Profit-Share Calculations

Be sure that you have considered everything when calculating employee profit-sharing!!

To use the worksheet:

PROFIT – enter the profit from the entity or entities to be considered.

ACCUMULATED LOSSES – enter any losses from the Equity section of the Balance Sheet.  “Retained Earnings” is the default, but there may be losses in the “Additional Paid-In Capital” or “Partnership Interests” or other line items.

EQUITY – enter the total Equity shown on the Balance Sheet for each entity to be considered.

OWNER-BACKED CREDIT CARDS – enter the balance for each credit card on which a principal of the entity is the PRIMARY responsible party.  

OWNER-BACKED LOANS – enter the balance of each loan for which a principal of the entity is the PRIMARY responsible party.

PAYROLL INFORMATION – enter the name and period payroll amount for each participant, including the principal(s), in the profit-sharing program.  Employees joining the program mid-period will have pro-rated amounts.  The total payroll calculation should approximate the total payroll shown on the Income Statement.

The purpose of the CALCULATION section is to determine the optimal profit-sharing matrix.  These entries represent a management-preferred profit-sharing arrangement.

PROFIT % RETAINED TO FUND COMPANY GROWTH – enter the percentage of the profit to be retained by the company as a decimal. Typical minimum retention is 50% or more.

The next three entries are self-explanatory.

RETURN ON EQUITY – enter the desired return on equity for the principal’s investment in the company as a decimal.  If EQUITY is negative, the resulting calculation will be zero.

SALARY INCREASE NEXT YEAR – enter the anticipated percentage increase in salary for next year as a decimal. Typical baseline increases will be comparable to the Social Security Cost-Of-Living Adjustment (COLA).

PAYROLL LOAD – enter the percentage of payroll which the benefits package (insurance, retirement, etc.) offered to employees represents.  Typical payroll load is 25%-40%. (Resource)

This section provides the opportunity to “What-If” the preferred initial calculations to see the effect on the profit-sharing distributions.

The “Profit – Period To Date” is held constant while the “Parameters” can be adjusted.

If you would like to pay at least a minimum profit-sharing distribution, use this section to make that calculation.

The “Profit Adjustment” section holds the parameters of the preferred calculation section constant, and allows the “Profit – Period To Date” to be customized.

This calculation is especially interesting, in that it will demonstrate the amount of profit-sharing that would have been available to participants at different levels of profitability.

This information can be used to incentivize a profitability mind-set in the plan participants.

This section allows the greatest flexibility in the “What-If” process.

All parameters and the profit can be customized.