For many entrepreneurs, selling their business is the retirement plan.

After spending decades building a company, reinvesting profits and creating something of value, the expectation is that one day they will sell the business and use the proceeds to fund the next chapter of their lives.

There is nothing wrong with that strategy. The problem is assuming the business will be worth what you need it to be when you are ready to retire.

A profitable business and a valuable, sellable business are not necessarily the same thing. If a significant portion of your retirement wealth is tied up in your company, understanding that distinction years before you plan to exit is critical.

Your Business Is an Asset, But It Isn't a Retirement Account

A retirement portfolio has a relatively visible value. You can look at your account today and see approximately what you own.

A privately held business is different.

Its value ultimately depends on what a buyer is willing to pay. Buyers will look at profitability, cash flow, growth potential, customer concentration, recurring revenue, management strength, owner dependency and other risks before deciding what the company is worth to them.

That means a business can generate an excellent income for its owner while having considerably less transferable value than expected.

This becomes especially important when the business represents a large percentage of the owner's personal wealth. CFA Institute notes that entrepreneurs often have most of their net worth concentrated in their businesses, creating both liquidity and concentration risk.

If your retirement depends heavily on eventually converting that asset into cash, you need to know what it is likely worth long before you need the money.

What If Your Business Isn't Worth What You Think?

Imagine you determine that you need $5 million from the eventual sale of your business to achieve your retirement goals.

Then you have the company valued and discover that a buyer might pay $3 million.

You have a $2 million value gap .

That is not necessarily a disaster if you discover it five or 10 years before your planned exit. You have time to improve profitability, strengthen leadership, diversify customers, create recurring revenue, reduce owner dependency and address other factors suppressing value.

Discovering the same gap six months before you want to retire is a very different problem.

Research from UBS highlights how frequently owners underestimate the time required. UBS found that 81% of business owners who had sold their companies wished they had spent more time preparing for the sale , yet 73% had spent two years or less preparing.

Building meaningful enterprise value takes time.

A Buyer Doesn't Care How Much You Need to Retire

This can be one of the hardest realities for entrepreneurs to accept.

The amount you need for retirement has nothing to do with what your company is worth.

A buyer isn't going to pay $5 million because that's what your financial plan says you need. They aren't going to increase the purchase price because you spent 30 years building the company.

They are evaluating the future economic benefit of owning the business and the risk associated with generating that return.

Your retirement needs determine what the business needs to be worth. The market determines whether it actually is.

Build Your Retirement Plan and Exit Plan Together

Instead of thinking about retirement planning and business planning separately, work backward from your personal financial goals. Determine how much wealth you need to fund the retirement you want. Then calculate how much will come from investments, pensions, real estate and other assets.

The remaining amount tells you how much wealth your business may need to generate.

From there, ask a more important question: What does my business need to be worth to produce that amount after taxes, transaction costs and other considerations?

Compare that number with the company's current value. That difference becomes your value-creation target.

And once you understand the gap, you can begin intentionally building a company that someone else will want to own; one with strong profitability, predictable cash flow , diversified customers, capable leadership, documented systems and less dependence on you.

Selling your business can absolutely be part of your retirement plan. But hope isn't an exit strategy. Know what you need, understand what your business is worth today and give yourself enough time to close the gap. Your retirement date may be your decision. Your business's value won't be.

Melissa Houston, CPA, CEPA , is the founder of The Sellable Firm , where she helps founder-led businesses build more valuable, transferable, and profitable companies. With more than 25 years of experience in finance and accounting, she specializes in helping business owners increase enterprise value through stronger financial performance, reduced owner dependence, improved operational efficiency, and long-term strategic planning.

Melissa is a Certified Exit Planning Advisor (CEPA), a Forbes contributor, the author of the international bestselling book Cash Confident: An Entrepreneur's Guide to Creating a Profitable Business , and the host of The Sellable Firm Podcast , where she shares practical strategies for building businesses that create lasting wealth and future options.

Learn more, explore additional resources, and listen to the podcast at TheSellableFirm.com .

The opinions expressed in this article are those of the author and are intended for informational purposes only. They should not be considered accounting, tax, legal, or financial advice. Readers should consult qualified professionals regarding their specific circumstances.