If you have spent the last two decades building a business, you have probably made the same calculation over and over: the highest return on your money is reinvesting back into the company. That logic is hard to argue with when the business is growing. The problem shows up later, when retirement is on the horizon and nearly everything you own is tied up in a single illiquid asset.
This is one of the most common situations we see with business owners, and recognizing it at 45 gives you real options. Many people do not see it until 55 or 65, and by then the math is much harder to fix.
The Valuation Gap Nobody Talks About
Here is a pattern we see often. A business owner has built their entire retirement vision around what they expect the business to sell for. When we ask what they think it is worth, the answer is sometimes something like: “However much I need to retire.”
That is a significant problem. If your retirement goal is $10 million and the business is only worth $6 million, selling it after taxes might net you $3 or $4 million. That gap does not have a simple solution, and you cannot manufacture business value at the last minute.
Starting to address the concentration issue now, while you still have time and income, is the most important move you can make.
Two Ways to Build Assets Outside the Business
There are two broad approaches to diversifying away from the business before you sell.
The first is diverting income into tax-advantaged accounts. Depending on your age, your employees’ ages, and how much income the business generates, a defined benefit pension plan or cash balance plan could allow you to contribute hundreds of thousands of dollars per year on a pre-tax basis. If you are in a high tax bracket and looking to reduce your taxable income while building retirement assets, these plans can be worth serious consideration.
The second, and often the right starting point, is building a taxable investment account. It is not the most tax-efficient structure, but it offers something the retirement accounts do not: flexibility. If the business hits a rough patch, if your industry softens, or if you need capital quickly, a taxable account gives you access without the penalties that come with tapping a 401(k) or cash balance plan early. We generally recommend building six months to a year of cash reserves outside the business before prioritizing tax-deferred contributions. Given how intertwined business owners tend to be with their companies financially, that liquidity buffer matters more than most people expect.
The Shift Your Business Needs to Make
There is a second issue worth addressing directly, and it has less to do with your personal savings and more to do with how you run the business between now and when you sell.
Businesses in growth mode tend to reinvest heavily, burn cash, and operate at thin margins. That model can create significant value over time, and it is how many great companies are built. But it is not the profile that commands the highest sale multiple.
If you are looking to sell in the next five to ten years, the story your business tells to a potential buyer matters enormously. A buyer looking at three to five years of strong profitability, steady growth, and healthy cash flow is going to pay a meaningfully higher multiple than a buyer looking at a fast-growing company that requires constant cash infusion to keep running.
The shift is moving the business from a cash-consuming machine to a cash-generating one. That may mean pulling back on aggressive reinvestment and focusing instead on sustainable profitability. The payoff comes from two directions: the business becomes worth more at sale, and in the years leading up to the sale, the profitability it throws off gives you the capital to start building those outside investments.
The Real Win-Win
This is where the two threads come together. A highly profitable business produces cash you can redirect into diversified investments. A business with a strong multi-year track record of earnings commands a higher multiple when you sell. Both outcomes serve the same goal, which is arriving at retirement with a diversified, liquid portfolio rather than a single large bet on one exit.
The work of the next decade is not just growing the business. It is reshaping it into something that pays you well on the way out and looks like a sound investment to whoever buys it.
This post is adapted from a recent episode of the Scholar Wealth Podcast. For more perspective on retirement planning for business owners, listen to the full podcast episode here.