Profit sharing is a topic that often comes up at some point in the lifespan of every business. Once growth becomes apparent and discussions turn to how employees can benefit from that success, it’s usually a first go-to for business owners to dissect and discuss before deciding if it’s the right option for them.
But is it the right option for every small business?
That’s not an easy, black-and-white, yes-or-no question, because every small business is run differently, with different company cultures and goals. Some business owners may have had a plan to eventually implement profit sharing from the get-go, while others may not have considered it until the time came to talk about the next steps and the company’s future.
There’s an article at the Intuit Small Business Blog that covers this topic in greater detail, focusing on the question of whether or not this is the right move for a small business. Entitled Is Profit-Sharing Right For Your Small Business?, it takes a detailed look at the basics of profit sharing, how it needs to match your incentives and business goals, and a few best practices businesses should follow if they’re going to implement it.
Here’s a snippet, with a look at both the pros and cons:
One reason to offer profit-sharing at your small business is “to get everyone in the company aligned to the same goals,” says Michael Jacobs, a professor at the University of North Carolina’s Kenan-Flagler Business School. “When employees benefit as the company benefits, then everyone is pulling in the same direction.”
However, profit-sharing is not right for every business. “It depends on the nature of the business, on the type of employees, and on the education of the employees,” Jacobs explains. “Not everyone is motivated by money. Some people are risk-averse and might prefer a higher salary, others are motivated more by recognition [of their efforts].”
The first sign that your business may be ready for profit-sharing, he says, is if your employees are motivated by financial rewards.
This is just one example of the ways in which profit sharing differs for every business: on the one hand, it does help your employees get on the same page and focus on helping your company succeed, as they benefit even more when it does.
On the other hand, if your staff is more interested in simply seeing regular raises or an acknowledgement that they’re a big part of your business’s success, then maybe profit sharing isn’t the best direction to go.
Like the article says, whether or not profit sharing is right for your business depends entirely on your business itself. It may align with your company culture and goals; it may not. Just remember that while it’s a common and popular option that’s put on the table when growth is good, it’s not the only one.
We’d recommend giving the article a read in full to learn more about whether or not it might be the right option for your business.
What do you think? Did you find the article useful? Do you utilize profit sharing for your business? Have you considered it? Your thoughts are always welcome, so let us know!