Unlock the Power of Online Signature Legality for Profit Sharing Agreement in India

How to eSign a document: online signature legality for Profit Sharing Agreement in India

do you know that there's a difference between an incentive structure and a profit share agreement well there is and it's pretty significant in this video i want to talk to you about profit share agreements how they work why they're important and how you can utilize them in your business to not only retain but also attract high quality teammates so today i want to talk about profit sharing agreements profit sharing agreements for part of this kind of discussion and thought around building our dream teams if we're trying to put you know high performing people together and really incentivize them to do the best they can do so that we all win we've got to think about some of the mechanisms we use in order to promote that high performance to pay people to incentivize people and one of them out there is what we call a profit sharing agreement so back to the wheel as we always start here where are we focusing on this wheel primarily we're focusing down here around the golden ratio the golden ratio is where we optimize our finances where we we ensure that we're getting maximum out of what we are doing in our business financially one of the ways to do that is to ensure that we have agreements or employment agreements or you know human resources agreements that are good for us agreements that maximize the output of our business but also minimize any negative impact financially on our business that's around optimizing our finances okay so if i dive in to profit sharing agreements i want to first say i want to make sure that we understand a little bit of a distinction of when do we start thinking about profit sharing agreements now i've created some videos on how to pay people you know whether they're a 1099 contractor w-2 employee or potentially have an incentive structure or a profit sharing agreement or an equity structure those are all important because they all have very unique functions to them of why we would use it a profit sharing agreement is a pretty advanced agreement it's an agreement that we're going to [Music] utilize with someone or a strategic business partner to really really incentivize high performance around the overall function of the business so we're looking at high performance which is probably the most um important part of any kind of intensive structure okay it doesn't matter what incentive structure is whether it's incentive structure or profit sharing agreement and i'm about to tell you the difference between the two ultimately we are trying to promote high performance but not just high performance here it's overall so overall business performance okay that is the key driver to a profit sharing agreement is the overall business performance why because profits result from overall performance profits don't come from one single activity normally sales people are paid an incentive that's the difference between a profit sharing and an incentive structure an incentive structure is paid to someone who has a very focused and defined outcome for the job that they do like a salesperson a sales person goes out there makes a sale and the money flows into the business and the sale is made very few sales people who work in sales have the ability to affect the overall business performance they're not involved in fulfillment they're not involved in managing overheads they're not involved in the operational functions or the service functions of the business they're only involved in sales so we would use an incentive structure to to promote high performance to incentivize them to do a good job here we're looking at people who have the ability to affect the overall business performance normally like a strategic partner or a business partner or someone who has the ability to get involved in the entire function of the business this is where the first issue arises when people who make profit share agreements that we see here at clever profits is someone says hey i've got this person and i'd like to have a profit share agreement with them what do they do they're my chief marketing person okay what else do they do no that's what they do they just do marketing for me well i don't think you want a profit share agreement because you want to why would you incentivize someone who only can control marketing with the entire performance of the business there is a misalignment between what you're incentivizing and what the person is doing therefore there's a mismatch there is no ways that they are going to meet your expectations and you're going to meet their expectations because you're trying to pay them on the overall performance of the business but they only have control over one small part we don't want to use a profit sharing agreement there we want to use an incentive structure now i've got an entire different version on this infrastructure so i want to dive into that i want to focus here on profit sharing profit sharing is for people who have overall business performance impact okay and high performance so keep key partners key employees people that we really want to retain and incentivize to do a good job so my advice is to have clarity around their role that's the first part of advice you've got to be very very clear what is this person actually doing what is their role in tail and does that link up with overall business performance or is that a micro part and then we can then deviate to an incentive structure the second thing is i would encourage you to think about the relationship you have with this person and the vision that you're trying to create with them this is it this is a non-financial piece but something that i probably spend more time talking to people about than the financial piece if you ask me personally the financial part of building a profit agreement is pretty easy it's pretty straightforward i'll give you some of the the points now in a moment it's it's you know it's like math you just get the math right it's fine the hard part is understanding is this the right person to be incentivizing the way you want to incentivize them so here you want to think about the vision you have for your business their impact on the people in the business are they a good person to be working in the business do they have a positive or negative impact on the overall you know personal structure of the business or are they just here just to do they're really good at marketing so they can just focus on marketing we want if this overall business performance they've got to have a positive impact on the overall function of the business that's important okay now to get a little bit more nitty gritty this is these two are very very important to me the one is i will always advocate a fixed term agreement what do i mean by fixed term agreement is when you create your first profit share agreement with someone put a limit to it whether it is 90 days six months a year put a limit to it a limit is what protects both parties the most here when we create something especially when we try to grow and scale a business normally we start thinking about this when we're starting to grow and scale what our business