When your best people leave...
Okay - let me be direct, friend. This is a long one, but it contains info that you would typically have to pay a CPA or management consultant thousands of dollars to share with you.
There is literally one book written on the topic I'm discussing today so this is info that is not readily available, but I am overjoyed to share it with you because I'm allllll about pulling back the wool and sharing high-quality financial info with my community.
Here we go!!
I had an in-person meeting with two of my favourite people in the 7-Fig CEO program last week. These women run a v. successful professional services firm and our conversations inspire me each time we meet.
One thing we are talking about right now is how to keep key employees around. And, if you’re a biz owner, I’m guessing this is a hot topic for you too.
Now, I do not style myself as an HR pro, but I love, love, love to talk about the different dials that I can turn to make your business better - including employee retention strategies.
One of those dials is money (shocker lol). But I’m not talking about more wages or a big bonus - today I want to talk about a profit-sharing model.
If you haven’t heard of profit shares before, get ready to watch me nerd out to the nth degree because this is something that could be highly effective if you are looking at keeping key employees around.
And just because you don’t have a 75-person professional services firm doesn’t mean you can’t implement some of these suggestions. I have a team of 5 people and this is something I’m considering too.
So, solopreneurs with small teams - keep reading. I’ve got something for you too.
But first - what are the benefits of a profit share? Aka why should you care? Well, when a profit share is done “right,” it:
Pretty much guarantees employees stick around to X date (until after the profit share is paid out)
Allows you to give more to your employees when you can afford it and give less when you can’t
Improves employee morale because they will feel like they have the ability to directly influence this metric aka can actually help with the profitability of your business
Now I’m not saying this is the only dial you can turn to improve employee retention → you can also look at flexible work schedules, pension matching, and a host of other techniques.
But you know I love a number and you KNOW I love a calculation. So let’s go deep into the numbers for a minute.
And if profit sharing isn’t for you, friend - no prob.
But if keeping your key employees around isn’t something that’s top of mind, I will gently remind you that for many service-based businesses, our people are typically our biggest expense and one of the most important components of our business' success.
And if your people leave, that means you have to do more “in” your business which typically means doing less work “on” your biz as CEO. So, unless you want to get back into ‘worker bee’ mode, I’d encourage you to read on, friend.
Big picture - here’s how a profit share calculation works:
Revenue
Less expenses
+/- normalising adjustments
Prelim net income
Less profit share
Net income before income tax
Less income tax
Net income after income tax
It can be a bit of a circular calculation, but you get the idea. The numbers can be as simple (or as complicated) as you want them to be.
Here are a few “best practices” when doing this calculation:
Research tells us that profit-sharing amounts are typically between 10-15% of Prelim Net Income. This %% can vary depending on the size of the profit-sharing pool and the number of employees participating in the pool.
You may want to give higher-level managers a (very) different profit sharing %% than your junior employees. This is because your senior managers most likely have a stronger ability to impact profitability than your more junior employees.
To be considered relevant/motivating to employees, the profit share amount should be at least 3-5% of their base comp.
You may want to consider if normalizing adjustments should be made in getting to your Prelim net income number (i.e. adjust for owner’s comp, extraordinary items, rev/expense not related to employees’ contributions).
And if you’re a solopreneur who thinks profit sharing isn’t something you should look at for at least another 5 years, I’d love for you to be open to “thinking again.”
I’m not asking you to give away half of your Prelim Net Income, but is there a percentage that would make you feel comfortable?
Or are there other employee retention strategies you’d like to consider?
Commission incentives?
Mondays or Fridays off?
Flexible work hours?
If looking at methods to improve employee retention are on your radar, I have 2 options for you to move forward with this objective:
Option 1
This is a new offer for me, but it’s super meaningful because I want to find a way to share high quality business and financial advice with my community at a lower price point.
This is perfect for you if you are a self-motivated entrepreneur who is interested in learning how to get the money-side of your biz sorted so that you can focus on stuff like how to retain key employees - aka implementing a profit share - without worrying if you can afford it.
In a combo of self-directed learning and support calls, I will help with financial education and general business advice so that you can stop making the kinds of mistakes in your biz that have the ability to seriously disrupt (or end) your biz.
Sign up for my waitlist now to get access to preferred pricing! Full details coming this week :)
Option 2
This offer is perfect for you if you’re ready to “go big” on your business but you don’t have the time or expertise to get there.
You desire a clear plan that's going to take you from where you are now to wherever it is you want to be → consistent 5 (or 6) figure months, a biz you're excited about again, a team you actually trust and systems/processes that support your business' upward trajectory (so growth doesn't feel like a 4-letter word).
Through a combo of 1:1 mentorship from me and execution support from my team, we help you achieve the big goals you have for your business - including employee retention strategies.
Take care and talk soon,
Tanya