Most business owners have their wealth concentrated in a single asset, and it is the same asset that pays their salary, employs their team, and defines their working life. That concentration is not a mistake. It is usually the reason the wealth exists at all. But it does mean that the financial planning questions a business owner faces are different from the ones a salaried investor faces, and generic advice tends to miss them.
The two questions that matter most are when to keep putting money into the business, and when to start moving it out. Getting the timing right is worth more than picking the right investment. Below is how we think about that decision at FJ & Associates, working with business owners across Kaysville, Roy, and the wider Davis and Weber County area — including where our work as your CPA ends and your financial advisor’s begins.
Most wealth is built inside a business, not a portfolio
If you look at how significant wealth actually gets created, a pattern shows up quickly. It rarely comes from the stock market alone, and it rarely comes from passive investing alone. As one advisor put it in our Strategic Partner Series:
“You don’t really meet very many wealthy people who didn’t make their money from starting or running some type of business.”
That creates both an advantage and a problem. The advantage is control: you set the strategy, you decide where capital goes, and you influence the return directly in a way no outside investment allows. The problem arrives later, when the same asset that built the wealth becomes the single point of failure protecting it.
Your business is often the highest-return investment you own
Before talking about diversification, it is worth being honest about the math. Brett Redd of Linked Wealth Advisors, who joined us for our Strategic Partner Series, framed the comparison this way:
“You’re looking at 7 to 9 percent returns… but inside your business you might be seeing 20, 30, even 40 percent.” — Brett Redd, Linked Wealth Advisors
When a growing business is genuinely producing returns in that range, moving money out of it and into a market portfolio is not automatically the conservative choice. It is a decision to accept a lower expected return in exchange for reduced concentration. That can be exactly right — but it should be a decision you make deliberately, not a rule you follow because it sounds prudent.
The problem with generic diversification advice
Most financial advice pushes diversification, and for most people it is good advice. For an owner in a genuine growth phase, applying it blindly can quietly cost more than it protects:
“It might be the very best thing for you right now to invest in your business.” — Brett Redd, Linked Wealth Advisors
Pulling capital out too early can limit expansion, delay hiring, and reduce the eventual valuation — which is often the number that funds everything else later. The useful conclusion is not “diversify” or “don’t.” It is that timing matters more than the investment type.
When reinvesting is still the right call
Reinvestment usually wins while the business is still converting capital into durable capacity. That typically means you are:
- Expanding the team or adding service capacity
- Entering a new market or product line
- Investing in systems and automation that lower cost per unit of work
- Building deliberately toward a valuation milestone or a future exit
“Maybe for the next 2 years… you’re pushing toward a milestone or valuation.”
The critical word there is temporary. A reinvestment phase is a phase. The mistake is not choosing it — the mistake is never revisiting the choice.
The turning point: moving into the distribution phase
Every business eventually reaches a point where additional capital stops buying proportional growth. Profits become more consistent, the operation needs less feeding, and the priority quietly shifts from building wealth to keeping it.
“As they get to the distribution phase… they can start diversifying into other asset classes.”
This is the moment diversification earns its keep — not as a general principle, but as a response to a specific change in the business.
Concentration risk is the part owners underestimate
In our experience the more common error is not reinvesting too much. It is waiting too long to diversify at all. Owners stay fully invested in the company because it is what they know, it is where they have seen success, and it still feels like the highest-return option available.
Over time that produces concentration risk: when most or all of your net worth depends on one company, in one industry, in one region, your entire financial future rests on a single outcome. A strong business is still one business. Industry shifts, key-customer loss, health events, and regulatory change all land on the same asset at once.
This is also where the tax consequences start to matter, because the mechanics of moving money out — distributions, salary, the sale of the company itself — have very different outcomes depending on entity structure and timing. That side of the decision is ours, and it is covered in more depth in our guide to the tax implications of business acquisitions. If the move involves selling appreciated holdings, the capital gains treatment and the tax consequences of selling stock are what determine the net proceeds.
