If you want to sell your business, despite the down market, by all means go ahead. But be prepared. For many small business owners, there’s an unexpected—and unwelcome—outcome to the sale of their company: a loss of identity, uncertainty over how to invest and spend their new wealth, and a change in long-time relationships with family and friends.

Called Sudden Wealth Syndrome, it’s something Matthew Hudgins, a financial planner in Atlanta who specializes in working with small business owners selling their companies, often encounters. For example, he recently worked with a former small business owner in desperate need of advice. The man had sold his construction business two years earlier for about $7 million.  But, after buying a bigger house and a vacation home, joining several country clubs and taking numerous pricey vacations, the man’s pot of gold was down to $2 million. “His monthly expenses were eating him alive,” says Hudgins. He convinced the client to downsize—and to consider finding a job.

According to Hudgins, that client suffered from one of the primary problems associated with Sudden Wealth Syndrome. Many business owners don’t fully understand what their expenses are. As a result, when they sell their companies, they aren’t able to figure out what they can afford.  Making it more complicated, many costs, from a cell phone to travel, can’t be charged to the business anymore. “They don’t realize how much of their lifestyle is inside the business,” says Hudgins.  

But, even more important may be a loss of identity and a lack of purpose. “Especially for small business owners who’ve worked hard to build their companies, the loss of a goal and sense of purpose can be tough,” says Joan DiFuria, who, with her partner, Stephen Goldbart, coined the term, and runs the Money, Meaning & Choices Institute in Kentfield, Cal. According to DiFuria, the results can include anything from depression to a pervasive sense of guilt -- especially in the current economy, when many friends and family members may be suffering. 

Then, there’s the matter of  people looking for a handout. “The knocks on the door start coming pretty quickly,” says DiFuria. Trouble is, after a year or two of making many $50,000 loans to friends and associates, your nest egg may be severely depleted.

Despite these challenges, however, there’s a lot you can do to stave off Sudden Wealth Syndrome. For example:

Plan beforehand. The wisest move is to create a plan ahead of time. That should include both a budget and what you think you’ll do for the first year. Hudgins points to a client who recently sold a web-based business with about $10 million in revenues for approximately $5 million. Before he sold the business, the client put in place potential budgets depending on several likely purchase prices, all of them aimed at determining what his expenses needed to be if he never worked again. “We wanted to see if he kept his lifestyle exactly the same, could he do it,” says Hudgins.

Evaluate your passions. You’ll probably need to spend a year figuring out just what you want to do next. But, the best path to take is to figure out just what you’re good at and what you most enjoy. “Take stock of what’s important to you,” says DiFuria. According to Hudgins, that can be anything from spending time with grandchildren and becoming a soccer coach to starting another business or forming a foundation.

Send anyone looking for a loan to a designated third party. “That way, it becomes a business transaction, where a lawyer or financial advisor can assess whether or not you should make the loan,” says DiFuria. For his part, Hudgins asks his clients to send charities, acquaintances, even friends, to him. Generally, he asks for business plans or other pertinent documents and then grills potential borrowers to determine just how likely it is they’ll pay the money back. “I’m the bad cop,” he says.