For me, I’d be measuring the risk vs reward, but before that I’d be putting the max I could into pretax retirement accounts. For what I had left to invest after tax, I would be thinking about how investing in the business is even more risky than putting my investment into a single stock, since I already have my salary tied to the performance of my single small business. Basically, it’s like when employees have all their money in the employee stock purchase program. But a bit more risky than that, since that company stock is publicly traded and you can sell off a bit without having to sell all of it.
So investing back in your small business would have to be likely to make you a much higher return than index funds, otherwise the risk isn’t worth it. For me, that’d need to be above 25%, but it’s different for everyone, just like asset allocation is. And as you get closer to retirement, and so your appetite for risk reduces, then reinvesting in the business becomes less attractive.