The Single Riskiest Position Most Business Owners Hold Is Their Own Business
A business owner with £8m of net worth sitting almost entirely in their own company has roughly the same concentration risk profile as an executive with their entire net worth in a single FTSE 100 stock. The financial planning logic is identical. The conversations are not, and most business owners don’t have the second one until five years later than they should.
For most business owners we work with, the company is the largest asset they will ever hold. Often by a multiple. A founder whose business is valued at £6m to £15m frequently has more wealth tied up in a single private company than in everything else combined such as pension, ISA, family home, cash and listed investments added together.
That position would be considered uninvestable in any other context. A wealth manager presented with a client holding 80% of their net worth in a single stock would write the meeting note with immediate diversification underlined twice. The same wealth manager, presented with a client holding 80% of their net worth in their own private company, almost always defers the conversation. The business is performing well. Diversification can come at exit.
That deferral is one of the more expensive mistakes available in this part of the market.
What concentration risk actually looks like in the numbers
Consider two clients. Both have £8m of net worth.
The first is a founder. £6.4m of the £8m is the equity in her business, valued on a fair multiple of recent earnings. The remaining £1.6m is split between a £600k pension, a £400k ISA, £400k of joint-name investments, and £200k of cash. Her company is in a growing sector, has long-tenure customers, and produces strong cashflow. From her perspective, the concentration is justified by the underlying business quality.
The second is a senior executive at a FTSE 100 company. £6.4m of his £8m is restricted shares vested over a long career, all in the same employer. The remaining £1.6m is structurally identical to the founder’s. His company is large, dominant in its sector, and produces strong cashflow. From his perspective, the concentration is justified by the underlying business quality.
Most readers will instantly identify that the executive has a problem. The same readers, looking at the founder, will often see a successful businesswoman rather than a portfolio with a structural issue. The numbers are identical. The framing is what differs.
The reason this matters is that the events that destroy concentrated equity positions are not always foreseeable. The FTSE 100 contains a long list of companies that lost 60% to 90% of their value over a relatively short period for reasons that were not obvious to insiders six months earlier, accounting issues, regulatory action, commercial disruption, sector dislocation. The list of UK private companies that have done the same is longer and quieter. Most do not make the news.
The financial planning logic for the founder and the executive should be identical. In practice, the planning conversation is usually had with the executive immediately and with the founder several years later than it should be.
The pre-exit window where most of the value is captured
The strongest version of the planning conversation for a business owner happens between five years and eighteen months before a planned sale.
In that window, several things are simultaneously true. The business is generating cashflow, which can be extracted into pension, ISA, and personal investments at much higher annual rates than most owners realise. Family Investment Companies, trusts, and gifts to family members can be established with sufficient lead time to be effective for inheritance tax. BADR holding-period requirements can be checked and, where necessary, adjusted while there is still time to do so. The transaction itself is far enough away that decisions can be made on planning logic rather than transaction urgency.
A founder five years from sale who systematically extracts £60,000 a year into pension as employer contributions, uses the full ISA allowance, and ensures the family’s joint-name investments are tax-efficient, will have built a roughly £700,000 to £900,000 personal investment portfolio outside the business by the time of completion, in addition to whatever the sale itself produces. That portfolio is fully diversified, fully liquid, and fully outside the risk profile of the business.
A founder eighteen months from sale who has done none of the above arrives at completion with the entire post-tax proceeds sitting in a single bank account, no historical wrapper structuring done, no IHT planning in place, and the deployment decision compressed into the most psychologically vulnerable period of their financial life.
The arithmetic difference between those two outcomes is large. The behavioural difference is larger still.
The post-exit deployment problem
Once the sale completes, the planning problem inverts. The concentration risk that defined the previous twenty years disappears overnight, replaced by the opposite question: how to deploy a meaningful capital sum across decades, against an uncertain time horizon, when the muscle memory of the past two decades has been "focus everything on one asset" rather than "spread across many."
The two most common errors in the first eighteen months post-exit are both psychologically grounded.
