The financial planning industry is obsessed with risk mitigation. They are trained to see a concentrated position as a house on fire that needs to be extinguished immediately. If you have a sizable portion of your net worth in one stock, one sector, or one private entity, their first instinct is to tell you to sell.
And it’s why most financial advice fails founders. You didn’t reach this level of success by being safe. You reached it by being asymmetric — by concentrating most of your capital and time.
Trying to apply safe, diversification principles to a founder’s life is like trying to drive a Formula 1 car using the rules of a driver’s ed class. You’re going to be frustrated, and you’re going to be slow. We’re going to look at the rules for the car you’re actually driving.
Why the Standard Playbook Doesn’t Apply
The standard financial plan was engineered for someone who earns a salary, invests in a diversified portfolio, and retires somewhere between 62 and 65 on a 4% withdrawal rate. It is a perfectly reasonable plan for a perfectly average situation.
That’s not you.
Your business is not only your largest asset but also your job, identity, primary source of income, and the basis of your personal finances. When a traditional financial advisor looks at your balance sheet and sees concentration risk, they’re right in a technical sense. But the prescription — sell, diversify, reduce exposure — ignores what your company represents.
| Standard Planning Assumptions | Founder Financial Realities |
| Diversified, liquid assets | Majority of net worth in a single private company |
| Regular rebalancing as allocations drift | No mechanism to partially liquidate the primary asset |
| Predictable cash flow and income | Variable compensation tied to business performance |
| Clear retirement timeline | Exit-dependent wealth creation on an uncertain schedule |
| Portfolio risk can be measured and managed | Largest asset has no daily price and can’t be hedged conventionally |
What Your Financial Plan Should Include
There are two principles to keep in mind as you develop a financial plan.
First, treat an exit as a possibility, not an inevitability. Your personal finances need to function independently of a potential large windfall from a sale — which also puts you on better ground for negotiating.
Second, prepare for it anyway. The strategies that produce the best outcomes at exit (e.g., QSBS eligibility, irrevocable trust structures, charitable vehicles, tax-loss harvesting) almost all require years of lead time. Proactive preparation keeps your options open.
With those principles as the foundation, here’s what the plan itself needs to include:
Your Real Net Worth (Not Your Assumed One)
Enterprise value and personal net worth are not the same number, and many founders haven’t calculated the difference. Enterprise value is what a buyer pays for the business. What you actually walk away with is enterprise value minus debt and working capital adjustments, minus transaction costs (typically 3–5% of deal value at the middle market), minus federal and state capital gains taxes, minus any rollover equity that stays locked up in the new entity.
In other words, a lot less.
On a $20 million exit, that math can produce anywhere from $10 to $15 million in actual personal liquidity depending on your debt load, state of residence, and deal structure. Build your personal financial plan on the net number and run it at your base case, at 70% of that, and at 50%. A financial plan that only works in an optimistic scenario is wishful thinking.
Liquid reserves
Target 12–24 months of personal expenses in accounts outside the business — not in the business operating account, not in a retirement account that penalizes early withdrawals, and not in illiquid assets like real estate or private equity. Accessible means accessible: a high-yield savings account, a money market account, CDs, or short-duration bonds are appropriate vehicles. A brokerage account with a mix of marketable securities works too, with the caveat that there’s market timing risk if you need to draw on it during a downturn.
Fund it systematically. If the business generates excess capital beyond its operating needs, the remainder should move out of the business and into personal liquid accounts until you’ve reached a point of personal stability and flexibility. I’ve met founders who resist this instinctively. The business always has a use for capital. But your personal liquidity buffer is what removes the pressure to make equity decisions before you’re ready.
Compensation Structure
The mechanics vary by entity type, and they matter more than you may realize.
