The Riskiest Thing on Your Balance Sheet Is the Business You Built

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Almost every owner I meet has the large majority of their net worth locked inside one asset they cannot sell on a Tuesday afternoon. It was the best investment they ever made, and it is also the least diversified position a financial advisor would ever allow, and most owners have never once thought of it that way.

If you own a successful business, there is a good chance that most of what you are worth is sitting inside it. The Exit Planning Institute, in its State of Owner Readiness research, puts the figure at roughly 80 to 90 percent of the typical owner’s net worth locked up in the company. That is not a knock on anyone. Building a business that becomes the biggest thing on your personal balance sheet is the whole point, and it usually means you did something right for a long time. But it leaves most owners in a financial position that, if it showed up anywhere else in their life, their own advisor would tell them to do something about right away.

Think about how a good financial advisor treats a client who has eighty percent of their money in a single stock. They do not congratulate them. They start talking, gently but persistently, about concentration risk, about what happens if that one company stumbles, about spreading the exposure so that no single event can take down the whole plan. Now look at your own situation. The single asset is your business, you cannot sell a slice of it through an app, you cannot easily put a number on what it is worth, and in a lot of cases it is worth what it is worth partly because you are still the one running it. By any measure a financial planner would use, that is about as concentrated as a position gets.

And it is a harder kind of concentration than a stock, because a stock is liquid and a private business is not. If you want out of a public company tomorrow, you sell and you have cash by the end of the week. A business takes months to sell in the best case, longer if the timing is off or the company is not ready, and the whole thing is exposed to events you do not control. The people at EPI talk about the five Ds, death, disability, divorce, distress, and disagreement, precisely because any one of them can force a sale at the worst possible moment and the worst possible price. Your net worth, in other words, is riding on a single illiquid asset that can be knocked sideways by things that have nothing to do with how well you run the place.

None of this is an argument that you should sell, or that you should sell now, so much as an argument for seeing the business the way your financial advisor sees the rest of your money, as a position that needs to be understood and, over time, managed. That starts with actually knowing what it is worth, which most owners only guess at. It continues with making the business less dependent on you, so that its value does not walk out the door when you do. And for a lot of owners it eventually includes finding ways to take some money off the table without giving up the whole thing, whether that is a partial sale, a recapitalization, or simply building toward a transition on a timeline you choose rather than one that gets chosen for you.

This is the part of exit planning that owners tend to think about last, and it is the one that decides whether the rest of it mattered. You can build a valuable, transferable business and still end up in a bad spot if your personal financial picture was never planned around it, if nobody ever ran the numbers on what you would actually need the business to deliver for you to be comfortable walking away. The owners who end up with real freedom of choice are usually the ones who started treating the business as the largest and least diversified part of their net worth years before they had any intention of leaving it.

I am not trying to make anyone nervous about a company that is doing well. A concentrated position in a business you built and understand is a very different thing from a reckless bet. But it is worth knowing it for what it is, and worth having the people in your corner, your CPA and your financial advisor among them, looking at it with clear eyes well before anything forces the question. That is really all exit planning is, which is good planning applied to the biggest asset most owners will ever own.

A note for the CPAs who refer clients to me

You are usually the first person positioned to see this, because you see the whole picture, the business and the personal balance sheet side by side. When a client’s net worth is this lopsided toward one illiquid asset, the questions of what the business is really worth, how to reduce the owner’s personal exposure over time, and how a future transition would be taxed all sit squarely in your lane. Raising the concentration early, years before a sale is on anyone’s mind, is some of the most valuable advising you can do, and it is a natural point to bring me into the conversation.

A note for the wealth advisors who refer clients to me

This is your language more than anyone’s. You manage concentration risk for a living, and for your business-owner clients the business is almost always the largest and least diversified position they hold, even though it never shows up on the brokerage statement. Helping an owner understand that exposure and build a personal financial plan that accounts for an asset they cannot easily sell or value is work only you can really do, and it is far more effective started early than in the scramble around a transaction.