Family Business Reinvestment Rate: The Hidden Metric That Drives Legacy
If you want to know what a family really values, follow the money.
The way family-owned businesses choose to reinvest in their companies exposes their beliefs about and commitment to the future, who they trust to lead, and how they value the people around them.
Want to know what you really value? Follow the money to your family business's reinvestment rate.
What is The Reinvestment Rate?
Family Business Reinvestment Rate: The percentage of profits you choose to invest back into your company or ventures, instead of cashing out dividends.
The reinvestment rate for your family-owned business is the clearest signal of a family business’s growth mindset. More than any other metric, reinvestment rate reveals owner intent and is the clearest answer to “How committed are we, as owners, to growing this business over generations?”
A family business that prioritizes reinvestment shifts the focus from personal ROIs to a shared vision of success and prosperity for generations to come.
Ask yourself:
What are you willing to prioritize? What are the tradeoffs you’re willing to make?
How Committed Are You?
While it’s easy to think you’re on a good trajectory based on your day-to-day progress, the most successful family businesses avoid this myopic view by knowing and rooting out any early indicators that your reinvestment rate is in need of resuscitation.
Family-owned businesses can easily fall into the potentially dangerous “extraction phase,” especially as the Now Generation nears retirement.
It’s a mindset that says: “I’ve put in my time. I’ve built this company. It’s time to enjoy the fruit.”
Yes, by all means, enjoy the fruit of your harvest. But a word of caution: when profit-taking eclipses reinvestment, your legacy can crumble. These are the most common warning signs:
Technology is outdated and inefficient
Key talent leaves because they don’t see a path forward
Innovation stalls, and the company becomes reactive instead of proactive
The next generation begins to disengage, or walk away completely
Key shareholders delay or avoid important strategic decisions
Family relationships strain under the pressure of unspoken resentment
Any one of these scenarios does not equate to an immediate death sentence on your business, but they are a warning light for some careful consideration and recalibration.
Reinvestment is a statement of faith.
Setting a Reinvestment Rate
Reinvestment is active, not passive. If you don’t consciously pick a rate, market inertia and internal politics will pick it for you.
Think about setting your reinvestment rate like plotting the middle path on a family‑business compass: high enough to fuel growth; low enough so ownership still feels real.
While rates will differ among family businesses, an article from Harvard Business Review gives some helpful general parameters. According to HBR, healthy multi-generational family businesses typically reinvest as follows:
First-generation founders often reinvest 90‑95% or more
Later generations rarely operate at these extremes, finding the sweet spot between 75% and 90% ensuring enough oxygen for growth, plus some liquidity for owners
Anything below 75% often means owners are shifting focus with a divesting mindset rather than reinvesting in legacy
Reevaluating your reinvestment rate requires being honest about hard questions.
Ask yourself:
What does the business need in the next 5–10 years to remain relevant?
What skills and support does the next generation need to lead well?
What systems and technologies do we need to stay competitive?
Are we putting real money behind those answers?
Investing in People
Reinvestment extends beyond the latest technology and systems. It also includes investing in your people.
High-performing family businesses invest in family assemblies, regular communication rhythms, and intentional education for the business and the people running it. While these kinds of investments won't show up on an invoice, they pay dividends to your company’s culture of trust, alignment, and longevity.
Investing in people looks like the following:
Leadership development
Family governance
Healthy communication practices
Third-party expertise, like a business coach
Take the time to invest in a robust infrastructure that supports your goals in your business and in your family.
Ask yourself:
What do we need to grow in the next decade?
Are we funding innovation and leadership, or just preserving comfort?
Does our spending reflect confidence in our successors?
Fuel Your Future
It’s likely your family business has survived things like recessions, supply chain issues, economic uncertainty, and even internal conflict. Surviving turbulence isn’t a promise for longevity.
Your family business won’t survive if you stop fueling it.
So ask yourself this: What does your reinvestment rate say about your belief in the future of your business and your family?
If you need help assessing your reinvestment strategy, I’d be glad to walk you through it. Book a call today with me, The Family Business Coach.
