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After Liquidity: From Profit to Purpose

Business owners need to identify new goals as they adjust to life after ownership.

As appeared in Wealth magazine

After Liquidity: From Profit to Purpose

Business owners need to identify new goals as they adjust to life after ownership.

Selling your business is a massive undertaking with major financial, logistical and emotional implications. When it’s finally a done deal, you’re entitled to a deep breath and time to decompress and relax with family and friends.

Soon, however, the details of the transaction will begin to fade. While the sale netted you a lump sum of cash as well as a clear calendar, you may gradually realize you miss some sense of immediate purpose or even your identity as a business owner. And at some point, you may even find yourself asking: What now?

Rather than feeling unsure of what’s next, now is the time to identify your next goal. For some, that may include a new business venture with a completely different focus, and for others it could be creating a nonprofit or foundation whose sole focus is philanthropy.

For those who choose to take on a philanthropic mission, there is risk your efforts may be diluted and scattershot, or spent in service of a cause you find ultimately unfulfilling. To successfully navigate the journey from profit to purpose, patience and planning are required. For veteran business owners with time on their hands, that’s not easy.

“Business owners who have recently sold their business want to continue to be engaged in a meaningful and creative endeavor. Often the tendency is to start a family foundation right away, to assign responsibilities to family members, to have a board — everything with which they are familiar. In offering advice, our first goal is to help the former business owner slow down a bit, take a step back and wait until they are really sure they’ve found the best charitable giving vehicle to accomplish what they want,” says Marguerite Griffin, director of Philanthropic Advisory Services at Northern Trust.

There’s a lot to consider before launching a successful philanthropic venture — not unlike the processes of market research, product development and strategic craftsmanship that go into starting a business. Griffin says time and effort are needed to determine three key aspects of your altruistic endeavor: the cause, the vehicle and your engagement.

The cause

Often, says Griffin, a client will list as potential gift recipients a few well-known charitable organizations they respect or that their friends support. She uses this information to fine-tune the discussions by encouraging the donor to consider each potential charitable recipient according to the social need the organization addresses — for example, homelessness, education or youth development. The idea is to find the root needs and charitable causes that most appeal to the donor and then to build a strategic philanthropy plan from there.

Once the client has identified a few areas of focus, Griffin develops a list of organizations whose work closely matches the focus the client has identified. She then advises the client to undertake some serious research on the organizations in question. Sometimes this is a formal review, such as when Griffin invites organizations to make presentations to prospective donors. Other clients choose to do their research more organically, either by volunteering with an organization or by making a small gift and verifying that its usage matches their intent. Some of this is financial due diligence; the rest is making sure that the organization’s work resonates as strongly in practice as in theory.

“It’s important to create an opportunity where you can learn about the organization from the inside out,” Griffin says. In addition to volunteering, she also suggests building a relationship with the organization’s senior leaders. “It’s good to check in with the organization’s board chair or the executive director to learn more about some of the challenges the organization is facing, the achievements it has made and how the board and staff are thinking strategically about the organization’s programs going forward.”

Another benefit of first identifying a giving sector, rather than a specific organization, is that you’ll gain a more comprehensive understanding of the sector that’s broader than evaluating the sector through the lens of a single nonprofit organization. That means that even once you identify an organization to support, you’ll benefit from a bigger picture of how other organizations function in that particular sector.

The vehicle

The most common philanthropic vehicle chosen by Griffin’s clients is the family foundation. However, that’s hardly the only option — especially for entrepreneurs who may opt to start their own altruistic organization in hopes of addressing an unmet need or implementing a new strategy with the aim of achieving better outcomes. This could mean starting a business that has social benefit hard-wired into its mission, running a nonprofit, or establishing a donor advised fund.

For clients who choose a family foundation, there are critical choices to be made before the foundation is formally established, such as defining its mission and engagement strategy. These decisions need to be made before the foundation can launch.

For family foundations that include multiple family members, Griffin says it’s OK to have a multiple-focus mission driven by the different charitable priorities within the family. Allowing for some individuality is especially important after the sale of a family business that has long galvanized the family.

“Family members who have been held together by a business want to be able to have a choice to give to an organization that maybe their brothers and sisters don’t even know about,” says Griffin. “This can be very powerful, and something that business owners don’t always catch. They’ve been so singularly focused on the business for so long that having their kids or siblings give to more than one organization is a scary thing for them, something they don’t know how to manage.”

That said, Griffin says family (and family foundation) unity is important as well, and she often advises clients to consider making at least one joint gift every year to help strengthen the family’s shared philanthropic mission.

Your engagement

It’s important to figure out how much day-to-day involvement you desire in your philanthropic work. On one end of the spectrum, there’s the board member and volunteer who is deeply engaged in the life of an organization. On the other, there’s the largely passive donor who makes a major contribution but is otherwise removed from a recipient organization’s day-to-day work. You’re free to figure out the approach you prefer. This range of options includes taking a very active role in your own family foundation, overseeing specific applications and the results of your gifts to various groups, as opposed to a more hands-off approach where you trust your philanthropy colleagues and recipient organizations to steward your donations wisely.

Selling a family business is a landmark accomplishment that sets the stage for a new act in your family’s history and legacy. With appropriate planning and patience, your transition to philanthropy can be as rewarding and defining as your business career.