It’s the mother of all wealth management opportunities: There are some 12 million baby boomers who own a business, and 70 percent of them will be retiring over the next couple decades. Estimates of the total wealth locked up in these companies run in the trillions of dollars.

“It’s a massive opportunity,” says John Leonetti, CEO of Pinnacle Equity Solutions. “These owners are getting older.”

Leonetti trains financial advisers to work more effectively with clients who are small business owners, focusing on exit and retirement strategies. He is the author of Exiting Your Business, Protecting Your Wealth: A Strategic Guide for Owners and Their Advisors.

Leonetti says most small business owners are relying on a very illiquid asset for retirement security—the value of their companies. Making that asset liquid isn’t easy.

“For most small business owners, 80 or 90 percent of their personal wealth is tied up in a privately-held, illiquid business” he says. “Most of them don’t know how to take that asset and turn it into cash they can use to support themselves in retirement. And they don’t even know what they don’t know about it.”

Indeed, a report last year by the U.S. Small Business Administration found that small business owners over age 50 were significantly less likely than their employees to have pension or retirement plans, including 401(k)s on their current jobs, although they were more likely to have IRA or Keogh plan savings.

Small business owners can access a range of qualified retirement account options specially suited for them. But Leonetti finds that those accounts usually are dwarfed by the value of the business itself. “They might have $200,000 or $300,000 in an IRA, but the business might be worth $5 to $10 million.”

“An owner might be max-ing out a 401k and IRA, but the rest of his cash goes into supporting his lifestyle and the company. And the need to put cash into the business is exacerbated in a recession, when banks aren’t lending or the business owner doesn’t want to borrow. So, the problem gets bigger—the just haven’t effectively diversified their wealth.”

It’s also possible that as all boomer business owners head toward the exits at the same time, they’ll flood the market with companies for sale during a weak economy and not be able to extract the value they anticipated, says Bill Entwistle, a Rhode Island-based financial planner who advises many small business owners.

“You have owners who are ready to retire, but the business is worth half of what it once was, so they’ve been holding off on selling. Now that the economy is starting to get better the value of the business may be rebounding, but they will all want to get out at the same time,” he says.

For financial advisors, the name of the game is getting started early on a diversification plan. If possible, start ten years ahead of the owner’s planned retirement date.

Begin the process with the same basic approach used for any client. “Determine the client’s goals in terms of desired lifestyle and sources of income,” Leonetti says. “Then the question is, what do we need to get out of the business to reach those goals? If we have ten years, once we know the goal numbers, we determine the current value of the business to see how far off you are.”

There are two choices at that point: grow the company sufficiently to meet the goal, or figure out how much to take out of the business over the coming decade to close the gap. Choices include selling the business to another company or investment group, selling to managers or co-owners, creating an employee stock ownership plan or gifting the company to children or a charity and taking a tax deduction.

“In some cases, you also need to emphasize the importance of disciplining their current spending habits,” he adds. “But the bottom line is you can expect better results if you have more time to plan.”

Another challenge is helping small business owners focus on the emotional side of retirement. “Letting go is where most business owners get stuck,” says Entwistle. “It involves a loss of identity -- a real identity crisis. I spend a lot of time just preparing clients for it, so they aren’t caught by surprise.”

Qualified plan options

Business exit plans aside, don’t overlook the available options for qualified retirement savings. These include the Simplified Employee Pension (SEP IRA), Solo 401(k) and Simple IRA. The Internal Revenue Service publishes a summary of the pros and cons of each, but the choices boil down to tradeoffs between contribution limits, flexibility and administrative cost and hassle.

Solo 401(k): These allow business owners to sock away up to $51,000 in 2013 as an employer contribution, plus an employee contribution ($17,500, or $23,000 if the owner is over age 50). But administrative fees can become onerous once plan assets top $250,000.

SIMPLE IRA: The Savings Incentive Match Plan for Employees (SIMPLE) must be open by October of the contribution year, and it does require a matching contribution by employers for amounts contributed by workers. Saving limits are lower than for SEP IRAs or solo 401(k) accounts. The employee contribution for 2012 is capped at $11,500, and $12,000 for 2013. Employers must match employee contributions up to three percent.

SEP IRA:  The Simplified Employee Pension offers greater flexibility—contributions can be made right up to the April 15th tax return deadline for the previous year. Employers are required to contribute the same percentage of pay for each employee, although they do not have to make contributions every year. For tax year 2012, the contribution limit is $50,000 or 25 percent of compensation; the 2013 limit is $51,000.

“Retirement saving is an after-thought for many small business owners,” says Gail MarksJarvis, a syndicated financial columnist and the author of Saving for Retirement (Without Living Like a Pauper or Winning the Lottery). “So if you get to tax season and haven’t saved anything yet, the SEP IRA offers a great last minute option.”

Mark Miller is a journalist and author who writes about trends in retirement and aging. He is a columnist for Reuters and also contributes to Morningstar and the AARP Magazine. Mark is the author of The Hard Times Guide to Retirement Security: Practical Strategies for Money, Work and Living (John Wiley & Sons, 2010). He edits RetirementRevised.com. Twitter: @retirerevised