Your company is going public soon and you’re lucky enough to have stock options or restricted stock potentially worth millions of dollars. Numerous questions are swirling around in your head regarding how many shares to exercise or sell, when to sell them, and at what price. However, before diving into these questions, it’s important to get a big picture view first as it will inform all of your other decisions.

Employee Stock Windfall? Consider the Big Picture First

We find it helpful to develop a long-term strategic planning model to assess how changes to your company’s stock price might impact your financial future and cash flow. How would your financial security change should your company’s stock increase or decrease in value? What are the implications for how long you will have to work or whether you can take a chance on another startup opportunity in the years ahead?

Knowledge of these potential outcomes provide necessary perspective on your sales strategy so you are less dependent on guessing the outcome of your stock price. No one wants to lose an opportunity to secure one’s financial freedom for life but nor does one want to look foolish for missing out on an opportunity for even more wealth should the stock price explode in value in future years.

One place to start is to determine what minimal level of assets and future cash flow are necessary for you to secure a minimal level of financial freedom. With that information, you can back into how many shares you would need to sell and at what price to secure that outcome. With that level of wealth in hand, you’ll have more peace of mind to be creative and flexible with how you sell your remaining shares.

Upside scenarios may be helpful as well but consider the results carefully. By modeling higher but still realistic prices for your shares, you can get a sense for how much additional wealth may be created. That can help you determine whether the incremental wealth (above your minimal level of wealth scenario) is worth the additional risk you’ll need to take or whether there are other goals you might be able to reach as a result.

With these scenarios in hand, you’ll be well-prepared to craft a more specific execution plan that will give you a better chance of being successful irrespective of what might happen with your stock price.

Filed under: Financial Planning

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