The Reinvestment Question
Every profitable seller faces the same question: how much profit should go back into the business and how much should come out as personal income? There is no universal answer, but there are frameworks based on your business stage, financial needs, and growth objectives.
Early Stage: Reinvest Almost Everything
In the first six to twelve months, reinvesting 80 to 90 percent of profits accelerates growth most effectively. Your business needs capital for inventory, and the compound effect is most powerful when your base is small.
Growth Stage: Finding the Balance
Once your business generates consistent monthly profit, a common split is 60 to 70 percent reinvested, 30 to 40 percent as income. This allows growth while you benefit from your work.
Mature Stage: Harvest and Maintain
When additional capital produces diminishing returns, shift toward taking more. Many mature businesses operate at 50 percent reinvestment, 50 percent personal income.
Where to Reinvest
Prioritise: inventory for proven products, advertising for tested campaigns, new product launches, tools and automation, and team building. Disciplined reinvestment outperforms scatter-gun spending.
Building a Cash Reserve
Before taking significant personal income, build a reserve covering three to six months of expenses. This buffer protects against slow months and unexpected costs.
Tax Implications
Reinvested profit is still taxable income. Set aside 25 to 30 percent of net profit for tax regardless of your reinvestment ratio. Consult your accountant for precise calculations based on your business structure.