Mike Andes explains why profit-sharing beats equity for early-stage general managers: most cash gets reinvested for growth, so equity won't pay out until a sale. He recommends time-bound base-plus-bonus plans tied to revenue milestones, then 35% of distributions to a manager building a branch from scratch.
Questions this video answers
35% of distributions (i.e., when a dollar is taken out, the manager gets $0.35).
The first 24 months (base salary plus bonuses tied to revenue milestones).
Do you recommend giving.
That general manager.
Branch manager a bit of equity in.
That branch or.
Something to keep them really motivated to keep growing?
For the first three to five years, you're taking all the money and putting it back into the business. So there's not really distributions from equity. There's really just, you're growing up the net worth of the, of the asset, the value of it. And so unless you sell, they never actually realize that. So I like to be more generous on profit sharing. And so like, for example, the first 24 months, you could say, hey, we're going to be giving, you know, base salary and then a bonus based upon certain revenue markers. So if you're over this amount per month, you get this bonus. If you're over this amount, you get.
This much for the, for the first couple of years, like just grow. Like that's top.
Well, because you're just trying to grow top line, right? And then you have a profit sharing of X amount. You're just not going to see it for the first couple of years because we are in growth mode. But you know, you're incentivized to get that as fast as possible to a certain level. And I'd give them a lot of profit sharing.
Because like, what percent?
So if someone's starting from zero, I give them 35% of distributions. So different than profitability. Right.
So like, sorry, cash, like free cash flow.
Yes. So it's like when I take a dollar out, you'll get 35 cents.
Got it. So non profits, free cash flow.
Exactly, got it. Because I used to give 25% of, you know, profit sharing based on a quarterly P and L. The problem with that is you could have a winter where you're losing 15 to 20 grand a month. And so what you can say is like, hey, anything over one month of revenue is going to be considered distributable cash.
