re: Small Business Owners Talk

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For your profit sharing, do you base the share as a percentage of total compensation, total wages, hours worked, some other factor?

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I say it's a sort of a profit sharing because it's not a traditional profit sharing, so to speak.

It's set up based on targets, but those targets translate to profit. I'll use simple round numbers.

Let's say our target for the installation division for Q1 is $2mm, but we come in at $2.2mm. I know 60% of the overage covers the materials for that additional work, 20% goes to the company, and 20% goes to the workers. I don't have any meaningful overhead to pay on that overage. Most of that is covered by the base target. That gives me $40k to distribute to the hourly guys. You have to work the full quarter, and you can't be over or under 40 hours by more than 10%. That motivates the less-reliable guys to be here every day, and also keeps me from paying too much overtime. I'll then space out payment over the next 13 weeks. So if everyone earns $2k, then they get an additional $154/wk. I do that for cash flow purposes.

I started that about four years ago. It's been a pretty good success. You always have a couple people that bitch no matter what, but I just ignore it. Most guys are appreciative and pay attention to the goals to try and beat them.

Sales and management are on their own separate bonus systems.

I'm 3rd generation owner of this company. We've been doing our thing for 69 years now. Our family philosophy does not include greed. The company provides enough for the family, but we don't get greedy with it. My grandfather, my father, and myself have all lived modest lifestyles. I work now to provide a place for my potential grand kids, if they want it. Profit is nice because it keeps the business going, but I'm not in it to take home big profits for myself. I take a decent salary and have my own bonus structure, and the vast majority of the profit either goes to the employees or is reinvested into the company.

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Cash flow can sneak up on you if you’re only looking at your books at tax time.

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I can't stress this enough. There are several ways to go bankrupt, but probably the easiest to have payroll checks bounce.

Payroll and payroll taxes are weekly (or bi-weekly) events and they can't be delayed or pushed off, and if you have a sizeable number of employees, your cash can dwindle quickly.

Always have, at minimum, a few weeks of payroll, because you never know when that one customer has a person who goes on vacation or forgets to click a button in SAP, or forgets to "puts the check in the mail".

Cash flow is just as important as profits. Sometimes more so.