Considering Setting Up an Employee Profit-Sharing Plan? Here’s What You Need to Know

When it comes to small businesses, one of the biggest challenges is finding ways to keep employees happy and motivated. This, especially in challenging times such as these, when there’s a labor shortage and even qualified individuals aren’t seeking new opportunities or becoming statistics of the Great Resignation. What’s more, it can be tough to compete with larger businesses when it comes to salary and benefits. One way that small businesses can attract and retain top talent is by setting up an employee profit-sharing plan. In this blog post, we will discuss the pros and cons of employee profit-sharing plans and why they are so beneficial for small businesses.

Biggest Concerns Small Business Usually Have about Employee Profit-Sharing Plans

There are a few drawbacks to setting up an employee profit-sharing plan as well. Obviously, the biggest concern is the expense. There can be some costs associated with setting up and maintaining a profit-sharing plan. Doing so can be complex. Profit-sharing plans are generally nuanced, and it is important to make sure that they are set up correctly. Otherwise, it could create problems down the road. Moreover, these programs usually include tiers, making them even more difficult to establish in the beginning.
A profit-sharing plan, also referred to as a deferred profit-sharing plan, gives employees a share in the profits of the company based on the company’s earnings. Employee profit-sharing plans have distinct advantages, which contribute to a small business’s overall morale and bottom line. —Houston Chronicle Small Business
Employee trust is yet another common issue. Employees need to trust that the company is doing well and that their hard work is actually contributing to the company’s success. If there is a lack of trust, employees may be less likely to participate in the profit-sharing plan. In other words, at least some plans require employees to give up part of their immediate compensation (or future earnings).

Pros of Employee Profit-Sharing Plans

However, though downsides do exist, there are several benefits to setting up an employee profit-sharing plan. Some of the biggest benefits that create win-win situations for employees and businesses alike include:
  • Increased morale and motivation. When employees see that they are benefiting from the company’s success, they will be more motivated to work harder and be a part of the company’s success.
  • Increased productivity. When employees are motivated and feel appreciated, they will be more productive in their work. This boosts overall output and contributes to a healthier bottom line, which likewise contributes to the profit-sharing model.
  • Attracts and retains top talent. Employees want to know that they are valued and that their hard work is being duly rewarded by making the company financially stronger. A profit-sharing plan shows employees that you care about them and want to reward them for their hard work.
Overall, setting up an employee profit-sharing plan can be a great way to attract and retain top talent at your small business. While there are some drawbacks, the pros far outweigh the cons. If you are considering setting up a profit-sharing plan, be sure to consult with an accountant or financial advisor to make sure you are doing it correctly. My firm has helped many of our Clients set up profit-share plans that have been very effective in providing incentives for those employees who qualify and contribute to the success of the business profitability. What other advantages and disadvantages would you include? Please share your own thoughts and experiences so others can make a more informed decision. Interested in learning more about business? Then just visit Waters Business Consulting Group.

Like this article?

Share on Facebook
Share on Twitter
Share on Linkdin
Share on Pinterest

Related Posts

Professional photo

3 Vital Steps to Stop Procrastinating

Procrastination has a way of sneaking up on even the most disciplined people. It’s rarely just laziness—fear, perfectionism, and plain old boredom all play a role in why we put things off until it’s almost too late. The good news is you don’t need a personality overhaul to beat it. Here are three vital, practical steps that can help you stop procrastinating for good.

Read More »
An image of terrain landscape.

How Pleasant Places Turned Rapid Growth Into 42% Gross Margins

Founded in 1984, Pleasant Places built a reputation as a trusted commercial landscaping provider throughout the Lowcountry region. But rapid growth brings its own problems, and by the time company leadership reached out to Waters Business Consulting Group in 2017, Pleasant Places had grown from $10 million to nearly $18 million in annual revenue in just a few years — without the processes and infrastructure to support it. “I have been working with John Waters for around 8 years,” said Gilly Artigues, President of Pleasant Places. “I did a quick google search for a consultant that could help me and my company navigate through the obstacles we were facing during a period of rapid growth… John Waters called me in less than 2 hours. We spoke on the phone for well over an hour that day. After that, John didn’t rush into trying to get me to sign a contract or pay a fee. Instead, he took the challenges I told him about on our initial phone call and called me back a few days later with an honest take on everything and some ways he thought he could help. He impressed me with not only his knowledge and business experience, but with his genuine desire for my company to be successful.” Growing Fast, But Not Cleanly That kind of growth squeezed Pleasant Places’ profit margins and exposed gaps the company hadn’t needed to worry about at a smaller scale. There was no centralized ERP system to manage workflow, and accountability among the team was inconsistent. Pipeline visibility was murky, making projected growth hard to plan around, and a high cost of capital was eating into cash flow. The company’s mission, vision, and core values weren’t clearly articulated or aligned with ownership, and roles and responsibilities across the team were disorganized — all classic growing pains for a family-owned business scaling past what its original structure was built for. Rebuilding the Business Underneath the Growth Waters Business Consulting Group started by analyzing Pleasant Places’ historical financial trends to build a model for controlling cost of goods sold, margins, and managing breakeven. The company now has significantly higher valuation. That model did double duty — it also gave lending sources the assurance they needed, which led to negotiated reductions in lending fees. From there, the team established systems to track labor hours and materials against budgeted estimates, and reworked the company’s pricing strategy so every estimate was built to hit the gross margins Pleasant Places actually needed. On the people side, the team identified leadership and management gaps in the organizational structure, created position descriptions aligned with a clearer reporting protocol, and helped guide a sensitive transfer of management responsibility from father to son with defined authority and autonomy. A full ERP system implementation — the industry platform Aspire — gave Pleasant Places real-time visibility into work in progress and trending margins for the first time. From $18 Million to Over $36 Million, With Healthier Margins The combination of pricing discipline, cost controls, and regular accountability meetings turned a low gross margin into an average of 42%. With clearer estimates and more confidence in their numbers, Pleasant Places has pursued new projects and maintenance contracts with far more conviction, growing top-line revenue to over $36 million. Beyond the numbers, the organization now has a clearly defined chart of roles and responsibilities, formalized core values and mission, and a stronger employee review process — all of which have improved accountability, culture, and retention. Employee polling reflects that shift directly: workers now see themselves at the company for years to come. The family management transition was completed successfully, lending relationships improved, and net operating income has shown dramatic improvement across the engagement. Growing Fast? Make Sure Your Systems Keep Up Rapid growth is a good problem to have, but only if the business underneath it can support it. If your company’s growth has outpaced its processes, pricing, or leadership structure, a free consultation can help map out the fix. Contact Waters Business Consulting Group to schedule your free consultatio

Read More »

Imagine Selling Your Business…

How Would Your Life Change?

You didn’t start your business just to stay busy—you built it to create freedom, security, and options for yourself and your family. Selling your business can be life-changing, but the real question is whether you’re intentionally building toward that outcome or simply leaving it to chance.

Sign up below for a free consultative session to learn what your business could be worth today and in the future! 

Thank you for your interest in learning what your business is worth. We will be in touch shortly.