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How to Institute a Profit-Sharing Program Profit-sharing can be tricky business, so here's what you need to know to do it right.

By Joe Worth

This story appears in the December 2014 issue of Entrepreneur. Subscribe »

illustration © Paul Wearing

You'd think such a gesture of goodwill would be easy to implement and would inspire greatness from your staff. But in my experience, profit-sharing can be a tricky piece of business that requires caution—and a seemingly never-ending list of questions to answer, ranging from what, exactly, you are rewarding (net profit, overall customer service, quality?) to whom you should include (everyone, or just the team that earned it?). Here are the main points to consider.

How much

Start by allocating to the staff 25 percent of profit (the amount that is typically used), assuming you can afford it. Make sure you are left with sufficient capital to run the business and that your investors, if you have any, will be adequately compensated.

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