Articles

Gainsharing vs Profit Sharing

Gain Sharing vs Profit Sharing

by

Chuck Hendee, a Silver Fox Advisor
chuckhendee.com/incentives

There is a huge difference between Gainsharing and Profit Sharing.

The profit sharing that I have found most business leaders employ is a way of sharing some of the bounty of a successful year. The employees are usually thankful but the questions that may be asked or that aren’t should be considered.

If you have seen the movie “Christmas Vacation” staring Chevy Chase, you will remember that he was expecting a substantial bonus and as it turned out he and others received the jelly of the month gift. Shouldn’t expectations be based upon employee performance that is in line with the company’s financial performance?

Is it reasonable to bonus a relatively new employee, no matter what position, the same as employees that have been contributing for years? Should a new star performer be bonused less because he or she has only been with the company a short time compared to long timers?

The solution is the concept of Gainsharing which is based upon the premise of sharing gains rather than total profits. Reasonably, the current team should benefit from their contribution to the increase in profits from the previous year or established base year.

It would be even better if the individual team members or work groups would be bonused based upon their specific contribution to the company’s financial improvement.

The challenge is that more sophisticated systems to calculate bonuses require an investment in the accounting of performance and value to the profitability of the company. However, wouldn’t bonuses be a better motivator if employees understood how their performance contributed to the company success?

Global Cash Flow

"Global Cash Flow"

August 2025

Richard T. Hendee
A Silver Fox Advisor

Back in 2013 I wrote an article regarding “Global Cash Flow”. At the time I did some research, and there was not a whole lot of information regarding Global Cash Flow let alone a good definition of Global Cash Flow. But today all you need to do is Google What is Global Cash Flow?, and you not only get a good definition but also get some helpful detail. Then, you can also go to any of the popular AI platforms like ChatGPT, and you get great details and even some formulas on how to calculate your Global Cash Flow.

 Why is Global Cash Flow important? Because it is a key calculation that lenders, and specifically conventional bank lenders, use in their underwriting of a loan request. Why is that? Because banks are cash flow lenders and not necessarily collateral lenders. What is the difference?

Cash flow lenders focus on the ability of borrowers to be able to have enough cash flow to cover or pay all of their debt obligations, both business and personal. Some business borrowers may have more than one or even several different legal business entities. Generally speaking, most business owners think of all their business entities as just one big operation mainly because they typically own all the entities. Thus, if one entity needs cash for whatever reason, it is easy to move money around from one entity to another by simply writing a check or doing an on-line transfer. Where the issue comes into play for a lender is if the bank is only loaning money to one of the entities; if that entity moves cash to another entity that may not be doing too well, then the entity the bank is loaning to may not have cash to make loan payments because the business owner used the cash to cover obligations in one of his or her other entities. Further, if the business owner has a lavish personal life style with several homes, cars, boats etc., then the business owner may have to pull cash out of the business(es) to cover personal expenses and leave the business(es) with little cash to pay business loan payments.

We mentioned collateral lenders above, so here is the difference. Collateral lenders are lenders that loan money based on the value of the asset they are taking as collateral for a loan. Collateral lenders typically will loan a percentage of what the collateral asset is worth, so if they have to take the collateral back for non-payment of their loan, there will be value in the asset so they can sell the collateral and recover the money that they loaned. 

So why should all this be so important to me as a small business owner? Well, I would liken it to what any good trial lawyer would tell you – Never ask a question in court that you don’t know the answer to. The point is, before you seek financing from a conventional bank lender, run a global cash flow on all businesses and add in your personal obligations to make sure you have enough cash flow to cover all your loan payments not dollar for dollar, but 1.25 times of cash available to pay all business and personal debt obligations.

 If you need assistance in working through your “Global Cash Flow”, I recommend you start by contacting the Silver Fox Advisors. Silver Fox Advisors are former or present business owners themselves, and they have experience in running a business, and in some cases several businesses and determining cash flows and cash flow requirements. We encourage you to visit our website at www.silverfox.org to select a Silver Fox Advisor and also to learn more about the Silver Fox Advisors, as well as our great programs and community outreach endeavors.