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Is Your Family Business on the Path to Growth?

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A family business’s “reinvestment rate” — the percentage of all the profits that are reinvested in the legacy business or new ventures, instead of distributed to owners — is the single most important number to look at to determine whether the business is on track to grow. No other number is a better expression of owners’ intent.

Reinvestment rate is the answer — explicitly or implicitly — to the question of:When family businesses start focusing on reinvestment rate — rather than on profits or dividends — it focuses them on purpose and return on investment , rather than a cash cow for dividends . Reinvestment rate can signal whether your family business is on a sustainable path for growth or at risk of bleeding itself dry.

How high or low owners set the reinvestment rate is still the best signal of their intentions for the business in the long-term. In this article, the authors discuss how to determine the right reinvestment rate for your family business.For many years, Bethany didn’t ask a lot of questions about her family business, a successful third-generation technology company.

 

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