Why Concentration Feels Different When You're the Owner

Financial advisors love to preach diversification. And they're not wrong—spreading risk across many assets reduces volatility. But that advice often ignores the reality of business ownership.

Your business isn't just another stock in a portfolio. You have control. You understand the risks better than any outside investor could. You can react to problems in real-time. You're not passively watching a ticker—you're steering the ship.

That's why concentration in your own business feels different from concentration in, say, a single tech stock. Because it is different. The risk profile isn't the same.

But that doesn't make it risk-free. Industries change. Health issues arise. Key customers leave. Competitors emerge. The control you have is real, but it's not absolute.

When to Start Thinking About Diversification

There's no universal answer, but there are signals worth paying attention to:

Your business could fund your lifestyle if you sold it today. Once your business has reached a value that would support your family for life—even if you never worked again—you have something meaningful to protect. That's different from the early years when the upside was essential.

You're more than 5-7 years from retirement or exit. Diversification takes time to implement tax-efficiently. If you start too late, you're forced to sell shares at once, triggering a large tax bill. Starting earlier gives you room to spread transactions across multiple years.

Your personal finances are entangled with the business. If your income, health insurance, real estate, and retirement savings all depend on the same entity, you have a hidden concentration problem. One shock could ripple through everything.

You've started thinking about it. Most owners don't worry about diversification until something triggers the thought—a health scare, a near-miss with a major customer, or simply getting older. That instinct is often right. When you start sensing vulnerability, it's usually time to plan.

How Much Is Enough?

This is where the math gets personal. "Enough" depends on what you need the money to do.

Start with your "floor." How much would you need invested outside the business to maintain your lifestyle if the business went to zero tomorrow? For some families, that's $3 million. For others, it's $15 million. The number isn't about what's "reasonable"—it's about what you actually spend and how long you expect to live.

Then consider your "freedom number." At what point would you feel truly secure? Not just surviving, but comfortable—able to maintain your lifestyle, help your kids, weather medical emergencies, and sleep well at night. That number is usually higher than the floor.

Finally, assess what's realistic. Pulling cash out of a business has real costs—taxes, reduced reinvestment, and potentially slower growth. The goal isn't to diversify at all costs. It's to find the balance point where you've protected enough to feel secure without undermining the business that's generating the wealth.

Practical Ways to Diversify Without Selling the Business

Diversification doesn't have to mean an exit. There are several approaches that let you reduce concentration while staying actively involved:

Increase your distributions. Many owners reinvest almost everything back into the business. Deliberately taking larger distributions—and investing them in a diversified portfolio—builds outside wealth over time without any dramatic changes.

Sell a minority stake. Private equity firms often acquire minority positions in growing businesses. You get liquidity and diversification while retaining control and upside. The tradeoffs are real (you now have partners), but so is the risk reduction.

Fund retirement accounts aggressively. Solo 401(k)s, defined benefit plans, and cash balance plans allow business owners to shelter significant income while building diversified wealth. These funds are also protected from business creditors in most states.

Consider real estate or other non-correlated assets. Some owners diversify by investing in commercial real estate, rental properties, or other assets that aren't tied to their industry. This provides income streams that don't depend on the business.

Use life insurance strategically. Properly structured life insurance can provide estate liquidity, fund buy-sell agreements, and create a tax-efficient transfer mechanism—all while reducing your family's dependence on the business's sale price.

The Tax Dimension

Every dollar you take out of the business is taxed. If your business is structured as an S-Corp or partnership, distributions may trigger ordinary income taxes at the federal and state level. If it's a C-Corp, you may face double taxation on dividends.

That's why diversification planning can't happen in isolation from tax planning. The goal is to extract value in the most efficient way possible—which often means spreading it over multiple years, coordinating with your CPA, and sometimes restructuring how the business pays you.

Timing matters too. If you know you're going to have a low-income year (maybe you're taking a sabbatical, or the business had a tough year), that might be the time to accelerate distributions and recognize the income at a lower rate.

What We Do Differently

Most advisors see your business as a problem to be solved—a source of concentrated risk that should be diversified as quickly as possible. We see it differently.

Your business is an asset. A producing asset. The question isn't "how do we get out?" It's "how do we build financial security around you while you continue to build?"

We work with business owners to develop a multi-year diversification plan that balances growth, tax efficiency, and risk management. We coordinate with your CPA and attorney to implement strategies that actually work in your specific situation—not generic advice from a textbook.

If you've started thinking about what comes next—whether that's an exit, a transition, or simply reducing your dependence on the business—let's talk. The planning is always easier when you start before you have to.