The Rule of 130 and how it protects you from risk as a business owner
If you own a business, there is a question that eventually comes up.
When should you sell?
Most business owners do not like thinking about this question. They spent years building their company, sacrificing time with family, taking risks, and pushing through hard years. The idea of selling can feel almost disloyal to the thing they worked so hard to create.
But ignoring the question does not make the risk go away.
One of the smartest frameworks I have come across for thinking about this comes from private equity expert Adam Coffey. He calls it the Rule of 130, and it is one of the simplest ways I have seen to help business owners evaluate how exposed they really are.
What Is the Rule of 130?
The Rule of 130 is straightforward.
You take your age, and you add the percentage of your net worth that is tied up in your business.
If those two numbers add up to 130 or more, you may be carrying more risk than you realize.
For example, imagine someone who is 50 years old and has about 80 percent of their net worth tied up in their company.
50 + 80 = 130.
According to this rule, that is the point where a business owner should begin seriously thinking about “de-risking.”
That does not necessarily mean selling the entire company tomorrow. It could mean bringing in private equity, selling a portion of the business, or creating a strategy that allows you to take some chips off the table while the business is strong.
The key idea is that when those two numbers start climbing higher, time is no longer on your side the way it used to be.
Why the Rule of 130 Exists
When you are young, risk looks very different.
If you are in your thirties and something goes wrong with your business, you still have time to rebuild. You can start another company. You can pivot. You have years ahead of you to recover.
But as you get older, the math changes.
If someone is 60 years old and 90 percent of their net worth is tied up in their business, that is a completely different situation. If something unexpected happens in the market or in the business itself, rebuilding from scratch becomes much harder.
The Rule of 130 is a reminder that while building a business is about growth and opportunity, protecting what you have built is also part of being a responsible owner.
The Real Risk Most Founders Ignore
When business is good, it is easy to believe the momentum will continue forever. But markets shift. Industries change. Energy levels change too.
I have watched owners wait one year too long to make a move. Suddenly they are negotiating from a weaker position instead of a stronger one.
The best exits rarely happen when someone is desperate to sell. They happen when the company is doing well and the owner still has leverage.
That is why many experienced founders choose to sell on the way up, not when they are already feeling the pressure.
Why De-Risking Is Not the Same as Giving Up
A lot of business owners hear the word “exit” and immediately think it means walking away.
That is not always the case.
In many situations, bringing in a partner or private equity group simply means reducing your personal risk while still continuing to run and grow the company.
In fact, many founders stay involved for years after bringing in outside capital. They just do it with more resources, more support, and less personal exposure.
You are still building. You are just not gambling everything you have built on one single outcome.
The Personal Side of the Rule of 130
When too much of your net worth is tied up in your business, you are not just taking a risk for yourself. You are taking a risk for your family and the people who depend on you.
One unexpected downturn, one industry shift, or one health issue can suddenly put everything you built under pressure.
That is why many founders start thinking differently as they get older.
The question stops being only about growth.
It starts becoming about protection, stability, and making sure the people around you are taken care of no matter what happens next.
A Simple Question Every Founder Should Ask
You do not need a complicated financial model to start thinking about this.
You only need two numbers.
Your age.
The percentage of your net worth tied up in your business.
Add them together.
If the number is approaching or exceeding 130, it might be time to start thinking strategically about the next phase of your business journey. Because protecting what you have built is just as important as building it in the first place.