Business owners already understand volatility
Ask most people what investment risk means and you will hear a version of “how much I could lose if the market drops.” Owners tend to answer differently, because they manage uncertainty every day — sales move, projects slip, hiring changes, cash flow rises and falls across the year. The more useful question an advisor can ask is not how much loss you could absorb, but:
“We’re asking a business owner… how much volatility can you handle?”
Owners routinely tolerate more volatility than they give themselves credit for. One owner we worked with ran near break-even for close to two years — not because the business was struggling, but because it was retaining key staff and funding projects that paid off later. The short-term volatility was intentional and the long-term objective justified it.
That instinct is worth carrying across to personal finances, because it separates two things that often get confused: a temporary decline is not the same as a permanent loss of capital. Markets cycle the way businesses cycle. Understanding the difference tends to produce steadier decisions and fewer reactions to headlines.
Where risk tolerance questionnaires fit
Anyone working with an investment professional will be asked to complete a risk assessment. Advisors are generally required to understand a client’s financial situation, objectives, and tolerance for risk before making recommendations, and the questionnaire is how that gets documented. Some firms score on a scale of 1 to 10, others use a 0 to 100 range. The format varies; the purpose does not.
What the questionnaire cannot do is tell you what to buy. Most people find the question genuinely hard to answer and land somewhere in the middle — avoiding the top of the scale because it sounds reckless, avoiding the bottom because they understand that taking no risk caps long-term growth. That instinct is reasonable, and it reveals something a number does not: most owners are not trying to maximize return at any cost. They are trying to balance growth against being able to sleep.
The score is a starting point. The questions that produce a real strategy are more specific: how long until you plan to step back, what income the portfolio will need to generate, how much liquidity you need available, how much concentrated risk already exists in the business, and how you would actually behave during a sustained correction.
When two owners — or two spouses — see risk differently
One of the most common dynamics in these conversations is a genuine split in risk tolerance between spouses or business partners.
“Usually one spouse is willing to take some risk, and the other is a little bit more risk-averse.”
Neither position is wrong, and the goal is not to determine a winner. In practice the more cautious partner is often the one who raises the subject first, and that is worth treating as information rather than friction:
“Sometimes it’s the spouse… who gets nervous that everything is in one basket.”
A plan both people can live with is worth more than a theoretically optimal plan one of them abandons at the worst possible moment. The best strategy is the one that survives a bad quarter.
What diversification actually means
Diversification is widely misunderstood as owning a little bit of everything. Simply holding more positions is not the same thing. What matters is how holdings behave in relation to one another — some do better through expansion, others hold up through uncertainty — so the objective is deliberate balance rather than quantity.
For a business owner it also does not mean stepping back from the company. It means gradually widening where wealth is held, which can include:
- Market-based investments
- Real estate held outside the operating company
- Other asset classes appropriate to your goals and timeline
Diversification does not eliminate risk, and no strategy does. What it reduces is the chance that one bad outcome in one place determines everything. If real estate is part of that picture, the tax treatment deserves its own look — see real estate investment tax implications.
Questions worth answering before you move money
- What am I actually trying to accomplish, and by when?
- How much short-term volatility can I realistically tolerate without changing course?
- How much capital do I need protected regardless of market conditions?
- How much of my net worth currently depends on one company, one industry, or one customer?
- What would moving this money cost me in tax this year, and is there a better year to do it?
Those answers are consistently more useful than a projection of which investment might return the most. Planning should start with goals, not products.
Where your CPA fits, and where your advisor fits
This is worth stating plainly, because the two roles get blurred often and the distinction protects you.
Your financial advisor builds and manages the portfolio: what you hold, in what proportion, and how it is structured against your risk profile. Investment recommendations belong to the licensed advisor, and at FJ & Associates that work sits with our affiliated financial advisors rather than with the CPA practice.
Your CPA makes sure the plan survives contact with the tax code. We quantify what a decision costs, model the alternatives, and coordinate the timing:
- What distributions, salary, or a sale actually cost after tax, given your entity structure
- Which tax year a move belongs in, and what that timing is worth
- How reasonable compensation, distributions, and retirement contributions interact for an S corporation
- How the personal and business sides of your return affect each other
Most of the avoidable damage we see comes from treating these as separate conversations — a good investment decision made without the tax consequence priced in, or a tax move made without regard for the plan it disrupts. Our tax planning service exists to keep the two aligned, and how investments impact your tax return covers the reporting side in detail. For the portfolio side of that coordination, see our guide to tax strategies for investment portfolios.
