1. In general, I'd say if you need a Cash Flow Reserve fund, your asset allocation is too heavily weighted towards stocks. It would be much more efficient to withdraw from the portfolio monthly, like a paycheck. This keeps more of the money invested, which will have better returns than keeping it in cash.
Of course, do what you're comfortable with. As wwweb said, the most important thing is to avoid big screw ups. I wouldn't consider keeping a year's worth of expenses in cash a big screw up, as long as you properly replenish it. Honestly, the whole "Cash Flow Reserve" idea just sounds like something a financial advisor pushes to help justify his/her fee. It may feel good, but historically there is no basis for it.
2. Keep the asset allocation the same when making withdrawals. This should help:
http://optimalrebalancing.tk3. Stay away from dividend funds. Seriously. I won't sidetrack too much, since you didn't ask about it. Here's a Vanguard study showing how total return trumps dividend investing every time:
https://personal.vanguard.com/pdf/s557.pdfBad idea. This is big screw up territory.
4. I know this might be hard, since the tax ramifications of switching now might be high, but since you just sold the software company, I'm holding out hope that capital gains haven't had time to ramp up yet. I'm afraid you might be in some ridiculous funds, with ridiculous fees, which will definitely be a factor when deciding which funds to sell first. You don't have to share how much money you have in each fund if you aren't comfortable (though it would help the calculation), but can you share which funds you're in? That would really help our recommendations.