The largest holding on the balance sheet is the one you work at.
For most owners the company is the biggest asset, the least liquid, the least diversified and the least planned-for.
An owner’s personal financial plan usually stops at the edge of the business, which is where most of the value and nearly all of the risk lives. Exit is not an event on a future calendar; it is a multi-year project that either starts early or gets decided by circumstance.
of owners surveyed reported profound regret within 12 months of exiting their business1
of family businesses that survive into the second and third generations2
2025 defined contribution annual additions limit, before catch-up contributions3
Exit readiness is the plan, not the transaction
The Exit Planning Institute’s State of Owner Readiness research has repeatedly found that roughly three-quarters of owners profoundly regretted the decision within twelve months of exiting, most often because the personal and financial planning was not done before the transaction closed.1
The questions that need answering years ahead: what does the business have to net for the plan to work, what is the company actually worth today by a defensible method, what would a buyer discount for, and what would the business be worth without you in it? That last one is usually the expensive answer.
Succession inside the family
Roughly 30% of family businesses survive into the second generation and about 12% into the third.2 The failures are rarely operational. They are governance failures: no written succession agreement, no funded buy-sell, no plan for treating children in the business fairly relative to children who are not.
“Equal” and “fair” diverge quickly here. Life insurance is frequently the instrument that lets the operating child receive the business while the others receive comparable value, without forcing a sale to make the estate liquid.
Buy-sell and key person: funded or theoretical
Most buy-sell agreements we review have two problems. The valuation clause is stale, sometimes referencing a formula agreed to a decade ago. And the agreement is unfunded, which means the surviving owners are contractually obligated to buy an interest with money they do not have.
Funding the obligation, and choosing between a cross-purchase and an entity redemption structure with your attorney and CPA since the basis and tax consequences differ, turns the agreement from a document into a mechanism. Key person coverage is the same idea applied to the employee whose departure would impair the company’s value or its lending relationships.
The retirement plan is a lever most owners underuse
For 2025 the defined contribution annual additions limit was $70,000 per participant before catch-up contributions.3 For owners with strong, stable cash flow and a favorable demographic profile relative to staff, layering a cash balance plan on top of a 401(k)/profit sharing design can shelter materially more, but it is a multi-year funding commitment with actuarial requirements, not a switch you flip in a good year.
Plan design belongs to a third-party administrator and your CPA. Our role is to determine what the plan needs to accomplish for the owner’s personal balance sheet, and to make sure the investment lineup and the fiduciary process behind it are defensible.
Diversifying away from the concentration
An owner with 80% of net worth in one private, illiquid, industry-concentrated position holds a risk profile no advisor would recommend building deliberately. Reducing it takes years and the tools are specific: systematic distributions invested outside the company, qualified plan funding, real estate held outside the operating entity, and where applicable partial recapitalizations.
Section 1202 qualified small business stock can exclude a substantial portion of gain on a qualifying sale, and the eligibility rules and dollar limits were modified by the 2025 federal tax legislation. Whether your stock qualifies is a question for your CPA and transaction counsel, well before a letter of intent.
For an owner, the personal plan and the business plan are the same plan. The exit value sets the retirement income need, the buy-sell sets the insurance need, the entity structure sets the tax picture, and the succession agreement sets the estate plan. We work the whole thing with your attorney and CPA rather than a slice of it.
- Exit Planning Institute, State of Owner Readiness research: share of owners reporting profound regret within 12 months of exiting. View source ↗
- Conway Center for Family Business, Family Business Facts: generational survival rates for family-owned businesses. View source ↗
- IRS Notice 2024-80: 2025 retirement plan limitations, including the IRC §415(c) defined contribution annual additions limit of $70,000. View source ↗
Figures are as of the period stated by each source and are subject to change. Statistics describe populations and are presented for education only; they are not a projection of any individual result.
Other Side Asset Management does not provide legal or tax advice and does not draft legal documents. The information on this page is general and educational; tax law and benefit rules change, and their application depends entirely on your circumstances. Coordinate any decision described here with your attorney and CPA. Business valuation, plan administration and transaction advisory are provided by qualified third parties, not by Other Side Asset Management. Insurance products are offered through licensed insurance professionals; guarantees are subject to the claims-paying ability of the issuing insurance company.
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