Every dollar has a purpose — but are you using your revenue wisely?
One of the most common questions business owners face as they grow is: “How much should I reinvest in my business?” The answer isn’t as straightforward as a fixed percentage or a magic number. It requires a thoughtful strategy that aligns with your current business phase, financial goals, and long-term vision.
Let’s break it down so you can start making smart, sustainable reinvestment decisions.
Why Reinvesting Matters
Did you know that businesses that consistently reinvest 20–30% of their revenue into growth outperform their competitors? That’s not just theory — it’s a proven pattern across industries. But there’s a catch.
When we say reinvest, we don’t just mean spending money and calling it an investment. There’s a big difference between true reinvestment and random expenses labeled as growth efforts. Buying a new monitor to lower your tax liability, for example, might feel productive — but if it doesn’t generate more revenue or improve efficiency, it’s just an expense.
The Myth of Either/Or: Growth vs. Profit
Many entrepreneurs believe they must choose between growing their business and paying themselves. But here’s the truth: you can (and should) do both — if you plan strategically.
Yes, it’s a real concern to underfund your business or sacrifice your personal finances. But finding the right balance is possible when you’re intentional with your revenue and build a plan that serves both your business and personal goals.
4 Steps to Smart Reinvestment
Here’s how to start assessing the right reinvestment strategy for your business:
- Assess Your Business Phase
Ask yourself: Am I in a growth phase or a stability phase?
Growth phases require heavier reinvestment — think hiring, marketing, or upgrading systems. Stable businesses, on the other hand, may allow for more profit withdrawals and increased owner compensation. Remember, your business will go through seasons, so your strategy should evolve accordingly.
- Create a Profit Allocation Plan
A great starting point is the 50/30/20 Rule:
- 50% of profits go to reinvestment
- 30% to taxes and debt
- 20% to owner compensation
This is a flexible framework — not a hard rule. Use it to evaluate where your profits are going today, and adjust it based on your business phase and personal financial needs.
- Set Clear Financial Goals
Reinvesting without a goal is just spending. Define what each investment is meant to achieve — whether it’s increased sales, operational efficiency, or better customer service. Align your reinvestments with your long-term vision to ensure your money is actually moving the business forward.
- Regularly Review and Adjust
Your revenue split shouldn’t be set in stone. Just like a budget, your reinvestment strategy should be reviewed and refined based on your current circumstances and future goals. At a minimum, review your plan quarterly — but monthly check-ins are even better to stay on track and adapt quickly.
Final Thoughts: Build Financial Systems That Support Growth
Understanding how much to reinvest is only the beginning. The real magic happens when you build financial systems that support your reinvestment strategy, track performance, and keep you on a clear path to profitability.
Next week, we’ll dive into those foundational financial systems that every business owner needs — so stay tuned!
Ready to Get Strategic with Your Finances?
If you’re struggling to find the balance between growing your business and taking home a paycheck, you’re not alone. The good news? You don’t have to figure it out on your own.
Let’s talk about your financial goals — and how to build a business that supports them.