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hey everyone its Ryan and this week we're going to talk about profit sharing before we get too deep let me go ahead and say I'm not an accountant and if you're thinking about implementing a profit sharing program you should definitely talk to your accountant at first with that being said though you may find yourself like I did a few years ago wanting to reward my staff wanted to let my employees know hey I want you to participate in the success of the business but I didn't really know where to start I'd heard horror stories about profit sharing programs going wrong and I didn't want to get it wrong it's actually not a bad idea because rolling one out improperly having an improper proper sharing program can actually do more harm than good so you want to get this right so today I want to share some of the tips and tricks that I've learned to maybe make it easier if you're thinking about implementing one of on your own so to begin with why why did we want to do something like this well a profit sharing program is just simply a way to reward staff when the business does well business exceeds staff succeed it's also a way to instill what I was looking for at least instill a little bit of my ownership mentality into the minds of my staff members I wanted them thinking as much as possible like me and giving them a percentage of the ownership as far as the profit goes I thought would do that I know that means said there's a couple of different types of profit sharing programs some of the more complicated ones even include stock ownership where you're giving stock to employees I did not go that route this profit sharing program is simply cashed when the business makes money the employees get a percentage of that but there's no stock ownership in this plan just FYI so I was talking to a mentor of mine and I was saying hey listen I want to do it but I'm scared and he said well why would you not he said why would you not implement a profit sharing program he said either the business isn't doing very well and you don't want people to see how poorly you're doing or you're doing really well and you don't want them to see how much you're making he said I bet if you ask your employees they already think you're making a lot more than you really are now so I kind of took that as a challenge and I came back to the office and at one of our next staff meetings I asked everybody take out a piece of paper write down how much revenue you think the business generated last year and how much of that you think the owners took home you know the average and we thought that the owners were making $800,000 a piece per year so chances are like if you if you did the same as the same in your organization they may not be accurate so at the end of the day if you're afraid that people are going to see how much you're making they're probably already estimating way above that and I'm not necessarily suggesting that you mentioned payroll on your profit sharing program in fact my rule is I'll talk to any employee about any number any time except payroll I won't talk about payroll with employees and I'll talk to them about their specific payroll but not anybody else's payroll so let's go ahead and get started some of the tips and tricks that I've learned number one get the right people you need to write people in the right seats in your organization not just for a profit sharing program but for any program to learn well if you don't have the right people in your organization come and see me that's why a OS is so important to me if you're not an EOS subscriber if you don't use a OS to run your business and you haven't people issues give me a call that's why I'm here number two be profitable this is a quarterly profit sharing program that we do you can do it monthly you can do it annually think quarterly is a good is a good time frame but if you're doing a quarterly program the worst thing you can do is have two or three quarters of unprofitable quarters if you're just starting it so say you're starting a new program you don't want two or three unprofitable quarters it's going to discourage everybody at the end of the day they're just going to forget about it it's going to be time and effort wasted on your part to implement a program that's not benefiting you in any way the next one you've got to teach the financials don't assume your employees know anything about finance start at the box start at the bottom start with the basics and teach them this should be probably a couple of sessions and record them so what we did we had some finance 101 classes and went through the very basics and really if you record those then for future employees you can just simply have them watch the videos instead of you having to teach finance 101 to every new employee without being said this is how I did it and it worked pretty well you don't Amazon and buy some play money this is fake money you can buy as much as you need you can buy a few million dollars worth of fake money up relatively inexpensively just for a few bucks so idea i stacked the stacked all my play money up and i bumbled it in expense categories like this is maybe payroll payroll taxes this is occupancy expenses so I stacked it up I had a huge stack of money here and I say okay everybody that's the amount of money the business generated last year and then one of the time I had employees come up take off a stack and read it and then lay it to the side say okay this was the payroll tax oh this is occupancy expense and at the end of the day they were shocked to see why we started with this big stack of money but that's not all discretionary at the end of day were left with a pretty small amount relatively speaking a profit and so it kind of helps you're kind of helping put the money the income of the organization into perspective so again we're teaching everybody how the business generates revenue how it spins money and you're wanting them to understand that and most importantly to understand where they fit in the picture how their daily activities contribute to the success of the business so again I'm not an accountant but we had some high-level conversations about the reports you need to really run the business and as a business owner you should be looking at these reports pretty often things like balance sheet things like statement of cash flow and then PL and for the purposes of our bonus plan we spend a lot of time on the P&L and of course we spent time discussing each of these