Dealmaking is heating up again, and founders eyeing an IPO or sale are facing a new kind of challenge: what to do with the sudden wealth that follows.
A new 25-page report published by Goldman’s private wealth and investment banking professionals lays out the decisions founders need to prepare for once they cash out. It outlines six steps that company leaders should take: be clear about your business’s future, consider tax structures, set up a family and estate plan, organize liquidity, factor in existing loans and liabilities, protect your assets and family, and develop a philanthropic strategy.
The message is especially important for founders right now: mergers were up this past quarter, and the IPO market was regaining steam before the government shutdown. But the bank didn’t generate the report because of the hot merger market; instead, its findings are meant to be educational for founders anytime, Kerry Blum — global head of the firm’s equity structuring group, which helps some of the world’s wealthiest business people structure their portfolios — told Business Insider.
The report — “Beyond the Build: A Wealth Planning Guide for a Business Exit or IPO” — walks readers through how to structure a deal, manage new liquidity, and prepare the next generation for a sudden influx of wealth.
“When I look at the work that we do with founders and entrepreneurs, we really have to think about the entire life cycle” across the corporate and personal lenses, said Blum, a Goldman partner.
Here’s a look at four of their top takeaways.
Start planning early
Founders should consider “personal planning” — how they’ll handle their newfound assets — around the time they begin diligence on potential acquirers or even before. Why? “The timeline of a delay could be derailed entirely by delays stemming from personal planning objectives missed in the early stages,” the bank warns.
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Founders should be upfront about their goals — including the selling price and ongoing ownership structures — and should be deliberate in selecting the right exit plan. A merger? A private sale? Sales and public offerings can convert years of illiquid equity into cash, the report says, suggesting that the sudden liquidity landslide can be overwhelming without support.
Each path comes with its own tax considerations, as well as the level of control, cash, and future influence the founder will maintain. “I’ve seen entrepreneurs who very much want to maintain a sense of control as part of the exit,” Blum said, adding: “I’ve seen entrepreneurs who have decided that maybe in their next phase they want to pass off some of the operational elements.”
Get the right team together
Assembling a strong team well before a transaction closes can help crystallize such decisions, the bank says. At Goldman, “in many cases, it will be that the banking team is well engaged with the client, and they think there’s an opportunity for the client to benefit from the expertise that we can offer on the wealth management side. And so they will introduce a two-way dialogue,” Blum said.
To that end, Goldman urged, do not delay in appointing these trusted advisors. CEOs need to bring together not just their C-suite counterparts, but also personal advisors, including wealth managers and trust officers. The questions this team can help you answer are manifold: Should you sell to a strategic or a financial sponsor? Is a public offering really the right route?
“We try to make sure founders carefully evaluate how their day-to-day would be different and the type of scrutiny they’d face if taking their company public, compared with selling to a sponsor or strategic buyer,” Alekhya Uppalapti — a managing director in the investment bank’s global technology, media, and telecommunications group — says in the report.
Tackle tax and estate planning
The report’s most technical section delves into different kinds of business structures that founders should consider: an S-corporation doesn’t pay federal taxes at the corporate level, whereas a C-corporation pays taxes on its profits.
Navigating the thicket of this jargon can be confusing, so the firm suggests using an estate planning attorney to “align” immediate-term goals around tax efficiency with long-term needs like setting up a professional trustee to protect newfound wealth. Trusts such as grantor-retained annuity trusts or charitable lead trusts can help transfer wealth and reduce tax exposure.
Blum said tailoring those choices to each client’s objectives is one of the most complex steps in the process. “That is certainly one where understanding the individual’s goals and objectives,” she said, “whether it’s regional or generational wealth planning, philanthropy, et cetera, is incredibly important. And matching that with the jurisdictional considerations is key to getting it right.”
Beyond that, entrepreneurs should consider organizing a will, a revocable or living trust, a healthcare proxy, and guidance for end-of-life medical instructions, the bank added.
Prepare yourself for the new realities of wealth
It is not only the founder’s life that changes after a major sale or IPO, the report suggests, but also the lives of family members. Goldman’s guide devotes an entire section to preparing the next generation.
“Regularly scheduled family meetings, which can be facilitated with the support of your financial advisor, can help effectively convey lessons on the responsibilities of wealth and philanthropy,” it says. Blum said Goldman brings clients together in small forums where they can share insights and experiences, a think tank of sorts for those about to step into a new way of life.
Privacy is also a consideration. “Different types of transactions bring different levels of visibility,” Blum added. The report recommends consulting your financial advisor about a wide range of topics, including physical and digital security protocols, as well as private aviation.
