How Much Profit Should be Reinvested in a Startup

Recently I was discussing with an entrepreneur an interesting question: how much profit should be reinvested in a successful startup? Of course, if there are VCs or institutional investors, the answer is all of it as the focus is to get as big as possible as fast as possible. Now for bootstrapped startups and some angel-backed startups, once the startup is profitable it’s up to the co-founders to decide how much profit to reinvest in the business.

If the startup is growing fast, ideally all the profit would be reinvested. Here’s a simple formula I like to use:

Pay yourself 25% more than your lifestyle calls for until you have two years of savings then just pay the minimum to maintain your lifestyle

The idea is that there’s some peace of mind for having sufficient personal savings while at the same time maximizing the investment in the fast growing startup.

What else? How do you determine how much profit should be reinvested in a startup?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.