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This is never an easy question for most business owners that I work with. Why? Because they are so business on the tools they’ve never had time to stop and consider it. So maybe this is good opportunity to take a little time to consider one of those basic elements of business that could have a huge impact on your financial results.
In their financial reports, many large companies often indicate they are reinvesting 40%, 50% or 60% while the balance is distributed to shareholders. And that’s fine when you have a team of accountants looking into these decisions.
However, the fact is small business owners are up against it when it comes to making these decisions. So when clients come to me they are often very relieved when I walk them through a simple process that demonstrates how much they should reinvest.
Of course I understand not all of you will want to do this so here’s a simple tip. For most businesses I work with, 50% seems to be the sweet spot for reinvestment. This takes into account growth plans, cash flow, wages, super, income and a whole host of other considerations. I stress, this is a general figure and we’ll need to discuss it in person to work it out accurately for your specific circumstances.
So I hope that helps you out. The big thing to consider is this…
What do you want from your business in the short, medium and long term?
The answers to these benchmarks will guide your reinvestment decisions and provide a better financial outcome for you and your family.
This can be a complicated area so it’s normal to have questions. Feel free to give me a call. I’ll ask some basic questions and we can start you on the way to controlling your business choices and financial outcomes.