How to Create a Profit Sharing Plan for Your Business

How to Create a Profit Sharing Plan for Your Business

When you make the decision to create a profit sharing plan for your business, you’ll find that your new plan has the power to motivate everyone who works for you…as long as you come up with a good plan! The best profit sharing plans for businesses reward employee loyalty and hard work via cold, hard cash.

Everyone who works wants to make the most money possible. Of course, they also want their efforts recognized by company owners. A profit sharing plan will deliver on both levels. Today, we’d like to share information which will help you to put together a profit sharing plan for your business.

Find a Scalable Plan

If you own a small business and anticipate growth, it’s best to choose a profit sharing plan model which is fully scalable. One idea is to divide up profits from the company at year-end, after operating costs, and then split it up among your staff members, with the employees of longest-standing getting the biggest share. While some newer staff members may be “superstars” and even outperform long-term employees, the “superstars” will get their turn to rake in bigger profits in the future. This is what makes this system so fair.

When you choose this type of plan, your employees will become more invested in the company that they work for. Any successes or downturns that the company experiences will impact their profits, beyond their regular salaries. It’s good to have employees who want the company to be profitable. They are more likely to be productive. For example, law firms which use this profit sharing plan definitely “incentivize” their employees to get more billable hours and to represent their law firms in a positive way. People want to move up the ladder in terms of getting bigger chunks of profit.

With this system, if the company isn’t making as much money, or any money at all, everyone suffers the consequences. Overall, this system is probably one of the simplest to implement and everyone tends to find it fair. So, it’s one good option which may be scaled to company growth.

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Reward Staff Based on Performance

You may reward staff based on the amount of years that they’ve been with your company. You may also reward them based on performance. To use the performance model, consider offering those who hit their targets one hundred percent a 30 percent share of the company’s year end profits, after operating expenses. Those who hit ninety percent of their targets should receive 10 percent of profit share. When staff members achieve eighty percent of their targets, they should receive 5 percent of profit share. Those who fall under the eighty percent bracket will receive nothing.

Which Model Is Best For Your Business?

Now that you know more about two practical models for profit sharing plans, why not choose the one that is best for your business? Both have benefits and drawbacks. Both motivate millions of employees all over the world. These classic plans have endless appeal.

About the Author

Morris Edwards is a content writer at, he writes different topics like Importance of a Business Plan for Entrepreneurs, 5 factors to consider before starting a business and all topics related to Business development, if you are interested about Setting up a business in Singapore visit our website for more information.

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