Congrats, it’s an IPO!

Navigating the “before, during and after” of an initial public offering (IPO) may seem daunting. But it doesn’t have to be that way.

Despite the pandemic, 2020 proved to be a big year for IPOs. If your company is about to follow suit, congratulations! While the possibilities of your new financial situation can be elating, they might also be causing you some — or perhaps a lot of — anxiety. Trying to navigate stock options, tax consequences, and short- and long-term financial goals can be overwhelming. 

As soon as you know that your company is preparing to go public, begin assembling a financial team to help guide you through the change. This should include hiring a financial advisor, estate planning attorney and CPA. Your financial advisor should have experience with IPOs and the complexities involved. SageMint Wealth has CFPs and attorneys who have helped numerous clients through IPOs — including employees of Facebook, Snapchat, DocuSign, GoodRX, UPS and FedEx — and continue to advise them.

Then get to planning. Creating a financial plan will help direct the rest of your decision-making. What are your short- and long-term financial goals? Are you focused on building your net worth or purchasing a new or second home? If you don’t already have one, craft an estate plan to protect your assets and avoid probate should something happen to you. This also is an ideal time to think about charitable giving and how to incorporate your philanthropic goals into your financial and estate plans. 

Putting together your financial plan will require taking inventory of your stock situation. Pre-IPO, your advisor will help you demystify the type of stock that you have, how each type works and their tax treatment. You may have non-qualified stock options, incentive stock options — which often have more favorable tax treatment — or restricted stock units. When addressing stock options, you’ll need to create an ongoing strategy for when to exercise them.

At IPO, your company may allow you to buy additional company stock at the IPO price. You might be able to sell a portion of your stock at that price as well. There typically is a 6-month lock-up period after your company goes public to prevent driving down the stock price. Once the lock-up period expires, selling some of your stock can provide cash flow if that is one of your priorities.

Deciding when and how much of your stock to sell post-IPO — all while factoring in tax consequences — can be a balancing act. Keep in mind that selling your company stock could push you into a higher tax bracket. Having a long-term plan in place for liquidating stock can help eliminate the emotion from your decision-making, especially as you watch the stock price rise and fall. Once a company goes public, the stock price can be volatile for quite some time. You’ll also want to diversify your portfolio — in other words, not be heavily concentrated in your company stock no matter how much you believe in the success of your employer — using proper asset allocation. At SageMint Wealth, we implement an “Advance and Protect” strategy designed to allow you to participate in the market while providing some capital preservation.

Taking the first steps toward planning your new financial future may seem daunting. They’re necessary, however, to ensure that you make the most of your company’s IPO. With the right team of advisors, it can be an exciting experience that you actually enjoy. Seriously.