Be sure that you have considered everything when calculating employee profit-sharing!!
WARNING: if your accounting reports (especially the Equity section of your Balance Sheet) does not truly reflect the financial condition of your company , do not use this app.
PROFIT – enter the profit from the entity or entities to be considered.
ACCUMULATED LOSSES – enter any losses from the Equity section of the Balance Sheet. “Retained Earnings” is the default, but there may be losses in the “Additional Paid-In Capital” or “Partnership Interests” or other line items.
EQUITY – enter the total Equity shown on the Balance Sheet for each entity to be considered.
OWNER-BACKED CREDIT CARDS – enter the balance for each credit card on which a principal of the entity is the PRIMARY responsible party.
OWNER-BACKED LOANS – enter the balance of each loan for which a principal of the entity is the PRIMARY responsible party.
PAYROLL INFORMATION – enter the name and period payroll amount for each participant, including the principal(s), in the profit-sharing program. Employees joining the program mid-period will have pro-rated amounts. The total payroll calculation should approximate the total payroll shown on the Income Statement.
The purpose of the CALCULATION section is to determine the optimal profit-sharing matrix. These entries represent a management-preferred profit-sharing arrangement.
PROFIT % RETAINED TO FUND COMPANY GROWTH – enter the percentage of the profit to be retained by the company as a decimal. Typical minimum retention is 70% or more.
The next three entries are self-explanatory.
RETURN ON EQUITY – enter the desired return on equity for the principal’s investment in the company as a decimal. If EQUITY is negative, the resulting calculation will be zero.
This section provides the opportunity to “What-If” the preferred initial calculations to see the effect on the profit-sharing distributions.
The “Profit – Period To Date” is held constant while the “Parameters” can be adjusted.
If you would like to pay at least a minimum profit-sharing distribution, use this section to make that calculation.
The “Profit Adjustment” section holds the parameters of the preferred calculation section constant, and allows the “Profit – Period To Date” to be customized.
This calculation is especially interesting, in that it will demonstrate the amount of profit-sharing that would have been available to participants at different levels of profitability.
This information can be used to incentivize a profitability mind-set in the plan participants.
This section allows the greatest flexibility in the “What-If” process.
All parameters and the profit can be customized.
This app should be used as a model only. Be careful with the implementation!!
The awarding of a portion of the profits of a company to employees is a great incentive for the people responsible for making the profit, but can also be used as a club against company management.
Share profits only with the people who contributed to making the profit.
If you have a question about the contribution of a specific employee, consider whether or not that employee should be retained.
DO NOT GIVE AWAY MORE MONEY THAN YOU CAN AFFORD!!
Adjust the “Profit retained to fund company growth” percentage to ensure that company growth can be continued.
There is no standard amount here. This is a critical management decision.