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2014-07-16 00:00:00Money & FinanceEnglish Profit Sharing can Impact Your Success

How Profit Sharing can Impact Your Success

2 min read

As a Startup you may not be able to pay your employees a market value salary, you can make up for this difference by offering them a yearly or quarterly profit share. While many large companies also offer this at varying degrees, it is important to note that as you have just started your business your profits would vary greatly making it difficult to commit.

Here are a few ways you can benefit from instituting a profit sharing module:

• You will be able to attract quality talent to your organization

• The profit sharing plan is completely up to you, as the Small Business owner you could choose to reward some employees only or reward them at different proportions • It is a flexible system- you can decide to offer it to different level of employees, not just your management staff

• You could create a payout system where employees cash in their profits only when they leave, so it does not impact the real time running or value of your company If you are convinced about the feasibility of the system for your business, these are the steps you need to take to implement a profit sharing system:

1. Evaluate: The first step is to evaluate your current growth rate and your projected rate to gauge your future earnings. If you find you have a substantial amount after deducting your yearly running costs then go ahead and plan your program.

2. Compare: One of the advantages that profit sharing gives small businesses is that it allows you to raise your employee’s income levels to the market rate. But before doing so be sure to compare their current salaries to their value in the market and to your business.

3. Set Goals: While taking the first steps to a Profit Sharing Model can be daunting, it could soothe your nerves by only putting the program in place if your goals for the quarter or year are met.

4. Be Logical: While you may feel that each employee’s contribution is valuable, just as you cannot pay them all the same salary, they will also need to assigned different slabs. Take time out to work out a fair and logical system determining the share of each employee.

5. Monitor: After you create your module, don’t be complacent. Ensure that you monitor your company’s current profit rates so you don’t end up overpaying your employees. While it may seem surprising, overpaying can have as adverse effects as underpaying as it affects morale, employee efficiency and effectiveness.

6. Consult your Accountant: Remember to consult a financial expert before instituting the program. Find out how your company value could be affected. This is an important factor especially if you are looking for potential investors or a venture capitalist. On the other hand, you could receive the right tax break for instituting the program; therefore it is important to explore the subject thoroughly before embarking on a final plan.

If you do decide that Profit Sharing will help grow your business and attract and keep the right kind of talent then, be sure to follow these simple steps to creating your own profit sharing program.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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