The first is cash-hoarding. Twelve to twenty-four months of inflation-eroded balances sitting in low-interest accounts because the deployment decision is genuinely difficult and the founder has no historical experience of managing significant liquid wealth. Real returns are negative across this period, opportunity cost is large.
The second is rapid deployment driven by anxiety. The opposite error: putting too much capital into illiquid or volatile structures within months of receipt because something has to be done with it. Private market commitments made in this window often look very different five years later.
Sophisticated post-exit planning addresses both. It builds a deployment plan with a clear timeline, typically twelve to twenty-four months, explicit asset class targets, structured tax wrapper sequencing (pension, ISA, GIA, bond as appropriate), and explicit recognition that someone who has just sold a business is rarely the same investor they were six months earlier.
Why pension funding pre-exit is one of the most underused levers
Most owner-managed businesses substantially underuse employer pension contributions in the years before a sale.
A company contributing £60,000 a year into the director’s pension does the following. The contribution is typically deductible for corporation tax, saving 25% in the main rate band. It attracts no employer National Insurance. It builds capital outside the business in a fully ring-fenced wrapper. It does so at compounded rates of return that are difficult to replicate after-tax outside the pension.
Across five years pre-exit, that is £300,000 of contributions removed from the business and accumulating in pension. After tax relief, modest growth, and corporation tax savings considered, the net effect on the family balance sheet is usually close to £400,000, outside the business, in a tax-efficient wrapper, ready to be drawn or used in retirement.
Most owners do not do this. Some are constrained by the threshold income gateway and the Annual Allowance taper, which we covered in detail in "Pension Planning for Executives and Business Owners, When the Rules Actually Bite." But many simply do not run the calculation. They treat the business as the pension and assume the sale will fund retirement. The sale usually does fund retirement. It funds it more efficiently if some of the capital was already accumulating outside the business.
Why your portfolio shouldn’t look like an employee’s
The article’s original headline was the right question, should business owners invest differently to employees? The honest answer is yes, but not in the direction most people assume.
The instinctive answer is that business owners should be more cautious because they already carry concentration risk. That answer is half-right. Total risk in the family balance sheet should indeed be calibrated against the business, but the personal portfolio is not the place to compensate for it through low-risk allocation. It is the place to compensate through uncorrelated allocation.
The right structural answer is that the personal portfolio should look as different from the business as possible. If the business is in a UK technology services niche, the personal portfolio should be globally diversified across all sectors, with meaningful US, European, and emerging market exposure, and structured tax-efficient holdings that are not dependent on UK economic conditions. If the business is cyclical and tied to commercial property, the personal portfolio should lean toward defensive, non-cyclical, and ideally inflation-hedged exposures.
This is the opposite of the conventional answer. Most generic advice says "take less risk on your personal portfolio because you have a risky business." The better answer is "take a different shape of risk on your personal portfolio, because you already have so much of one specific shape in your business."
For most clients, this distinction changes the construction of the personal portfolio meaningfully. It is also the kind of conversation that almost never happens inside a restricted advice model, because the in-house model portfolio is largely the same regardless of the client’s business situation.
What this means in practice
If you are reading this because you are a business owner, three structural questions are worth working through:
What proportion of your total net worth sits in the business? Not what it feels like. Not what your accountant told you eighteen months ago. The actual percentage of total net worth, calculated on a fair valuation of the business and a current valuation of everything else. For most owners, the number is uncomfortably high. For some, it is north of 90%.
What is the lead time on your planned exit, and what planning has been done in that window so far? If the answer is "more than three years" and "not much," you are still in the window where the highest-value structural decisions are available. If the answer is "less than eighteen months," the window is closing and the decisions left available are narrower.
What does your personal portfolio look like relative to your business risk profile? If your business is concentrated in one sector, one geography, and one customer segment, your personal portfolio should be the structural opposite. If it isn’t, you are doubling exposure rather than diversifying it.
The honest planning conversation almost always starts with the first question. The answers to the next two follow from it.