[et_pb_section bb_built=”1″][et_pb_row][et_pb_column type=”4_4″][et_pb_text _builder_version=”3.0.106″ background_layout=”light”]
Does this sound like your situation?
- You have run your business for some years and now have a foundation for an enduring small business
- Your revenues and number of employees/contractors are rising and you are seeing some reasonable bottom line numbers
- You have trusted people and/or are looking to fill a fundamental position in the area of operations, sales, marketing or finance
- You have a financial plan that looks like you can certainly grow if you have the right people to rely on
Options and Strategies – Equity versus a Targeted Incentive Plan
Many of our clients come to ASE to discuss the alternatives and strategies to get and hold good people so that the owner is not the only one who cares about driving revenues and increasing business. Surprisingly, many of these clients think first of proposing equity in the business to address this situation. These include options, share purchases plans, or outright shares as gifts! These may stand the test and are appropriate in some situations but in most cases, by taking in more owners/partners, the business owner is possibly being exposed to many negative outcomes. Even if the owner holds majority shares he is subject to having to deal with the other shareholders’ input and ideas, sharing financials, and in the case of a number of shareholders, may be outnumbered in a partners’ vote. It can be particularly dicey when it comes time to sell the business and the valuation is high.
Incentive plans are appropriate alternatives to offering shares and provide excellent motivation to key employees while the business owner maintains 100% control. If the incentive(s) is focused on the key elements of building the business then a great atmosphere of teamwork is created and at year end, the achievement of targets is shared by all. The key then is to choose targets carefully and, with a good business plan in hand, understand exactly what the achievement of these targets means to the bottom line of the business. With clear forecasts and information, a business owner can then offer an incentive to senior staff that will motivate them to these ends and, as such, serve the business well.
Many owners choose commission as an incentive in the sales and marketing sector. Although commissions may be a good incentive, the owner must be cognizant of the dangers of overly aggressive sales personnel who can damage the image of the business and/or bring in business that is not profitable just for the sake of getting commission.
Other incentives would be quarterly or year-end bonuses and/or gifts or benefits.
An owner should be aware incentives based on gross profits or EBITA may involve disclosing more financial information to the employees than he may care to but, on the other hand, may help the employees focus and act in the best interest of the business.
Experience is Valuable
At ASE we have members with extensive experience in all facets of business. We can help you decide which strategies will best suit your business and your personal business interests.
[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]