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.