in detail initially but now every month when we review the previous month and talk about plans for the next month we really focus heavily on the P&L we basically created a condensed version of our P&L that I hand out in the meetings every month and review how we did again we'll discuss any number at any time with the employee except payroll so to put it in perspective we've explained to people the accounting formula here you know revenue minus expenses equals profit and explain to them that this is very true but from a P&L standpoint the number that this doesn't take into account is asset payments things like furniture fixtures vehicles things like that they generally don't show up on pl so what we've done in our office is added that so we can make sure that that's factored into the formula properly so we've said then so revenue minus expenses equals our profit and then we've said this is our net profit minus our assets these are asset payments for the month equals what we're calling for the purposes of this this puncturing program calling this our operating profit so let's put some numbers in here just so it starts to make sense let's say that your revenue for the month let's just say five hundred thousand dollars and let's say your expenses were let's just say three hundred and ninety thousand dollars which leaves you with a hundred and ten thousand dollars in net profit and let's say your asset payments which again typically you can find that kind of stuff on the balance sheet you pull that off late it's ten thousand dollars so that leaves us an operating profit of a hundred thousand dollars so what we've done with our asset payments we have estimated our monthly asset payments and that number typically doesn't change over quarters it may go up or down but month-to-month we typically don't change it we estimate it and so that way folks know about what to expect every month so with this being said we have an operating profit of a hundred thousand dollars so we've done in our office we've said 25 percent of that is going into the bonus pool so you say okay take 25 percent of that which would be 25 thousand dollars and that is our bonus pool for the month so we pay this out quarterly if we would add this month to the next two months and that would be your total bonus pool for the month I'm in sorry for the corner so the next question very important how do you pay that out well what we've done we tell our people that about six weeks after a quarter closes we will pay out the bonus we'll take the whole pool the whole bonus pool will be paid out and the first few quarters we did it very simply we simply divided it by the number of people we said okay if you've got 20 people and you've got $20,000 in the bonus pool each person gets a thousand if you've got 20 people and you've got six mm the bonus pool each person gets three thousand that was a very simple way and actually a pretty good way to implement it after a few quarters you kind of mature into a model which will actually help help drive change positive change is the one number might be one one number so again we're trying to motivate people to to change to move in the right direction find people's weaknesses that also are needed for the business if you've got employees that don't put their timesheets in on time or you've got employees that aren't utilized or maybe they're not making as many widgets as they need give them that goal so say there one number say Bob is making widgets and he should be making ten a day and he's making five so Bob's numbers 10 and say okay Bob for you to participate you need to make 10 widgets a day so at the end of the quarter you can look and say did he make 10 a day well if you're doing it well you're actually asking Bob every week or bob is checking himself and say I'm making 10 I'm making 10 if he's not he's coming to you and asking how can you help me how can I make 10 so he's kind of self-policing so assuming he is making his thing he participates in the bonus pool if he's not if he does not make his goal he doesn't participate so if you had 20 people that were going to splint $20,000 and bob that make his number now you have 19 people that are still going to split $20,000 so the bonus for the rest the team actually goes up a little bit because Bob did not make his number I've seen other companies because they didn't want to foster anti team work they didn't want people's bonuses to go up if individuals bonuses went down they've done departmental bonuses or whole company bonuses where either everybody got it or everybody B or everybody didn't at least across the department that can work and there's again there's many different ways to split this up you can split up based on position again many many different ways this is just a sample of one of the ways that you can do it and the way that's worked really well for us again back back to our tips over here setting goals that comes into our one number getting people to understand and and improve on their one number is a big benefit to this this is not a referral program so we have recommended and we do recommend referral programs so referral program would be basically a way to reward employ if they help bring in a say their job is not sales but technically everybody's job is sales if you've got an employee that's not directly a sales person and they help bring in a new client you can reward them with a referral program I recommend a referral program for your staff and also for your existing clients if the existing client brings in another client or refers them heck I want to I want to make sure they understand how appreciative I am and reward them so while we recommend a referral program this is separate from that and then again ownership mentality at the end of the day that was one of our big goals to instill some ownership mentality into staff members and I'm happy to say that that has succeeded you will find a few people that just simply aren't that motivated shocking I know as it may be everybody's not motivated by money and if that's the case then this is not necessarily going to motivate them but it's not going to hurt having people understand how business operates is never a bad thing what we found is while it doesn't motivate everybody it does motivate most people and even those that aren't highly motivated by at least their understanding and their seeing how they fit in the big picture so if you have questions on this let me know and good luck with your future profit sharing program thank you you