How Do I Get Wealth Out of My Business (and Into Retirement)?

Let me put numbers on it, and these are illustrative numbers rather than anybody's actual situation. Picture a business burning roughly three hundred thousand dollars of cash a month. Run the three-to-six-month math and you might land near a million dollars of reserves, and you might hold a month and a half of that in real cash for immediate needs and put the rest into cash alternatives, something like a thirty and sixty day government bond ladder chosen to match the timing in which the money could even conceivably be needed. Now take the roughly five hundred fifty thousand sitting in that second tier. At a yield of around four percent, which is roughly what short government paper has paid in recent years and isn't a promise about any particular week (U.S. Treasury: daily Treasury bill rates), that's about eighteen hundred dollars a month of interest. Eighteen hundred a month. That's half of a person's wages, for no extra effort and no added risk to speak of. I don't care about the exact number. What I care about is that as businesses grow, they consistently underestimate what thirty minutes of being intentional and precise about cash management is actually worth. Nobody goes looking for this. It's a good example of the kind of thing a real financial planner surfaces for a business owner that the owner would never have gone hunting for, because when would they ever have had a reason to.

I meet a lot of owners who underpay themselves for years. Some of that is discipline, plowing everything back into growth, and some of it is that the business and the person blur together over a decade until nobody involved can tell where one ends and the other begins. But personal wealth gets built out of personal income. Money that stays inside the business grows the business, which isn't nothing, and it also leaves your entire household net worth concentrated in one illiquid thing you can't sell a slice of on a bad Tuesday, which is a risk nobody puts on a statement anywhere. Diversification, in an owner's world, starts somewhere boring. You pay yourself a real wage and a sensible distribution, and then you do something deliberate with the excess rather than letting it pile up idle. How you pay yourself isn't entirely up to you, either. The right mechanics depend on your entity type (IRS: paying yourself), and if you run an S corporation there is a reasonable-compensation requirement behind the wage you set for yourself, which the IRS takes seriously and which is a genuinely common audit issue (IRS: S corporation compensation). I'd rather you get that right the boring way than the interesting way.

I think this is the lever most owners underuse, and it's a real one. A profitable business can run a retirement plan for its owner, and depending on the structure, the amounts that can go in are often meaningfully larger than what an employee at a job can set aside. In a one-participant 401(k), for instance, the IRS describes the owner as wearing two hats, employee and employer, with contributions possible in both capacities (IRS: one-participant 401(k) plans). I'm not going to name the right plan for you here, because the honest answer is that it depends on your numbers, and getting it wrong costs money in both directions. Set up too much plan and you strain cash flow or trip over the rules about covering employees, and set up too little and you leave the single biggest tax lever an owner has sitting untouched on the table for another year. Neither mistake announces itself. Both cost real money. The menu itself is worth reading once (IRS: types of retirement plans, and IRS: retirement plans for self-employed people). This is one of the places where an hour of real planning tends to pay for itself several times over. The underlying idea is simple. A well-chosen plan lets you move money that would otherwise be taxed heavily this year into an account that's personally yours, diversified, and growing on your timeline rather than the business's.

For a lot of owners, the eventual sale of the business is the retirement event. It's the moment the biggest bucket finally gets unpacked, and it deserves to be planned like the milestone it is. A buyer, by the way, isn't trying to buy you a job. A good buyer wants an asset that produces income without the original owner in the chair every day, so a business that only works because you're the one doing everything is worth less and harder to sell than one running on systems and other people who will still be there after the closing. That's the whole game. A useful piece of homework, years before any sale, is to write down what only you do and then start handing those things off. That work makes the business more valuable and makes your exit smoother. It's retirement planning that happens to look like management. And then there's the tax window. A sale is usually a large-income event, and how it's structured, over what timeline the money arrives, and what you do in the years around it can meaningfully change what you keep. Remember that on the tax-deferred pieces of all this, you and the government are partners and the government hasn't taken its cut yet. A sale often opens a short and valuable window to be deliberate about that. This isn't a filing task you hand somebody in April. It's a planning decision you make in advance, ideally with years of runway rather than weeks.

I'd start with your monthly burn rate and hold roughly three to six months of it, then adjust for how volatile your revenue is and how concentrated your customers are. A practice with hundreds of patients and steady billing can sit near the low end. A firm with two clients making up most of its revenue should sit well above the high end, and I'd tell them so directly. The test I'd apply is whether you can say out loud why the number is what it is. If the only reason is that it feels good, it isn't a reason yet.

Often yes, and I'd want to know your entity before saying more. Plenty of pass-through businesses can open an investment account in the company name and hold a diversified basket of publicly traded companies with excess reserves. Once you're a C corporation it gets awkward, because you can do it and the tax treatment frequently makes it not worth doing. Before any of that, the simpler step is putting reserve cash into a money market fund, a short government bond ladder, or a high-yield savings account, and I'd do that from day one rather than waiting until there's a surplus.

I weigh the return you can genuinely earn inside the business against the tax savings and diversification you get from taking it out, and I'll be honest that early on, reinvesting usually wins. A young business with real growth in front of it can often do more with a dollar than a retirement account can. That flips as the business matures, when the marginal dollar reinvested does less and the concentration risk of holding everything in one company does more.

Years before you want to sell, and I mean years. The work that makes a business more valuable, meaning getting it running without you, cleaning up the books, and reducing customer concentration, takes time that simply can't be compressed into the last few months no matter how motivated everybody suddenly becomes. It takes years. It always has. The tax planning around a sale also needs runway, because most of the useful moves have to happen before a letter of intent rather than after one. If you think you might sell in five years, the planning starts now.