How Business Owners Can Diversify and Plan Their Exit to Safeguard Their Wealth

Many small business owners who plan on retiring over the next several years have 80% of their wealth tied up in their companies.

A business owner hanging an open sign on the door of his restaurant (Getty)

Many small business owners plan on retiring over the next several years but have 80% of their wealth tied up in their companies. We discuss with Jonathan Kruger of Rothschild Wealth Partners in Chicago about the ways to unwind this concentrated wealth position.

Larry Light: Why is diversification such an essential topic for small business owners?

Jonathan Kruger: Diversification is vital because most small business owners have a concentrated position. They’ve spent years, sometimes decades, building their business, and often, up to 80% of their wealth is tied up in that single asset. While their business may thrive now, relying solely on it for financial security is risky. Market shifts, industry changes or unforeseen challenges can impact its value. Diversifying helps protect against these risks and creates a more secure foundation for funding retirement and other financial goals​.

Light: That makes a lot of sense. Let’s talk about retirement planning. What options should small business owners explore to begin diversifying their financial assets?

Kruger: One of the most accessible options is setting up an employer-sponsored retirement plan, such as a 401(k). The SECURE 2.0 Act has made these plans more affordable and straightforward for small businesses. A 401(k) allows owners to channel income into a tax-advantaged account, which can grow over time. For 2025, owners can contribute up to $23,500, with an additional $7,500 for those over 50. Beyond building retirement savings, offering a 401(k) can also attract and retain top talent, strengthening the business overall. It’s a win-win for the owner and their employees​.

Light: What about succession planning? How does it fit into the diversification strategy?

Kruger: Succession planning is critical and often overlooked. It’s not just about selling the business when retirement approaches. It’s about creating a roadmap for continuity and growth. A solid succession plan ensures the business can thrive under new leadership, whether that’s a family member, a trusted employee, or an external buyer. It’s also a way to align the business’s future with your personal values and financial goals. Succession planning can bring stability to employees and stakeholders and, with proper funding mechanisms, provide the financial security you need for retirement​.

Light: That ties in well with the idea of knowing your business’s value. How should business owners approach valuation?

Kruger: Valuation is an essential step for any owner planning to diversify. Understanding the value of your business means knowing what you can reasonably expect if you sell. A professional valuation takes into account cash flow, customer base, assets and market conditions. For businesses in industries like construction or manufacturing, seasonality and business cycles also play a significant role. By knowing your value, you can make informed decisions about diversification strategies and negotiations with potential buyers​.

Light: You’ve mentioned that many small business owners are nearing retirement age. How significant is this trend, and what challenges does it present?

Kruger: It’s a significant shift. The Exit Planning Institute estimates that 70% of business owners over 50 plan to sell their businesses within the next decade. And the Small Business Administration estimates that some 10 million Boomer-owned businesses will be sold from 2019 to 2029. The challenge is that many owners haven’t prepared for this transition. With most of their wealth tied to their business, they may face financial shortfalls if the sale doesn’t yield what they expect. Planning early, diversifying assets and ensuring the business is attractive to buyers can help address these challenges​.

Light: Are there any misconceptions small business owners have about diversification?

Kruger: Absolutely. One common misconception is that diversifying will weaken their business. In reality, strategic diversification—such as contributing to a retirement plan or setting up a succession strategy—often strengthens the business. It shows employees, investors and potential buyers that the business is well-managed and resilient. Another misconception is that diversification can wait until retirement is near. Starting early allows more time for assets to grow and for owners to adjust their strategies as needed​.

Light: What advice would you give to small business owners who feel overwhelmed by the idea of diversification?

Kruger: Start small and seek guidance. Begin by setting up a retirement account if you don’t already have one. Then, work with financial and valuation experts to evaluate your business’s current state and identify areas for growth or transition. Diversification doesn’t happen overnight, but taking small, deliberate steps can lead to significant long-term benefits.

Light: Any final thoughts for small business owners?

Kruger: Yes, don’t underestimate the value of planning. Your business is a significant achievement, but it doesn’t have to be your only financial resource. Diversification ensures you have a safety net and opens opportunities for a comfortable retirement and financial independence. The earlier you start, the more options you’ll have down the road​.

By Larry Light, Senior Contributor

All Roads Lead to Business Planning

By Taylor Wong

Since 2011, I’ve had the privilege of working with Hawaii’s vibrant business owner community, addressing the unique needs and challenges that local entrepreneurs encounter. As a fellow business owner, my own experiences fuel my passion, allowing me to connect with clients on a deeper level, giving me a firsthand understanding of their goals and aspirations..

As a business owner, you’ve likely invested years of hard work, time, and energy into building your company. However, one of the most critical aspects of managing a business is often overlooked. Your Exit Plan. A bit cliché, but if you don’t know where you’re going, how will you know when you’ve arrived and an ounce of prevention is worth a pound of cure. With that in mind, proper exit planning helps to ensure that when the time comes for you to step away, your business can transition smoothly on your terms, while preserving the value you’ve built. Whether you’re looking to retire, sell, or transfer ownership, having a well-thought-out exit strategy is crucial for both the business and your personal financial well-being.

When it comes to exiting your business, there are essentially three paths, each with its own benefits. You can sell to an insider, sell to an outsider, or keep until death. The right choice depends on your unique circumstances, goals, and objectives. Consider the following key points:

Time and options are directly linked: The more time you have, the more options you can explore.

Identify your preferred exit path early: It's important to pinpoint your first choice sooner rather than later.

Plan for alternatives: Sometimes, your first choice isn’t feasible, so it’s crucial to have a backup plan.

My Client’s Business Transformation:

Let me add a little color to this scenario by sharing an example from one of my clients.

When we first met a family-owned contracting business in 2012, the company was facing significant challenges. With annual revenues of $7–8 million, they were losing money, unable to offer employee benefits, and had no savings in place. The owner, who had recently taken over the business from a parent, was focused on estate planning to protect their young family’s future.

We began by addressing the basics: implementing protection planning, including wills, and trusts, and optimizing other essentials like insurance coverage. Over time, as the business began to stabilize and grow, our team introduced additional tax strategies to help reinvest profits back into the business. When the previous generation passed away, we facilitated the resolution of complex family dynamics, ensuring the owner retained the business while treating all interested parties fairly, which was the parents wish.

By 2017–18, the company had achieved a major turnaround, reaching $18–20 million in annual revenue and a seven-figure net profit. With this growth, and the previous “ground work” planning in place, the owner was in a position to reinvest in the business, with additional tax-savings strategies and enhanced employee retention. This helped position them to later acquire an additional contracting company, further diversifying their services and driving additional revenue growth.

Today, the business is thriving with strong cash flow management, retirement accounts, real estate investments and employees who are committed to stay and grow with the company. A coordinated team of financial professionals—including accountants, attorneys, and insurance advisors—supports both personal and business planning. Regular consultations ensure the business remains efficient and on track for continued success.

Through our relationship, this business owner gained the confidence and stability needed to focus on growth and family. With a solid foundation in place, they are well-positioned to pursue ambitious goals and plan for a prosperous future.

Planning Your Business Exit on Your Terms

In the end, all business roads lead to exit planning, which, in turn, is often the beginning of the next chapter of that business. Every business decision should be made with your exit strategy in mind, so you can leave on your terms—when you want, to whom you want, and for the value you desire. The key questions are: when will you exit, to whom will you sell or transfer ownership, for how much, and under what terms?

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By Larry Light & Taylor Wong

Feb. 19, 2025