Like many small-business owners, Victoria Collins had much of her retirement savings locked up in her company. In 1990, she co-founded a financial planning firm that later became First Foundation, an Irvine, California-based investment adviser.

Before First Foundation publicly listed its shares, in 2014, Collins and her partners didn't have a complete formula to buy one another out. She was ready to retire by 2011, but cashing in her stake simply wasn't an option. Instead, Collins pulled back from some duties but held onto her shares and maintained a seat on the company's board.

It worked out well for her. Collins's remaining shares are now worth about $7 million--considerably more than when she started pulling back--and she can sell them to anyone, not just to corporate insiders. But her experience is both a guide and a cautionary tale for other founders of businesses that are jointly owned. "It was a good choice for me, but having so much of your wealth tied up in one company involves a lot of risk," says Collins.

Discuss Group Exit Strategies

It's easy if you and your partners plan to retire at the same time: You can sell the business to outsiders all at once. But if you don't expect that to be the case, you'll need a system in place to allow you or any of your partners to sell shares at a fair price, without damaging the business.

That's why private companies with more than one owner need a buy-sell agreement, says Tom Palecek, co-founder of San Francisco-based Summit Trail Advisors. Before it launched last year, his company hired attorneys to set up this kind of exit formula. Palecek and his co-founders established rules that all partners had to accept in advance.

A buy-sell agreement needs several components, including a formula for valuing privately held shares on the basis of verifiable metrics, which will vary by industry. Such a formula allows you to determine what your shares are likely to be worth. The buy-sell agreement should also list the conditions under which you may sell shares, to whom you may sell them, and how quickly or slowly such sales may take place. This makes sense for most businesses, but it's particularly important for large partnerships (such as medical, law, and accounting firms), in which all the owners may not know one another well.

Have Your Own Backup Plan

Whatever you and your partners decide, you'll need to attend to your personal finances. If you start planning far enough in advance, you'll be able to absorb the extra risk of holding a heavily concentrated--and largely illiquid--investment in your former company's stock. And even though it can be tempting to pour all of your wealth into your company, if you're going to sell your shares gradually, you'll need to accumulate other liquid assets--stocks, bonds, and cash--to live on during the portion of your retirement when your corporate equity is tied up.

Because your company is likely to be among your most valuable assets, your outside investment plan needs to account for this large, concentrated position. Sit down with a financial planner to make sure the rest of your portfolio is diversified in assets that don't correlate to your industry, and are able to sustain you until you can liquidate your shares. Once you retire, keep a close watch on your former company--at least until you've mostly sold your stake. Collins, for example, knew that by staying on First Foundation's board for several years, she could exert some influence and get better information about her holdings. "When you are a large shareholder, you want access to information," she says. "Being on the board gives you that." But it also delayed her full retirement. So if you think you'll want to leave in one fell swoop, start planning your long-term exit strategy today.

FROM THE DECEMBER 2016/JANUARY 2017 ISSUE OF INC. MAGAZINE