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How to design a robust profit-sharing bonus scheme for 2019

January 24, 2019 By Stephen Cowburn

In the last newsletter we talked about what to do about awarding a Xmas bonus. [If you missed it click here to find it] Now we talk about putting a bonus scheme into place for 2019.

If your financial year-end is say March, the next few months could be a good time to develop and trial a scheme before launching it in April.

What should l incentivise people on?

The profitability of the business is a simple way to measure business success. If there is a large minority of support staff then you might also consider cost-savings/efficiency savings as being the other side of the profit coin.

You might be tempted by the achievement of individual objectives. Our general experience in the SME space is that staff appraisals don’t happen consistently enough so we wouldn’t recommend a performance pay system based on the achievement of individual objectives, as MDs usually haven’t the infrastructure in place to make this watertight.

What do l need to do first?

You will presumably have a business plan and a budget. Interrogating the likelihood of achieving a sufficient profit to be able to afford a profit-based bonus is the first step. If your assessment is that the profit figure is going to be insufficient consider the criteria for your top people as a pre-cursor to offering a wider profit-sharing scheme.

You need good data so you need accurate monthly management accounts to monitor profitability and to be able to communicate progress easily, to your management team and then staff, post launch.

You may have bespoke software if you run a sales based, or project-based, organisation enabling quick assessment of profitability if looking to incentivise individuals.

If you don’t have either of these, this is the immediate focus. Inaccurate data is guaranteed to lead to issues later on – employees will think one thing, you as MD will think something else and trust and credibility will dissipate in the event of misunderstandings or disputes.

Anything else pre-launch?

Test the model you are proposing. Does the maths work? Are there any unintended consequences? Are there grey areas? (if so tighten the scheme up). Will it clearly drive the behaviour you are looking for? Test it with other Directors or advisors to ensure the outcomes you seek and that the wording is clear with no ambiguity.

Plan the communication – what are the goals? What are the rules going to be? (For example, is there to be a hurdle rate before any bonus is paid out? What are you going to offer joiners or leavers within the period of the bonus scheme?)

Use worked examples so people can see what needs to happen to qualify for a bonus and how the scheme is going to work in real life.

Rather than say there will be a predetermined formula for distributing a fixed percentage of profits, we would suggest an approach where there is a company profit threshold below which no profits will be distributed and that there will be maximum limits set on the proportion of profits that will be distributed (say 5%) and/or the percentage of salary that will be distributed as a profit share (say 10%).

Having launched, what do l do then?

Regularly communicate performance at monthly management meetings and provide a general status update (verbally) to all staff on company performance ideally quarterly. The purpose here is three-fold:

  • To manage expectations if performance is below expectations
  • To give people a steer as to what needs to be done to get back on track.
  • To encourage staff retention by communicating the likelihood of a bonus pay out

Ensure that you pay the bonus when you say you will.

A chunk of our work comes from resolving disputes between employees and the Owner. It usually comes down to poor wording or a misunderstanding on how to get a bonus. The scheme rules are important but they need to be watertight pre-launch. You are likely to run into trouble if you try and change the rules midway through the year because of ambiguous wording.

So wherever you are in your business cycle, and whatever you want to do, if you feel the need for a fresh, neutral pair of eyes give us a call for an initially free consultation.

Contact stephen.cowburn@lgbusinessadvisors.co.uk  or 07974 425361, for a focused discussion.

Filed Under: All blogs, Business News, People Tagged With: Bonus, Bonus scheme, HR, profit, profit sharing

Top Tips for Foreign Nationals Setting Up Business in the UK

January 24, 2019 By Richard Wickes

In December 2018 Forbes Magazine placed the UK as number 1 in its list of Best Countries for Business.  There is no doubt that the UK offers tremendous opportunities for businesses to be set up and to thrive.  However the fact that this is so well recognised means that it is also probably the most competitive country on earth for businesses.  You need to make sure that all aspects of your UK operation are run to the highest professional standards in order to succeed.

The aim of this article is to give you some tips as to how to setup a company in the UK.

  • Visa. If you do not already have the right to live and run a business here you will need a Tier 1 Entrepreneur Visa.  For this you will need to invest a minimum of £200,000 in your new business and employ yourself and take on at least two members of staff in the first two years.

  • Business Idea. You need to start with an idea of what product or service you want to sell.  The first step is to think who might buy your product and why. You need a USP (Unique Selling Point). You must think very carefully about why anyone would buy from you. It may well be that your home country has products or skills that could be useful to businesses or people in the UK.
  • Business Name and Registration. You will also need to choose a name for your business.  You will probably want to choose something that stands out and perhaps describes the business you have in mind.  In most cases you will be setting up a Limited Company. You will need to register that name with UK’s Companies House so you need to ensure that there is not already a company with your chosen name. UK Company registration details are in the public domain.  You can look at the Companies House website for individual names or download a complete list for free here.
  • Banking. You will need to set up a bank account for your business.  Banks are keen to attract new business customers, but stringent money-laundering regulations mean they will need to satisfy themselves that your business is genuine.  They will be even more rigorous if you are transferring money from outside the UK.  At least one director of your business will need to have their main residence in the UK.
  • Finally. There are many things you have to do before you start trading here.  It is unlikely that you will have the skills to do all of them yourself.  In those areas where you do not have experience it sensible to seek professional advice from specialists who have the relevant expertise.  United Kingdom Business Advisors (UKBA) is an excellent source of skills in all aspects of setting up and running a business.

For more advice on setting up a business in the UK contact Richard Wickes at Richard.wickes@lgbusinessadvisors.co.uk or call him on 00 (44) 20 7731 0853

Filed Under: All blogs, Business News, Business Planning, Strategy Tagged With: Setting up a business, start up, uk startup

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