There are an estimated 31 million U.S. entrepreneurs, with more businesses created every year. At any given time, a number of those business owners will consider a liquidity event.

To be sure, there are several reasons an owner may want to consider a sale, including high multiples, retirement, lack of succession, liquidity needs, death or divorce. 

But outside of these good reasons to sell, entrepreneurs and their financial advisors should have a serious discussion on whether a sale makes "life sense,” recognizing that there are many moments when a client’s sale of their business is asking for unnecessary trouble.

Indeed, after advising numerous entrepreneur clients over several decades, I have witnessed the inherent challenges of a liquidity event, and have found that sometimes the most valuable decision is not to sell.

Going through a transaction can often be tumultuous. It can be quite difficult to manage your company efficiently, while simultaneously focusing on all the elements of a sale. The pressure of juggling both arrangements can fracture families, marriages and partnerships. It can also ultimately tank a deal if a lack of attention to fundamentals affects the business’ valuation.

Wealth management firms and family offices can best serve their entrepreneur clients by carefully walking them through a number of key considerations in determining whether a sale of the business is a truly good choice for them. 

Go Beyond The Numbers
In general, there are two litmus tests to determine if a liquidity event makes the most sense. First, and perhaps most obviously, are quantitative considerations: Unless there is a catastrophic trigger—death, divorce, dissolution—sell if the math works.

The second is more complex: Is the entrepreneur emotionally ready to let the business go? 

In particular, will a liquidity event improve their quality of their life and the lives of loved ones? On the flip side, will such a transaction adversely affect their relationships with a spouse, kids, family and friends? And are they prepared for new complexities to emerge with multi-generational wealth planning.

Emotional Losses
Sometimes, the proceeds from selling a business aren't worth the unintended consequences of sudden wealth. If a profitable business provides the entrepreneur with a sense of purpose and a reliable cash flow, severing that tie could create an unmoored feeling that cascades into multiple other areas of their life.

For younger business owners, generating significant liquidity can make it difficult to incorporate the new wealth into a meaningful and purpose-driven life. It could be tempting for them to attempt to solve problems with money and become insulated from learning how to problem-solve, adapt or compromise. 

And for many entrepreneurs, their sense of purpose is so intertwined with the business they’ve built over the years that a separation due to sale, despite the significant inflows of new money, creates a deep and tangible sense of loss. And that sense of emotional loss can intensify once the realities of a life that is cash-rich but potentially purpose-poor becomes the new normal.

Life Perspectives Versus Financial Perspectives
To avoid this situation, it's important to determine if it's the right time to sell from a life perspective in additional to a financial one.

As financial advisors, we don’t have a crystal ball, but we can use our insights to determine what the future may hold for our clients. Sometimes, what we see is a situation where selling a business makes perfect sense, and we will work to ensure our client is well prepared to fully monetize their life’s work. But in other cases, the decision to sell does not consider all the consequences. If done for the wrong reasons, selling might be the worst financial decision your client could make.

This is where it is incumbent on the financial advisor to go above and beyond financial, retirement and estate planning. Having conversations that encompass questions that drive a deeper understanding on what your client needs to feel emotionally and personally fulfilled will be crucial in evaluating any potential business sale situation.

Andrew Palmer is managing partner at Evoke Advisors, a Santa Monica, California-based independent wealth management with nearly $25 billion in assets.