This transcript was generated from the episode audio and may contain minor errors.
[Music]
All right, all right, Chris Guillebeau here, your host of "Side Hustle School." Today, we've got a listener question about reinvesting in your business. Generally, I think it's good to reinvest in your business, but not at any cost. In fact, I think it's important to invest in yourself and pay yourself. You know, that's kind of the point of having a business. I mean, there are lots of benefits to having a side hustle or owning a small business, but, you know, I think being able to pay yourself is kind of close to the top, right?
Anyway, our caller wants to know how much to pay themselves versus reinvesting to grow the business. In fact, they're focusing on the reinvesting part. I'm gonna flip it a little bit and talk about profit-taking. A good thing to think about, the detailed question and my answer coming up shortly. [Music]
Hey there, it's Kendall.
I'm starting to make real money in my fabrication business. And now I have a dilemma. This is a good problem, of course, but it's still a problem. How much money, percentage-wise, should I reinvest back into my business? I like the idea of putting a good bit back in, especially if I can use it to make even more money in the future.
But I've also heard that it's good to take some profits. How would you advise me? Is there a certain percentage I should aim for? I'm excited to hear what you have to say. [Music]
Hey, Kendall, as I said, great question.
Thanks for being out there as well. So let's see here. I tend to think of this question as the other way around. Like Kendall asked about reinvesting in the business, which is good, and we'll talk about it. But I tend to think, what's a good percentage of profits to remove?
As in, what is the percentage that you take for yourself? How do you take profits, in fact? And on that question, there are indeed some guidelines you can use. Well, I guess, first of all, I always encourage people to take profits. I think that's really, really important.
Maybe a common mistake, or let's not say it's always a mistake, but a common practice of new business owners is to never take profits because they're like, "I'm just gonna keep it in the business, keep growing." And most of the time, it's better to reinvest some, but to take some profits for all kinds of reasons. So I suggest a minimum of 20%. You've got profits coming in, take a minimum 20% distribution on a pretty regular basis, and maybe a maximum 50%, let's say, reinvesting the rest, maybe having some buffer or some savings in the business specifically. Now, this assumes that you have a good plan for reinvesting profits. If you don't have a good plan for reinvesting profits, if your side hustle or your business is going along okay, and it's gonna keep going, but you don't necessarily see an obvious way to reinvest profits and make more money or have more sustainability in the future, then don't worry about that and just keep 80% or more of the profits in that situation.
So if you have a good plan for reinvesting profits, no more than 50%. Assuming this isn't a hobby, you need to think about taking profits and making that a priority. Oh, one more thing, this isn't what you ask, but you also need to make sure you're setting aside money for self-employment taxes. And a general rule of thumb there is to save 30% of everything you make and just set it aside in a separate account or if it's the same business savings account, just make sure you're aware that that money is there for taxes. And this would be from the profits you take, not the overall profits, because much or all of what you reinvest can usually be deducted.
All right, that's my two cents there. As always, consult your tax professional. We've got another question coming up soon about deducting Bitcoin or Ethereum losses. So I'm not an accountant, but I do have some experience with these things. So that's where I kind of base my advice from.
Now listeners, if you've got a question, sidehustleschool.com/questions. We'll continue to feature them throughout the year. We've got a new episode every single day. You can subscribe, follow, wherever you get your podcasts. It's completely free.
My name is Chris Guillebeau. This is "Side Hustle School." [Music]
- From the Onward Project.
