly, it gives business owners a window to step back and evaluate whether their advisor is equipped to address the profound structural and psychological shifts that lie ahead.
Unanticipated Challenges After the Sale
Business owners are typically consumed by operating their enterprise, optimizing performance, and seeing a transaction through closing. Consequently, thinking about life — and capital — after the liquidity event often takes a back seat.
Once the transaction closes, owners frequently encounter three distinct challenges that thoughtful financial advice can help address:
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The Cash-Flow Vacuum: The business is sold, and the former owner suddenly needs to replace the operating income and distributions the company previously produced. These immediate income needs can contribute to post-sale anxiety.
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Capital Deployment Risk: Former owners face the overwhelming pressure of putting a substantial pool of newly liquid capital to work. Moreover, portfolio complexity can erode their confidence in the deployment strategy.
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Behavioral Reality Shock: Moving from an illiquid operating company to a liquid public market portfolio introduces entirely new psychological pressures. Daily portfolio fluctuations can be deeply unnerving for someone accustomed to controlling the underlying asset.
Addressing these hurdles requires thoughtful planning, an intentional investment framework, and ongoing communication, ideally initiated well before the ink dries on the purchase agreement.
Rebuilding the Cash-Flow Engine
The immediate need for cash flow after a sale may be addressed by deploying a portion of post-transaction liquidity into income-producing assets. While public fixed income and semi-liquid private credit can be important tools, dividend growth equities may also play an important role because they can help preserve the “income connection” between the business owner and their wealth.
In our view, a company's ability to consistently pay and grow its dividend can provide insight into the durability of its cash flows, capital discipline, and underlying business quality.
While dividends are not guaranteed, receiving a dividend from a well-managed public company may feel familiar to a former business owner accustomed to taking distributions from their private business. Preserving this cash relationship may help alleviate concerns about near-term lifestyle cash-flow needs.
While this initial income-focused allocation may evolve into a broader strategic portfolio over time, the liquidity of public dividend growth equities provides flexibility to adjust portfolio structure in the future.
Bringing Structure to Capital Deployment
Addressing the cash-flow vacuum early may have an important downstream benefit: reducing the urgency to deploy an entire liquidity pool all at once. Even so, managing a multimillion-dollar transition can be overwhelming.
Traditional asset allocation often focuses strictly on asset classes rather than human purpose, introducing complexity that risks disconnecting owners from their wealth. A purpose-based approach can help make this complexity more manageable by organizing wealth around the distinct roles the private business previously served — income source, inflation hedge, and compounding engine — all at once.
Dividends and equity compounding can map across these purpose-driven pools:
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Lifestyle capital is designed to support spending needs and replace income previously generated by the business. Positioning for this pool typically includes a liquidity buffer, public fixed income, and where appropriate, private credit for current income, alongside dividend growth equities for potential income growth and a measure of downside resilience.
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Generational capital focuses on preserving and compounding wealth across decades for future generations. This pool can involve public growth equities and private equity for long-term compounding, as well as dividend growth equities to capture ongoing income growth and long-term compounding potential.
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Aspirational capital is reserved for philanthropic, impact, or family legacy missions requiring long-term capital appreciation. While dividend growth equities remain relevant, they are often positioned as a complement to illiquid investments, supporting long-term compounding and balancing periodic liquidity needs.
Aligning capital with distinct life priorities can increase confidence in the long-term wealth plan, turning an intimidating lump sum into an organized road map.
Bridging the Behavioral Gap
Trading an operating business for a pool of liquid securities carries behavioral consequences. An owner accustomed to driving enterprise value through direct influence can find public market volatility jarring.
For example, even a hypothetical 2% weekly decline would translate into a $400,000 change in the value of a $20 million portfolio — an experience that can feel fundamentally different from owning an illiquid private company whose value is not repriced each day.
Dividend growth stocks may help bridge this behavioral gap. Historically, dividend-paying companies have exhibited lower volatility than the broader equity market. While this relationship is not assured and dividend-paying stocks remain subject to equity market risk, an emphasis on durable businesses and growing income may help investors remain focused on their long-term objectives during periods of market volatility.
Building Multigenerational Advisory Relationships
The Great Wealth Transfer is rewriting the landscape of wealth management. For business owners, navigating this transformation successfully means viewing a company sale not as a finish line, but as a complex structural handoff. For financial advisors, guiding clients through these friction points may offer a significant opportunity for business growth.
Advisors equipped with outcome-based allocation frameworks and cash-flow-focused strategies like dividend-growth investing can help business owners translate a singular liquidity event into a wealth plan aligned with their lifestyle, generational, and aspirational goals. In doing so, advisors can create the foundation for multigenerational client relationships that extend well beyond the initial liquidity event.
As a Portfolio Manager, Nick works primarily with institutional clients along with select high net worth relationships. He also jointly manages support of Bahl & Gaynor’s national platform partnerships. Nick is a member of the Investment Committee covering the Software and Services industries within the Information Technology sector. Prior to his role as Portfolio Manager, Nick’s positions at Bahl & Gaynor included Research Analyst and Co-Op.
Disclosure:
Bahl & Gaynor LLC (“Bahl & Gaynor”) is an investment adviser registered with the U.S. Securities and Exchange Commission ("SEC"). This material is provided solely for informational and educational purposes and should not be construed as individualized investment, legal, tax, or financial planning advice. All investments involve risk, including possible loss of principal. Dividend-paying securities are not guaranteed to pay or grow dividends and may reduce or eliminate dividend payments at any time. Dividend-focused investment strategies may underperform the broader equity market. Hypothetical examples discussed are for illustrative purposes only and do not represent actual investment results.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
