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If you're in a situation where profit-sharing is on the table, you could instead ask for a revenue-share. There are fewer ways to game revenue share via accoun
by shoo 3y ago
If you're in a situation where profit-sharing is on the table, you could instead ask for a revenue-share.
There are fewer ways to game revenue share via accounting tricks or other shenanigans, whereas there's plenty of ways for insiders to extract cash from the business without it being classified as an accounting profit.
For example, suppose surplus cash flows generated from sales are funneled into large executive salaries and classified as operating expenses. The increased expense of executive salaries reduces the business' profit, which would lower profit-sharing liabilities but wouldn't change anything from a revenue sharing perspective.
Other dodgier ways could be related-party deals where the business enters into an agreement to buy something from an entity controlled by one of the executives -- leasing the company office owned by an executive for above market rates or so on. Cash is extracted from the business before being classified as a profit. But again, from a revenue share perspective, this doesn't change the situation.
- marklubi 3y agoI second this. You want a revenue share, not a profit share. Never a profit share. It's way too easy to minimize profit (they're going to want to do that anyway to minimize taxes)... hire someone, raises, buy things, lease more office space, etc. Take the money off the top (revenue) so that you're an expense from the start that they can account for and can't easily manipulate to avoid paying you.
- bruce511 3y agoI concur. Getting a percentage of profit makes you a taxman, and companies will optimize the accounts to pay less tax. In other words translate the phrase "profit share" to "voluntary donation" and the meaning will be the same. If you want uncapped upside then it has to be based on revenue, but even then it can easily be manipulated (A sell to B for pennies, which you get a share of, B sells to the market for the real money.) This is one of those cases where you should have a minimum-number in place, and you should be OK doing the work for just the minimum number. Treat anything else as Voluntary Bonus.
- gadders 3y agoThese people are the experts on minimising profit: https://en.wikipedia.org/wiki/Hollywood_accounting https://en.wikipedia.org/wiki/Hollywood_accounting