For many business owners and entrepreneurs, their business is not just their livelihood—it’s their largest asset and primary source of wealth. At North Point, we regularly see business owners with over 80% of their net worth tied up in their business, regardless of the industry, size, revenues, or profits. This can create challenges when it comes time to “cash in” on what they’ve worked so hard to build and convert their life’s work into a comfortable retirement and the next chapter of their lives.
Without ongoing planning, business owners risk delaying retirement or selling their business under less-than-ideal circumstances. Understanding, managing, and unlocking the value of the business requires diligent planning strategies to ensure a smooth transition from business ownership to financial independence.
Why Is the Business the Largest Asset?
- It’s Where the Money Was Invested – Entrepreneurs are unique in that they often don’t invest as much in traditional vehicles like retirement accounts. It’s not that they don’t want to—it’s that they often can’t, especially in the early stages of their business. The business is the investment, and anything that falls to the bottom line typically gets reinvested back into operations—hiring, technology, marketing, and more. Even those who start a business with capital accumulated elsewhere usually invest most of it into their new venture because they love what they’re building and see its potential.
- The Shift from Income to Equity (and Income) – In the beginning, the entrepreneur often wears many hats and “eats off the bottom line,” meaning whatever profit is left is their income. The goal at this stage is simply to earn a living. But as the business matures and those earlier investments in people, systems, and growth begin to take hold, something else starts to build—equity and value. The business evolves into something that others want to own. That’s when both the excitement and challenges of long-term planning become very real.
Common Challenges Business Owners Face in Retirement Planning
Lack of Savings Outside the Business – Because many entrepreneurs reinvest so heavily, they often have minimal retirement savings in more traditional, liquid accounts. This can throw off their retirement timeline, especially if they encounter unexpected life changes that make a timely exit necessary.
Uncertain Business Value Estimates – Valuing a privately held business is complex. It’s about far more than just top-line revenue and bottom-line profit. (Tip: Check out our article Beyond the Numbers – How the 4C’s Affect Business Value.) Many owners overestimate their business’s worth or fail to reassess it regularly, leading to unrealistic expectations when it comes time to sell.
Difficulty Identifying an Exit Strategy – Selling a business can take years and depends on many factors, including industry, location, family considerations, and buyer availability. Without a clear, well-thought-out exit strategy, an owner might have to sell at an inopportune time or to a buyer who isn’t an ideal fit.
Tax Implications of a Business Sale – Selling a business can trigger significant tax consequences that reduce the value the owner ultimately receives. This, in turn, can affect their ability to maintain their desired lifestyle post-retirement.
Emotional Attachment to the Business – For many, their business represents years—if not decades—of effort, sacrifice, and passion. It’s not just about the money; it’s about identity, purpose, and legacy. Letting go isn’t easy, and without proper emotional preparation, the transition into retirement can be difficult.
Key Strategies for Retirement Planning as a Business Owner
Diversify Assets When Possible – As mentioned, many business owners hold most of their wealth in the business itself. While that may be their largest asset, it’s critical to build wealth outside of the business as well—through traditional retirement accounts, investment portfolios, real estate, and more. Diversification strives to preserve long-term financial stability.
Understand and Utilize Business Value Estimates – Conducting regular (annual or bi-annual) business value estimates are essential. These are not a formal or official appraisal, and are not always costly. Many firms that work specifically with small business owners offer tools to help assess value and suggest improvements. Make sure you’re working with a firm that can support you in this way.
(There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.)Plan for Tax Efficiency – There are many ways to structure the sale of a business, and every client we’ve worked with has prioritized making that sale as tax-efficient as possible. From installment sales to ESOPs, there are strategies for various situations. The right approach depends on the owner’s current and projected tax situation, and should be addressed well in advance of a sale.
Prepare Emotionally and Financially for Life After Business – This is often the most overlooked piece of the puzzle. Business ownership tends to be deeply tied to an entrepreneur’s identity and purpose. We encourage clients to think ahead about how they’ll spend their time and stay fulfilled after their exit. The financial plan should reflect not just what they need, but what will continue to give their life meaning.
Develop a Clear Exit Strategy – Selling a business requires significant lead time and planning. Whether passing the business to family, selling to employees, or finding an outside buyer, the transition must be carefully managed. Owners should ask themselves not only who can afford to buy the business, but also who do I want to own it next?
Retirement planning for business owners is not a one-size-fits-all process. Every entrepreneur has unique goals, business structures, and aspirations. But by proactively planning for retirement, diversifying wealth, and creating a thoughtful exit strategy, business owners can ensure a smoother and more fulfilling transition.
At North Point, we understand what it takes to build and grow a successful business. We also understand that for many owners, it’s been the passion of a lifetime, and it has likely become their largest investment. Like with any investment, it needs to be monitored and cared for so that the value can be transferred to the next owner, and so the hard-earned equity can be utilized for that owner’s next chapter.
Some call it planning. We call it the True North Method; it’s our process for helping entrepreneurs navigate this complex, high-stakes journey. If you’re a business owner considering your next chapter, we’d be happy to connect with you.
