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The Journey to Retirement and Diversification

Understanding Business Asset Concentration

I am sure you have taken a moment to reflect on the fact that your assets are concentrated in your business. In the entrepreneurial realm, it’s common to find that for many, their business is not only their primary source of income but also the bedrock of their financial standing.

This is in stark contrast to when your business was founded and it did not contribute much to your net worth. In fact, it may even have accounted for the largest source of personal debt. But as the business flourished over time, it likely transformed into your most valuable asset.

Having built such an impressive foundation, it’s natural to feel a strong attachment to your enterprise. But now you are envisioning a world beyond the “walls” of your business. Diversification isn’t merely a defensive play against risks; it’s an active strategy to fortify and grow your wealth. Let’s dive deeper.

A Business Owner’s Journey to Asset Diversification

To truly grasp the importance of diversifying assets, let’s delve into a real-world scenario. Consider the journey of Milton.

In the early 1900s his father built a business that stands today with a $115 million valuation. However, this figure also reveals a vulnerability: this business represents 90% of his family’s entire wealth. This predicament is far from rare. Data from McKinsey & Company suggests that about 80% of business owners are in the same boat, with their business being their primary wealth.

Aware of the importance of diversifying assets and planning for the future, Milton is interested in not being amongst those caught off guard at retirement. The alarming truth is that many entrepreneurs hinge their retirement plans on the potential sale of their businesses, hoping it will finance between 60% to 100% of their golden years. Years of dedication to their enterprise and the associated “loyalty” sometimes overshadows the importance of diversifying assets for the future.

When the retirement bell tolls, these individuals face the chilling reality that, without diversification, their anticipated business valuation and retirement aspirations may not align. Further emphasizing the importance of diversifying assets, PwC points out that only 25% of business owners have planned with a succession strategy.

This lack of foresight can lead to hasty decisions and unstable transitions when retirement or unexpected exits loom. Milton’s story underscores the importance of diversifying assets and the potential risk of an over-reliance on a single enterprise for wealth. His narrative serves as a reminder that while entrepreneurial success is commendable, it must be accompanied by forward-thinking financial strategies.

How to Diversify: Key Takeaways

– Business Valuation Is a Science, Not Speculation: While industry benchmarks offer a rough estimate, the true value of your business is ingrained in its unique attributes. Dive into these details with the guidance of a seasoned expert.

– Plan Your Exit Before The Exit Door Appears: Regular valuations do more than just depict the current worth of your business. They shape its future trajectory, guiding pivotal decisions, from growth strategies to potential exit timing. Knowledge is power.

Delivering A Dream Retirement Requires Planning, Not Just Dreaming: Many business owners dream of retiring and enjoying their golden years. However, the reality is that many business owners are not prepared for retirement. A study by the Family Wealth Alliance found that wealthy business owners who sell their businesses often underestimate their retirement needs by as much as 50%.

Why Business Owners May Underestimate Their Retirement Needs

There are a few reasons why business owners may underestimate their retirement needs. A common issue is overlooking the true cost of taxes. When a business owner sells their business, they may have to pay capital gains taxes on the sale. These taxes can be significant, and they can eat up a large portion of the sale proceeds.

Second, business owners may not be realistic about their expenses in retirement. They may assume that they can maintain their current lifestyle, but this can be expensive. It is critical to factor in the cost of travel, hobbies, healthcare, and other expenses when planning for retirement.

Third, business owners often do not have a plan for their estate. This important project is often overlooked and can be fairly complex. Often business owners find that their estate plan consumed more exit proceeds than anticipated and took longer than expected. It is wise to start this process well before an exit.

Even if you believe that your business’s valuation dwarfs how much you think you need for retirement, it’s still time to analyze and strategize. Ensure that you are operating based on sound analysis that takes everything into account. Milton realized that getting started sooner would have enabled him to be more prepared with understanding how much he wanted to set aside for his golden years versus other uses of his proceeds.

Of course, if your business valuation is not close to what you think you need for retirement then the urgency of planning and rethinking your plans becomes even more critical. Consider the timing of your exit and your retirement spending plan.

Perhaps, waiting a few years can transform the economic outcome? Are there changes you can make to your retirement plans and spending to stretch your deal proceeds? Are there aspects of your business that can be made more efficient and margins can be improved to increase your exit proceeds?

While this realization often can be stressful, the clarity and insight that results from proper planning can drive effective action and dramatically improve your circumstance.

Diversification: More Than Just Financial Jargon

Milton understood that his entrepreneurial story doesn’t need to conclude with his personal business’s triumphs. He is exploring the next chapter of the story which involves diversifying his wealth and ushering in a new era for his company. Milton began to explore a succession plan that involved:

(1) identifying a new leader with the energy, vision, and focus to take the company forward; and

(2) an injection of capital and resources to support that leader’s success.

One such avenue for Milton is recapitalization—selling a majority or minority interest to an investor and broadening Milton’s financial foundation, while providing that new leader with the support of a well funded institution that was motivated to grow the company.

