Building Wealth Through Your Business (3/6): The Three Rs- Reinvest, Reward or Repurpose

As a business owner, there's a good chance that you're overlooking the fact that for every dollar your business generates, it has implications from a personal financial planning decision

And that a little bit of awareness and intentionality can go a long way to transform how you organize your personal financial plan as a business owner. Welcome back. My name is Cannon Carr, and this is the third episode in our miniseries about building wealth through your business and how business owners often overlook some important aspects.

Today I wanna focus on something I call the three Rs, which is a very simple, powerful concept, and that concept is that for every dollar that your business generates, you only have three choices uh, uh, in what to do with that dollar, and those three choices are to reinvest, to reward or repurpose. let's [00:01:00] touch on each of those three. So reinvest means reinvesting that dollar into the business for, uh, in terms of people, in terms of systems, in terms of resources, usually to drive growth. You're looking for a great return on that by betting on yourself and putting that dollar back in the business.

The second one is reward, and that is paying yourself for the work you're doing, and it can be in the form of a salary, it can be in the form of a distribution, uh, or a draw, or it can be, uh, uh, you know, even a bonus payment. Uh, and the third one is repurposing, and that is ... Repurpose means taking money and not putting it back in the business or paying yourself, but putting it into a diversified financial asset.

and I'm not talking just necessarily a cash reserve, although that's important to have, but it's even more importantly into a strategic financial asset that helps build wealth gradually separate from the business. What I find is most owners either [00:02:00] do these three allocations randomly, or or they do it blindly, right?

Without a real sense of purpose. And like I said, each of these, uh, uh, every dollar your, your, uh, company generates, your business generates, touches a financial decision, and by doing it randomly or blindly, you're not really building a plan. And even if you're reinvesting and rewarding, I find owners usually neglect completely the repurposing aspect, which is that key to long-term flexibility until you sell your business or exit your business.

Now these three R's vary by stage of the business. And, you know, in the earliest days, uh, of building the business, owners tend to reinvest very heavily, and that certainly makes sense. That's the right call. As the business matures though, I find busine- uh, owners often keep reinvesting a- and there's a time to pivot, and being able to [00:03:00] understand when to pivot is very important.

And the reward component often, you know, in that early stage, owners are underpaying themselves, so they're, uh, uh, or they're uh, Owners are often underpaying themselves, and later when they, uh, talk to a potential buyer and they find that they have to match a market rate for whoever's gonna take their place, it ends up being a hit to valuation.

But following the jour-, the, the stages and journey of your business will dictate how the three Rs dynamically allocate

What's very helpful though here is that by recognizing these three buckets, you start to put a discipline in place that can fit into your longer term financial plan

Because as you p- fill those buckets each year and your business progresses, it needs [00:04:00] to be dynamic y- because your business is gonna evolve. There's gonna be good news, there's gonna be bad news, there's gonna be exciting times, there's gonna be difficult times. And as you adjust your three Rs, uh, you're able to stay in a disciplined mindset navigating this disruptive period.

One quick subtle point on just that third R, the repurpose part. It's so important for an owner to take care of themselves first and build that independence ultimately from the business. And so that third R makes sure they take care of themselves first before they start thinking about legacy. I often find owners want to do good and, uh, want to take care of others with m- money from the business before they take care of themselves.

Legacy's important, but take care of yourself first, and that third R, repurpose, helps take care of both those goals for yourself first, then ultimately for the legacy you wanna create I feel like we're not doing this that good [00:05:00] Sounds good to me. All right, well, we're gonna keep going. So let's do this. Every quarter, I want you to ask, "How am I filling the three buckets of the three Rs?" And I actually want you to draw each of the buckets, and I want you to put the number in, uh, the number that you're putting literally in each bucket so that you can start to see what the pattern is evolving.

And what's interesting is here, if you go back to our prior episode on setting your North Star, you're gonna see, which is about, you know, your definition of success and the quantitative number you're ultimately building for your freedom asset. you're gonna see how the three Rs will help you fill the buckets over time to ultimately fulfill your long-term North Star goal

And the neat thing about this dynamic process is that if you have to make an adjustment one year and reinvest more than you usually do, or if, [00:06:00] uh, there's a particular year where the cash is particularly strong and you can reward yourself for the short term or repurpose more than you had intended, that's good news, and it builds flexibility, and you can see how this dynamically is a real problem-solving tool

If you'd like a one-page tracker on how to do this, DM me the word three Rs, which by the way is trademarked. Uh, I'm proud of that trademark for that three Rs concept. But DM me three Rs, and I will send you a guide on how to set up those buckets and u- start using them dynamically

And stay tuned for our next episode, which I call Mind the Gap, which is really focused on how as your business matures, you need to recognize your estate planning needs to [00:07:00] mature too, and make sure that they're both aligned and staying current and in sync with each other.

Stay tuned for that episode.