Quick: if you park $50,000 of retained earnings in an account earning 9% a year, how long until it's worth $100,000? You don't need a spreadsheet, a financial calculator, or an afternoon with your accountant. You need one number: 72.
Divide 72 by the annual rate of return, and the answer is roughly how many years it takes for a sum of money to double. It's called the Rule of 72, and it's one of the oldest tricks in finance — Luca Pacioli, the Italian friar often credited as the father of double-entry bookkeeping, wrote about a version of it in 1494. More than five centuries later, it's still the fastest way for a business owner to sanity-check a growth assumption, a loan quote, or a savings plan without opening a single app.
The Formula (And Why It Works)
The math behind compound growth is exponential, which means the "real" formula for doubling time involves natural logarithms — not something you want to reach for in the middle of a vendor negotiation. The Rule of 72 is an approximation that gets remarkably close without any of that:
Years to double ≈ 72 ÷ annual rate of return (as a whole number, not a decimal)
So if your business savings account pays 4%, your money doubles in about 72 ÷ 4 = 18 years. If a fund you're considering has historically returned 9% annually, that's 72 ÷ 9 = 8 years. Investing $50,000 at 9% doesn't just get you to $100,000 in 8 years — it quadruples to $200,000 in 16, because compounding doubles are stacked on top of each other.
Why 72 and not 70 or 69.3 (the mathematically "exact" constant for continuous compounding)? Seventy-two just happens to have a lot of small whole-number divisors — 1, 2, 3, 4, 6, 8, 9, 12 — which makes it unusually easy to divide in your head across the range of interest rates business owners actually encounter. The approximation is most accurate between roughly 6% and 10%; outside that band, the answer drifts a bit, but it's still close enough to be useful for a gut check.
Where This Actually Matters for a Business Owner
The Rule of 72 isn't a party trick. It's a lens for decisions you're probably already making without a clean way to compare them.
1. Should I reinvest retained earnings or leave them in cash?
Every dollar of profit you don't distribute is a dollar you're implicitly choosing to "invest" somewhere — even if that somewhere is just a business checking account earning close to nothing. Run the comparison:
- A high-yield business savings account at 4%: doubles in 18 years (72 ÷ 4)
- A conservative bond fund at 5%: doubles in about 14.4 years (72 ÷ 5)
- A diversified equity index fund with a long-run average closer to 9–10%: doubles in 7.2–8 years
None of these are guaranteed — more on that below — but laid side by side, the Rule of 72 makes the opportunity cost of sitting in cash concrete instead of abstract. If your retained earnings aren't earmarked for a near-term expense (payroll buffer, equipment purchase, tax payment), letting them sit at 0.5% in a non-interest checking account means it takes 144 years to double. That's not a plan; that's inertia.
2. Is this loan or line of credit actually cheap?
The Rule of 72 works in reverse for debt, and this is where it gets uncomfortable. If you're carrying a balance on a business credit card at a 24% APR and only making minimum payments, that balance doubles in about 3 years (72 ÷ 24 = 3). A merchant cash advance with an effective annual rate north of 40% can double what you owe in under two years. The same compounding that quietly builds wealth in an investment account quietly destroys it on an unpaid balance — the formula doesn't care which direction the money is flowing.
This is a useful gut-check the next time you're comparing financing options. A 9% SBA loan and a 24% revolving credit line aren't "both kind of expensive" — one doubles your liability in 8 years, the other in 3. Seeing that gap in a single division problem, instead of buried in an APR disclosure, changes how you prioritize which balance to pay down first.
3. How fast is inflation actually eroding my cash reserves?
Flip the formula toward inflation and you get a sobering number: at 3% annual inflation, the purchasing power of a dollar sitting idle is cut in half in about 24 years (72 ÷ 3). During higher-inflation stretches — say 6% — that halves in just 12 years. If your business keeps a large cash reserve for a "rainy day" and that reserve is earning less than the inflation rate, you're not preserving capital, you're watching it shrink in real terms, just slowly enough that it doesn't feel urgent month to month. The Rule of 72 makes that slow erosion easier to see and easier to act on — whether that means moving idle cash into a higher-yield account or simply being more deliberate about how much you're holding versus deploying.