Recognizing his retirement goals and the inherent risks of his asset concentration, and the complexity of the path before him, Milton turned to Astria for guidance. With its extensive network of over 6000 business purchasers, Astria offered multiple pathways for Milton to consider.

One such pathway is an investment from a private equity firm that is interested in collaborating with Milton and cashing out most of Milton’s stake while infusing the business with fresh capital, and unlocking new growth potential. This not only offers a financial surge but also relieves Milton from the personal financial constraints and business liabilities. Moreover, Milton also received another option – two significant competitors expressed interest in an acquisition, which is another pathway Milton is exploring.

With all of these considerations in mind, it became apparent to Milton that diversifying assets is not merely a safeguard but an opportunity for business growth, security and peace of mind.

Now that we’ve unfolded some of the opportunities to diversify Milton’s wealth, it’s time to delve deeper. Up next, familiarize yourself with essential tips every business owner should grasp to fortify their financial journey as they approach retirement.

Mastering Diversification Following an Exit: Tips Every Business Owner Should Know

Understand Your Risk Appetite

Take a moment to reflect and introspect. Following your exit from a business, you need to have an understanding of your willingness and capacity to bear ongoing financial risk. This is foundational. Some investments may offer tantalizing high returns, but they often come packaged with greater volatility and risk. Determine your comfort zone and tailor your investment strategy accordingly.

Don’t Put All Your Eggs in One Industry

Diversification isn’t just a buzzword; it’s a protective measure. Just as it’s risky to anchor all your wealth to a single business, it’s equally perilous to tether your investments to one industry. Milton was eager to explore diversification by investing passively in other industries. Diversifying across multiple sectors shields you from industry-specific downturns, ensuring that a downturn in one sector doesn’t devastate your entire portfolio.

Consider Asset Class Diversification

It’s equally imperative to diversify not just across industries but also across various asset classes. You don’t want to be heavily concentrated in just equities or real estate, for instance. A balanced mix of stocks, bonds, real estate, and perhaps even alternative investments can provide a balanced risk-reward ratio tailored to your unique financial scenario. Working closely with your financial advisor, assess your goals, risk tolerance, and overall retirement plan to ensure a well-rounded and robust diversification strategy.

Keep Liquidity in Mind

While long-term investments have their merits, it’s vital to ensure you can access funds quickly when needed. Having a portion of your assets in easily liquidated forms ensures you’re not cash-strapped during sudden financial demands or attractive investment opportunities. With all of your capital concentrated in the business, this may not have been possible before, but the peace of mind that this provides is tremendous.

Regularly Review and Adjust

Financial markets are akin to shifting sands. Their dynamic nature means the strategies that once yielded results may not work perpetually. Periodically review your investment portfolio, adjusting to align with evolving market conditions, personal financial milestones, and broader economic forecasts.

Seek Expert Guidance

Even with a firm grasp on financial matters, there’s unparalleled value in seeking external expertise. Before making any major financial decisions, sit down with your financial advisor or wealth manager. They’ll help you meticulously plan and understand your spending rate compared to your retirement assets.

This planning is pivotal to ensuring that you don’t outlive your retirement resources. It’s not merely about ensuring you have enough funds but validating the math behind your retirement strategy, giving you confidence in your financial future.

Financial advisors, M&A experts, and wealth management professionals, such as Astria, bring specialized knowledge. They can help you sidestep pitfalls and refine your diversification strategy. Their fresh perspectives can highlight unseen opportunities and risks.

Charting the Future: Your Business, Your Legacy

The journey of entrepreneurship is filled with twists and turns. Even the most formidable businesses, built meticulously over the years, aren’t immune to the surprises of technological shifts, global economic undulations, tsunamis, pandemics or unprecedented market disturbances. One of the best ways to fortify against such uncertainties is to ensure your assets are not solely tied to your business.

True success in the entrepreneurial realm transcends relentless hard work; it demands sharp, informed decisions. And here lies the true value of diversifying your assets. The risks of an ever-changing business landscape make it paramount for business owners to spread their wealth, ensuring protection against unforeseen adversities.

Astria understands this intricate dance of business ownership. We’re not just another advisory firm; we are your steadfast partners, guiding you from business growth to genuine financial freedom. With an expertise in amplifying value, we assist family businesses in weaving a diversified financial tapestry, be it through mergers, sales, or strategic shifts.

What sets Astria apart is our dual approach: transaction advisory combined with operational value creation. It’s not just about setting your business up for an opportune exit, but ensuring that throughout its lifecycle, your personal assets remain diverse and robust.

For the family-owned business community, Astria recognizes the depth of your entrepreneurial spirit. Your enterprise isn’t merely a source of income; it’s a legacy, a culmination of generations of dreams and hard work. As you contemplate future transitions, place your trust in Astria.

Let us help you diversify, solidify your legacy, and secure a prosperous future. Ready to take the next step? Reach out and let’s embark on this journey together.


  1. McKinsey & Company: “The Future of the Economy and Global Wealth” by McKinsey & Company (2023).
  2. PwC: “The State of the Family Business 2022” by PwC (2022).

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