Has anyone bought a business and implemented a profit-sharing plan?

searcher profile

August 02, 2024

by a searcher in London, UK

Curious to hear from people who have created a profit-sharing plan for their business (or have considered doing so).

They seem few and far between in traditional SMBs. Why is this the case?

2
5
38
Replies
5
commentor profile
Reply by a searcher
from The University of Chicago in Nashville, TN, USA
I'm in the process of evaluating a company to acquire that has a profit sharing program in place and am trying to figure out how to make it work going forward. The owner touts it as a way to align incentives and also have a system that automatically adjusts payroll during business cycles. With this model his hourly pay rate is lower than market but they can make above market with bonuses, if you were to implement it in an existing business it may be difficult to do it the same way because it would involve a base pay decrease. He is a big advocate of it, especially since he is only working in the business part time.

The challenge I'm facing while evaluating the business is that the company will instantly become less profitable due to debt service so I would likely need to change the structure to revolve around gross profits and during the typical J curve I could lose employees until the business stabilizes.
commentor profile
Reply by an intermediary
from University of Portland in Hickory, NC, USA
Yes. I bought an established hosiery mill in NC. There was no retirement plan in place so we established a 401(k) plan that has an employer match, plus an optional profit sharing contribution that I can choose to make if I want. This profit sharing piece is optional, even if there is profit. The 401(k) is definitely an administrative headache, but it's only a headache once a year when I have to prep information for the required 3rd party testing. Also, with two key employees I have set up separate phantom stock profit sharing agreements. This profit sharing is not optional. But it's only enacted if/when I take a distribution from the company (which I haven't done).
commentor profile
+3 more replies.
Join the discussion