Diversification Empowers Succession Strategies

For most business owners, their business is their baby. They have invested their time, money, and efforts into building something tangible they can be proud of. They know their business inside out and can count on a steady return on their investment year after year. As such, business owners often have all or most of their net worth tied to the business, which creates various succession issues.

Leadership & Management

Owners who are financially dependent on the business generally have a difficult time delegating leadership and operational decisions. As such, the business becomes reliant on one person – the owner. Leadership and management development suffer, as they are not empowered to make decisions – feel the wins or learn from mistakes.


Due to the hub and spoken leadership structure generally characteristic of a business whose owner is financially dependent, the business can experience high turnover in key positions because managers aren’t given the opportunity to lead and grow. Frustration builds, and key leaders leave for other opportunities where they can excel.

While it may seem like a no-brainer for many to invest in the stock market or in other investments that have proven to be successful over time, for a business owner, the thought of putting their hard-earned money into something that is subject to daily volatility and unpredictable market conditions can be daunting. The ups and downs of the stock market can leave them feeling uncertain and out of control, which is not a feeling they are used to experiencing with their own business.

According to a survey by Wilmington Trust, only 35% of business owners have a formal personal financial plan in place as part of their succession plan. This highlights the critical need for business advisors to educate their clients in the power of building wealth independent from the business. There are a variety of options for developing financial independence. Each business owner is unique, with different risk tolerances and an appetite for alternative investments. It is up to the business advisor to connect with their client and effectively match the appropriate strategy, whether investing in the stock market, other businesses within the industry they know so well, real estate, etc.

Finally, a failure to create wealth independent of the business impacts the owner's ability to pass on their business to the next generation. If the business is the owner's primary source of wealth, it may be difficult for them to pass it on to their heirs without causing a financial burden. This can result in the business being sold to outside parties rather than kept within the family.

As a business advisor, you must educate your clients on the potential consequences of having all their eggs in one basket. By helping them financially diversify their investments and create financial independence from the business, you have facilitated a plethora of options for your client, allowing them to delegate operational control, create/build other businesses; or exit the business entirely.


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