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How to create a profit-sharing plan

You’re all in for your business. You’ve arranged your life around your company, and for you, success is the only option. You’ll do whatever it takes for your brand to thrive, but how many of your employees would say the same thing?

In order for your business to not only succeed but also be sustainable, you have to create a team of employees who are raving fans of your business. You do this by creating a culture that encourages collaboration and innovation.

But if you truly want to create a team who will stick by your side through thick and thin, then it’s time to think about profit sharing.

How does profit sharing work?

You can legally share the money your business earns with your employees through a profit-sharing plan. Along with a team of financial advisors or your human resources department, you decide how to divide up your company’s profits. Profit sharing can be an excellent way to incentivize your team into working harder and staying longer at your business. Not only can they expect their salary and any annual bonuses, but they feel more invested in the company’s long-term strategy.

Many businesses decide to create employee stock ownership plans (ESOPs). This provides workers with a portion of the company’s profits through stock ownership, and allows them to be a partial owner of the company without ever having to invest their own earnings in the business.

what is profit sharing

The benefits of profit sharing

how to start profit sharing

The payouts from an ESOP can be tremendous for everyone involved. One of the best thing about profit sharing through ESOPs is that people at every level of your company can participate, and you get to decide how big of a share they’re earning. Another thing to consider is the tax benefits for business owners that come along with ESOPs. If you’re running an S-status corporation that’s participating in an ESOP, up to 35% of the funds could be eligible for federal tax exemption, meaning a large portion of your company’s profits could avoid taxes – saving you money and building trust within your corporation.

Part of being an incredible CEO or leader is recognizing all the moving pieces that came together for your dream to become a reality. By offering profit sharing at your business, you’re giving your employees a sense of ownership. You’re inviting them to see a viable, long-term future with your company and giving them the incentives to stay on board. This can create stronger connections, increase loyalty and motivate your team to work harder. Not only that, but you’re giving your employees a portion of the profits they helped create.

How profit sharing helps your company long-term

Think of someone who shows up every day for work, does enough to simply make it through the day and then heads home to their family. Is that the type of employee you want on your team – someone devoid of passion or motivation? No, of course not. You want to hire an intelligent, ambitious individual who is driven to help your company reach its goals while fulfilling their own along the way.

In order to find that person, that employee who shows up and gives every day their all, you have to be willing to create a space that empowers them. What are some of your best hiring practices? Are you asking how potential candidates see themselves fitting into your company over the next five, 10 or even 20 years? Hiring and keeping on an incredible team starts with talent, but ends with offering incentives like profit sharing.

The more passionate someone is about their job at their company, the more likely they are to give you their best solutions. You’ve worked to create raving fans at your company internally and have provided your team the resources they need to excel. When you have raving fans inside your office, their energy and work is felt by those looking to buy your product and service, meaning you’re on your way to building raving customers.

company practicing profit sharing

Getting started

company working on profit sharing

Work with a team of advisors to determine the percentage of your company’s profits you’re willing to offer employees. Then, figure out how you want to distribute the money: Do you want to have shares scalable based on salary or by role in the company? Then, draw up documents that finalize your plan and have your employees sign any legal paperwork.

Profit sharing is a simple way to make sure your employees are engaged, and it benefits you and your business long-term.

Create a profit sharing plan that excites your team

Investing in your employees’ happiness will turn positive results for you and your business in the long run. Discover the secrets to cultivating your winning edge with Tony Robbins’ Seven Forces content series.