4. Am I actually on track to double revenue?
The same math applies to any growth rate, not just interest rates — including your own top line. If your revenue has been growing 12% a year, the Rule of 72 says it'll double in about 6 years (72 ÷ 12). Growing at a startup-style 36% a year doubles revenue in about 2 years. This is a fast way to reality-check a five-year plan pitched to a lender or investor: if the plan assumes revenue triples in three years, back out the implied annual growth rate and see whether it's realistic for your industry, or whether the projection is quietly assuming a doubling time no comparable business has actually hit.
Rule of 70 and Rule of 69.3: When to Use the Cousins
You'll occasionally see the Rule of 70 or the Rule of 69.3 used instead of 72, and it's worth knowing why. The Rule of 69.3 is the mathematically precise version for continuously compounding interest, while 70 is sometimes preferred for rates in the low single digits (it divides more cleanly by 2, 5, 7, and 10) — economists reaching for a doubling time on GDP growth or inflation often default to it. For the annual-compounding rates a business owner deals with day to day — loan APRs, savings yields, revenue growth — 72 stays the more practical choice because of how easily it divides by the numbers you'll actually plug in.
A Worked Example: Comparing Three Places to Put $30,000
Say your business just closed out a strong quarter and you have $30,000 in retained earnings you don't need for at least five years. Three options are on the table:
| Option | Annual Rate | Years to Double (72 ÷ rate) | Value in ~15 Years |
|---|---|---|---|
| Business savings account | 4% | 18 years | ~$54,000 (not yet doubled) |
| Short-term bond fund | 6% | 12 years | ~$72,000 (doubled once, on the way to a second) |
| Diversified equity index fund | 9% | 8 years | ~$110,000 (doubled almost twice) |
The Rule of 72 doesn't replace a real financial projection — it gets you to a "yes, this is worth a closer look" or "no, this isn't materially different" decision in about ten seconds, before you invest the time in building out exact numbers.
The Limits of a Mental-Math Shortcut
The Rule of 72 is an estimate, not a guarantee, and it's worth being explicit about where it breaks down:
- Past performance isn't future performance. An index fund that averaged 9% over the last decade might return 4% or negative returns over the next five years. The rule assumes a steady rate; markets don't deliver one.
- Higher returns come with higher risk and volatility. The gap between "doubles in 8 years" and "doubles in 18 years" often reflects a real difference in how much the value can swing in the meantime — not just a better deal.
- It ignores taxes and fees. A 9% gross return in a taxable brokerage account isn't a 9% net return after capital gains tax. Run the rule on your after-tax, after-fee rate for a realistic answer.
- It's least accurate at extreme rates. At 20%+ (think credit card debt or aggressive short-term trading claims), the approximation understates the true doubling time slightly; at very low rates, it overstates it slightly. Close enough for a gut check, not close enough for a term sheet.
- It assumes compounding, not simple interest. If a rate is quoted as simple (non-compounding) interest, the Rule of 72 doesn't apply the same way.
None of that makes the rule useless — it makes it what it's meant to be: a first-pass filter, not a final answer. Use it to decide which two or three options deserve a real spreadsheet, not to decide where the money actually goes.
Keep the Numbers Behind the Estimate
The Rule of 72 is only as useful as the rate you plug into it — and that rate should come from your actual books, not a vague sense of "we're doing okay." Beancount.io gives you plain-text accounting that's transparent and version-controlled, so pulling last quarter's real return on retained cash, or the true effective rate on a credit line, is a query away instead of a guessing game. Get started for free and see why developers and finance professionals are switching to plain-text accounting.