looks like at 250 000 a month is not what our business is going to look like at 500 000 a month so how do we protect ourselves there how do we protect what are we actually trying to achieve is we put in a fixed term agreement that says okay we're going to build a profit sharing agreement with you for x amount of time what we do then is we revisit it okay and we look at is it working is it not working are you getting the outcome you want are we getting the outcome are we still in alignment are you still the right relationship we want do you still buy into the vision you still have a positive impact on the people is your role still such that it's affecting overall performance or perhaps after that fixed term agreement realized no no this person not only is dealing with one department we maybe need to shift this agreement to an incentive structure and then i'm going to take out this general because i need a bit more space here then it's some of the mechanisms so here is the calculation now this calculation trying to spell while i'm talking the calculation is very very important the problem with a profit sharing agreement is you are you're essentially using the profits of the business so if you think about just think about accounting for a moment you've got all your income at the top all these expenses and then you have this profit and you're saying to someone i will give you a percentage a share of those profits for you know any month or quarter or whatever it is okay what goes into that calculation is important and it's important for both sides of the coin it's important for you as the business owner but it's also important for the person that you're trying to incentivize because there are certain pieces here that are will be misaligned things like how do you think about taxes okay where do taxes factor in to the profit sharing agreement are we taking taxes out to ensure that you are protecting yourself as a business owner and you're not paying out too much money to this person what about personal expenditure that could be going through the business like travel or meals that you're using as a business owner to be as tax effective as you can great decision but that may negatively impact the person that can create conflict someone saying well why are you you're diminishing my profit by you using a whole lot of money for your personal use that's not fair on me that creates tension why is it important to create this calculation an agreement because you want to avoid tension the last thing you want is a high performing person who you believe has this massive impact on the overall performance of your business and now you spend half your time fighting about how you calculated the profit share that's going to lead to a massively detrimental relationship which is going to fundamentally affect this whole thing we want to avoid that by getting some clarity on our calculation what else do we want to do we want to think about salaries okay what are the salaries that we are paying not only to the owner but also to this person why because sometimes an owner is paying themselves a very low salary to be tax effective they're in escort and taking more as a distribution that affects how you calculate the profit so what do we want to do is we want to get a lot of clarity on what falls part of the profit around the salary of the owner and the salary of the person we're trying to incentivize and the last thing i would say is specific specific expenses that may relate to the profitability of either area of the business a function of the business or the business as a whole you may have you may want to have a profit sharing agreement for a department of your business saying okay we're going to do a profit sharing for just this one um product that we're selling same concept we just got to make sure that we then are very clear around what falls part of that calculation and what doesn't fall part of the calculation the concepts are the same but we've just got to be very clear what is in and what is out and you want to get agreements on that you and this person want to agree this is how we're going to calculate the profit share we've got agreement we're going to have a fixed term we're going to go for 90 days then we're going to revisit you then as a business owner need to have complete clarity and you need to know is this person relationally who you want the last thing i want to say about a profit sharing agreement is going to be under general but i'll put them up here these are my two this is a hard one for business owners to conceptualize because we're all trying to go as fast as we can and do as much as we can i just wouldn't win one one one go slow when you do this this is a very advanced compensation structure this is way beyond 1099 way beyond a w-2 i would say way beyond an incentive structure this is this is one step away from maybe bringing someone on as an equity partner go slow don't if if the person you're trying to incentivize has a problem with going slow there may be a relational and a vision issue with this person that's a red flag to me if they're going no no i want this right now i need this right now otherwise it's not going to work they then clearly can't see the vision of where you're trying to go and do you really want someone who only wants a short-term gain and not the bigger picture go slow the last one is trust your gut okay you gut is gut instinct is huge i ask every single person i've spoken to when they're trying to build profit sharing agreements operating agreements compensation structures whatever it is what do you feel do you feel this is right does this feel right to you it's often the first question is what do you feel is right intuition gut feeling is one of the most powerful things we have why because we can't articulate it i i'm a finance guy i don't know what's happening day to day in your business only you do you're the only person that sees a data that's dealing with these people seeing the impact they have those things manifest themselves in a gut feeling you have about this person is this person ready who i want is this person a teammate is this person who's going to take my business forward trust it don't get caught up in the sideshow of what are the finances what are the logistics of it trust your gut and go with your gut because more often than not that is going to be that is going to be a good indicator of whether you should go forward or not okay so there's a brief overview of when and why we would use a profit sharing agreement some key points here and what i would encourage you to do main thing is calculated make sure you get an agreement there use fixed term and then relation make sure that you connect with this person don't just do it because you you're scared that if you don't do it you're going to lose as a business think bigger picture think about where you're trying to go and the vision you're trying to create thank you so much for watching this video there's two more here that i think you'll get maximum value from and please smash the like button and hit subscribe my business partner and i are dropping content every single week and also we would love to have you in our facebook community so follow link below and we'll see you there