A Utah example
We worked with an owner in Farmington who had built a genuinely successful company and reinvested nearly all profits back into it for years. Growth was strong. So was concentration — effectively the entire family balance sheet sat in one operating business.
As the business matured and profits steadied, we worked alongside their financial advisor to begin moving a portion of profits into other asset classes, sequencing it across tax years rather than in one move. Growth did not stop. What changed was stability: the wealth was protected, overall risk came down, and the family had flexibility for decisions that were still years away.
Working with business owners across Utah
We work with owners from our Kaysville and Roy offices, serving Davis and Weber County and the surrounding communities. Circumstances change — a strong year, a new location, an unsolicited offer, a health event, a partner wanting out — and each of those changes the answer to the reinvest-or-diversify question. A plan built three years ago and never revisited is usually answering a question you are no longer asking.
Related reading: holistic financial planning for business owners, business owner estate planning, and business risk management.
Key takeaways
- For most owners the business is the highest-return asset they own — diversifying too early has a real cost
- Timing matters more than the investment type; a reinvestment phase is a phase, not a permanent setting
- The more common mistake is waiting too long, leaving the whole balance sheet dependent on one outcome
- A risk score starts the conversation; it does not produce a strategy
- Diversification is deliberate balance, not owning a little of everything, and it does not remove risk
- Investment decisions and tax decisions should be made in the same conversation
Frequently asked questions
When should I start diversifying outside my business?
Generally once the business reaches consistent profitability and additional capital no longer produces proportional growth. That point is specific to your business rather than to your age.
Is it risky to keep all my wealth in my business?
Over time, yes. Concentration means a single outcome — an industry shift, a lost key customer, a health event — determines your whole financial position.
Should I stop reinvesting in my business completely?
Rarely. The goal is balance, not replacement. Most owners continue investing in the business while gradually widening where the rest of their wealth sits.
What is the “distribution phase” of a business?
The stage where the business produces consistent profit without needing all of it reinvested, and the priority shifts toward preserving what has been built.
Does diversification eliminate investment risk?
No. It reduces the impact of being concentrated in one investment, industry, or asset class. No strategy removes risk entirely.
What does a risk tolerance score actually tell my advisor?
It documents roughly how much volatility you are comfortable with, which frames the recommendations. It does not by itself determine what you should hold.
My spouse and I disagree about risk. Who should win?
Neither, ideally. A plan both of you can hold through a downturn will outperform a more aggressive plan that gets abandoned during one.
Can a CPA give me investment advice?
Investment recommendations belong to your licensed financial advisor. Our role is to quantify the tax consequences of those decisions, coordinate timing, and keep your business and personal positions aligned. At FJ & Associates we work directly with our affiliated advisors so both sides of that conversation happen together.
How often should I revisit this?
At least annually, and whenever something material changes — a strong or weak year, a new location, an offer for the business, a partner change, or a change in your own plans.
Talk it through with us
If you are weighing whether to keep reinvesting or start moving money out, the tax consequence is usually the part that decides it — and it is the part most often left until after the decision is made. We are happy to model it with you before you commit.
(801) 927-1337 · Schedule a consultation
Author Bio
Missy Dennis, CPA
Partner | FJ & Associates, PLLC | Kaysville, Utah
Missy holds a Master of Accounting degree from the University of Utah and is a licensed Certified Public Accountant.
She is committed to providing clear, accurate, and actionable guidance so clients can navigate complex financial decisions with confidence.
With more than twenty years of public accounting experience, Missy Dennis specializes in:
- Tax preparation and tax advisory
- Bookkeeping strategy alignment
- Estate and trust taxation
- Audit and consulting services
- Low-income housing tax credits
- Non-profit accounting
- Small- and mid-sized business advisory
