A temporary shortage of usable cash after a sale, often caused by paying off debt or making large gifts before earnouts and rollover equity pay out.
A liquidity crunch is a cash-flow squeeze after closing. The owner has sold an illiquid business. The first check looks large. Then mortgages get paid off, taxes come due, and a large charitable gift leaves the account. Earnout payments and rollover equity are still years away.
The crunch is temporary if later deal proceeds arrive. It is lasting if those proceeds fall short. Either way, the owner can be forced to sell investments or tap real estate at a bad time. Sequence of return risk is worse when the owner has already stripped cash from the portfolio.
Stage large gifts. Time debt payoff. Keep a cash reserve sized to living expenses until contingent deal proceeds actually arrive.