Are you looking for a new way to incentivise your employees? A key part of restructuring your SME into a limited liability partnership (LLP), is having everyone share proportionately in the business’ success and profits. Essentially, having a profit share model in place. The best part about profit sharing is that it’s not just an incentive – it’s also a way of ensuring everyone can reap the benefits of the success.
This all sounds good, but you may be worried that by sharing out profits, the business may be unable to reinvest in the business or pay out dividends to the shareholders. We understand that this is an important consideration for any business owner but in the way we set up LLP’s, it’s not something you should worry about.
The profit-sharing model we set up for our clients works like this. We ask business owners and/or SME to set up a target figure. If this figure is met, what is in excess of the target figure will enable the shareholders to receive dividends and/or for the business to reinvest some profits into the business, to drive further success. We want you to be highly successful operating as an LLP so we will advise on the best way to distribute what is of excess of the target figure given your business’ unique operational practices. If you have more questions regarding the LLP model, check out our blog – your top 3 concerns about switching to a limited liability partnership answered as well our blog – is it better for my business to operate as a limited liability partnership (LLP) and how will I be taxed?
Another important consideration to make sure that the profit-sharing model is successful is to start talking to your team about the business’ finances. As the move towards more collaborative and flat structure businesses continue to gather pace, there is one area which seems to be lagging – the finances.
Being brave enough to share company financial information, however minimal it may be is another key component in creating the feeling of a partnership within a business. It also helps make the profit-sharing concept more tangible as people begin to understand what the business needs to achieve or wants to achieve to unlock the profit share.
Saying ‘we had a good quarter’ or ‘we had a tough quarter’ isn’t enough. Showing the team cold hard number is what they need and, in most cases, want to see. We understand that this isn’t always easy and requires a few things to happen before it can be introduced – a disciplined month end process for example – but it should be something which you should strive to achieve.
Reporting a succession of weak quarters could damage morale, but what it should do is start a conversation amongst the whole team as to what can be done to correct it, sometimes it is those on the coal face who might actually be the ones who can see the changes needed.
Equally a few good quarters should show the team what is going well and spark a discussion to ensure it continues. The successes and struggles of the business should be shared with the team, they can hand it and it will help reinforce the value of your profit-sharing model.
You may already have this culture in your workplace and could be better suited to utilising a limited liability partnership to help support your team even further as well as receive tax benefits. Get in touch with us to learn more about limited liability partnerships (LLP) and learn what it can do for your business. Alternatively, visit our case studies page to see how businesses similar to yours have implements the partnership model and what they learned from the experience.