Profit Share & Commissions in Bookkeeping Businesses

One of the key components of running a successful bookkeeping business is the ability to nurture and retain your most valuable asset – your employees. Building a motivated, committed, and engaged workforce is key to achieving long-term business growth and sustainability.

In an effort to recognise and retain valuable team members, some business owners incorporate a profit share arrangement into their employment agreements.  

Profit Sharing provides a mechanism to formally acknowledge employees who make a vital and valuable contribution to the business.

Profit share and commission structures are widely used in sales based roles, where revenue generation is the key objective. However, it can also be used outside of this traditional model as an effective tool for employee retention, where incentives are aligned with key deliverables of the role.

In a bookkeeping business, a profit share arrangement may focus on recognising an employee’s ability to:

• Attract new leads through strong referral or networking efforts.
• Increase the long term value of clients through nurturing the relationship and ensuring exceptional service delivery.
• Unlock profit through automating and systemising workflows and building operational efficiencies.
• Increase revenue / profit by identifying opportunities to add value / scope / recurring revenue to existing client agreements.

As you can see – the end result is still revenue and profit, and you’re still providing the opportunity for your employees to share in the financial success of the business (which they actively helped to achieve). However, the focus is clearly aligned with deliverables of their role as a bookkeeper (not a sales gun), and their particular skill set.

When managed effectively, profit share arrangements can benefit the business, employee, wider team, and clients.

Benefits

Employee Benefit – Reward & Recognition

• Employees receive recognition and are financially rewarded for their efforts and impact on the business’s revenue, profits, and growth.
• Efforts are rewarded in a tangible way, fostering a sense of accomplishment and motivation.

Employer Benefit - Sustainable Growth & Happy Clients

• Employees concentrate on buillding quality client relationships, leading to sustainable, long-term business growth.
• There is a greater emphasis on client satisfaction and retention, ensuring ongoing profitability from introduced clients.
• Employees are motivated to be proactive, identifying and seeking out opportunities to improve and grow the business, and attract new clients / revenue.

Employer Benefit – Employee Retention & Engaged Team

• Employees feel a strong sense of ownership, which leads to loyalty to the business and helps to ensure the retention of quality employees.
• Fosters a committed and engaged workforce who are all working towards common goals.

Client Benefit – Long Term Relationships & Value

• Clients benefit from having a dedicated team who is invested in their long term success.
• Employees are likely to be more proactive in seeking solutions to retain clients, provide enhanced value, and really nurture the account.

Risks

• Financial uncertainty: During financial downturns, the business might struggle to fulfil profit-sharing commitments, causing disappointment, potential employer/employee relationship issues, or contractual obligations not being met.
• Cash flow challenges: If the business's pricing strategy doesn't ensure sustainable growth and healthy cash flow, it could impact the owner's ability to meet profit-sharing obligations, leading to potential issues.
• Inequity among team members: If other team members get involved or if higher value services are offered to the client by someone other than the original team member, it could result in the unfair distribution of ongoing profit share, causing dissatisfaction among employees or even resentment from the business owner. Careful considerations need to be factored in to any profit-sharing agreements to ensure you, the employer, are not locked into unfair ongoing profit-share. 
• Lack of employee buy-in: If you create a profit share arrangement that doesn't resonate with the team, doesn't reflect their values, motivations or personal goals, or doesn't appear relevant to their roles, it can backfire on you. Employees can feel disconnected and confused, or that they have been set up to fail, and it can in fact lead to them being de-motivated and disengaged. Make sure you understand what drives them and how you can leverage this to recognise and reward their successes.

Planning

Before you introduce a profit share arrangement, create a Profit Share Plan that mitigates risks and sets a solid foundation, built for success.

• Set a clear objective: Is the main focus employee retention, lead generation, new client acquisition, or recurring revenue? Is the arrangement to be consistent across all employees, or based on their individual roles and skill sets? How scalable does it need to be?
• Review your business objectives and budget: Ensure the structure supports your business goals and is in line with your budget and profit lines.
• Consider client profitability and complexity: Remember to take into account that different clients, services or products / systems, may have different profit potential. Some clients may also require more input or work from the employee to secure, service and maintain than others, depending on the complexity of the job, and the nature of the client.
• Review job descriptions and KPIs: Ensure the arrangement aligns with the role responsibilities and key deliverables, and make any adjustments required.
• Determine measurement and attribution: Map out a clear process for measuring when an objective has been met (e.g., as soon as a new client is signed, or once they have completed the onboarding process), how the incentive is calculated (e.g., on overall revenue or net profit after tax, or against specific clients / services / regions), when it is to be released (e.g., monthly / quarterly or in line with pay cycles, in instalments or as soon as the milestone is reached, in arrears), and who it is to be released to. This last point is particularly important if multiple people work on the same account, or have been involved in the process of acquiring a new lead / client.
• Determine the incentive schedule and conditions: Determine if there are any block out periods, niche or skill-set boundaries, incentive caps, or other restrictions that need to be included and communicated (e.g. what happens when an employee or client leaves the business).
• Gain employee understanding and buy-in: Consider the dynamics, values, and culture of your team. Ensure that the incentive structure will meet the objectives of motivating your team and giving them a sense of ownership. Once you have your plan drafted, review it with your team and any other stakeholders for their feedback. It’s important to get it right before rolling it out. If you are not 100% sure you have it right, seek advice from a trusted advisor as you don’t want to get it wrong.
• Review and adjust employment contracts: Create an agreement and include this in your employment contracts and/or onboarding packs, along with other essential company policies and procedures. Set a review schedule so you can adjust the agreement as/if needed (things do change) and include anything that may trigger an ad-hoc review (just like you would for scope creep). Many things can influence the profit associated with an account, and you need to plan for each scenario - employees or clients leaving, work reassignment, scope changes etc. Seek HR or legal advice as needed. 

As with introducing any new strategy or process to your business, the key lies in the planning stage - put in the work to get it right before rolling it out so that you are confident it will resonate with the team and is aligned with the objectives of the business.