For S-corp owners, the IRS requires a “reasonable salary” — typically benchmarked to what you’d pay a comparable executive in the market. Compensation above that threshold is generally more tax-efficient as a distribution because it avoids the additional 15.3% payroll tax (or 2.9% above $168,600) that applies to W-2 wages. It’s a balance to find the lowest defensible salary that satisfies the reasonable compensation standard, then taking excess as distributions.
For founders structured as LLCs taxed as partnerships, all net income is subject to self-employment tax regardless of how it’s labeled — which is one of the structural advantages of electing S-corp treatment at the right revenue level.
Review your structure annually. What made sense at $2M in revenue might not at $10M.
A Line of Credit
A securities-backed line of credit (SBLOC) or personal line of credit can provide short-term liquidity without triggering a taxable event. SBLOCs typically allow you to borrow against a portfolio of liquid securities at relatively low interest rates (e.g., 50–70% of the portfolio value) without selling the underlying positions.
One important caveat: if you’re approaching a deal, some lenders will restrict or call lines of credit once they’re aware of an M&A process. If you take this route, establish the line well before a transaction is on the horizon, and understand the terms around material changes in your financial situation.
Estate Planning
A will, durable power of attorney, healthcare directive, and current beneficiary designations are all table stakes. Beyond that, your estate plan needs to specifically account for business ownership.
Two moves are valuable while the business is still growing.
The first is transferring shares to an irrevocable trust. This removes future appreciation from your taxable estate. Every year the valuation grows, transferring the same percentage of the company costs more of your lifetime gift tax exemption ($15 million per person in 2026).
The second is implementing gifting strategies that use valuation discounts — shares in a private company can often be transferred at a 20–40% discount to fair market value due to lack of marketability and minority interest considerations, which stretches the exemption further.
Both of these windows close as the exit approaches. Once a deal is in process and a price is being established, the IRS will use the transaction price as the basis for gift and estate tax purposes.
Tax Strategy
Tax planning takes time.
For instance, Qualified Small Business Stock (QSBS) is one of the most valuable tax tools available to eligible founders. Capital gains from a qualifying sale can be excluded from federal taxes — up to $10 million for stock issued before July 4, 2025, or up to $15 million for stock issued after that date. Both require C-corp structure at issuance and a minimum holding period.
Additionally, tax-loss harvesting in a separately managed account outside the business builds a stockpile of realized losses over time, which can offset capital gains at exit dollar for dollar. The strategy needs years of runway to accumulate material losses.
If you’re charitably inclined, there are other vehicles to consider too. By contributing appreciated equity to a donor-advised fund, you generate a full fair market value deduction and avoid capital gains recognition on the contribution. That said, the contribution must happen before a deal is announced. Once a letter of intent is signed, the IRS may treat the transaction as already complete — closing the window.
Asset Allocation
Your investment accounts outside the business should be designed around the risk already embedded in the business.
If, for instance, you’re heavily concentrated in a private technology company, your portfolio probably shouldn’t add more of those exposures (e.g., technology stocks, venture capital, etc.). Instead, focus on what the business doesn’t provide: liquidity, stability, and exposure to uncorrelated asset classes like fixed income, real assets, and international equity.
Plan for Scenarios Nobody Wants to Say Out Loud
What happens if your exit is delayed? If your business needs a capital infusion at an inconvenient moment? If a co-founder disputes, delays, or derails a deal?
A financial plan that only works under favorable conditions is a rosy projection. The value of real planning is that it holds when things don’t go as expected — which, in the founder’s journey, they often don’t.
That kind of plan requires clarity on what the business is realistically worth, how your personal finances need to be structured in the meantime, and what an exit needs to produce to fund the life you actually want. That last question, what the money is for, is the easiest to overlook or assume will answer itself.
At Five Oceans, it’s our starting point. Our Life Strategy framework is built on the premise that financial planning works best when it begins with a clear picture of the life it’s meant to support — across all five dimensions we think matter most: Money, Career, Health, Relationships, and Fun.
If your wealth is mostly illiquid and your financial plan hasn’t caught up with that reality, I’m happy to talk.
