R. Shawn McBride recently spoke about profit allocations.
Hey, folks, Shawn here with you. Today we’re going to get a little bit deeper into details of planning for partnership agreements. One of the things that we like to work on is what we call the profit allocations.
So, in a typical partnership agreement or other business deal, at some point, we need to allocate the profits, the money that’s left over. One thing we see with a lot of businesses is they do profit allocations based on what they project to happen. When we read the litigation in the cases that come back, what we find is so many times people came out to a different level of profit than what they anticipated.
So what does this mean for you and me? When we’re working together, putting together a partnership agreement, planning for the future, what do we need to do? Well, what we need to do is we need to plan for a range of potential profitability. We need to work on a different set of numbers. So, maybe we look for a high potential profitability, the projected profitability, and then a low number of profitability or even losses and run a variety of scenarios. By doing this we’re bringing out issues with the formula. Maybe there’s an unfair result to one of the parties if the profit’s very low. Maybe there’s an unfair amount of profit going to one person if the profit’s very high. And so, many times people just look there in the center at what the profits look like without looking at the whole range of what’s going on.
So, let’s think deeper when we’re planning partnership agreements. When we’re doing profit allocations we need to look at our range. We need to look across the board. So, a very simple idea. Lot of hard work when we’re planning, and it really will make a big difference if something unanticipated happens.
What are you dealing with? What challenges do you have? Check out the McBride for Business YouTube channel. A lot of great videos for you. Same with the R. Shawn McBride Fans and Audiences page. Make sure you like that. Let me know how you’re doing. Reach out to me. Get your business valuation checklist over there. I know it’s hard work to deal with these things, so I want to thank you for taking the time and putting the effort into your business. You’re really doing a great thing.
So, I’m here for you, I’m R. Shawn McBride. Would love to come in and work with you and your organization, do some coaching, maybe do some training, and maybe do a keynote for your next big event. Let me know how I can help you. I’m signing off, but I will be talking to you again very soon.
Make sure you download our free checklist to assess your business.
This posting is intended to be a tool to familiarize readers with some of the issues discussed herein. This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique. Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. Freeimages.com/photographer Ralph Kiesewetter.
About the Author
R. Shawn McBride is the Chief Innovation Officer at McBride For Business, LLC. His signature keynote, The 3 Laws of Empowerment, gives audiences an entertaining look at how they can prepare, plan and protect themselves. You can email R. Shawn McBride or (214) 418-0258.