A third factor in determining a fair profit percentage is risk. Risk is divided into two types. The first is insurable and the second is uninsurable risks. Insurable risks are mitigated and have very little to no effect on the profit formula due to transferring the risk to a third party known as the insurance underwriter. Uninsurable risks are non-transferable and therefore the profit must be adjusted to compensate for this type of risk.
Misinformation exists as a small business grows and more employees come on-board, many employees don’t fully understand how the company works or how it is doing. For employees, security is an issue. They have families and their day to day life decisions on spending for large ticket items relate to confidence in their job. Therefore, it is important for the owner to communicate information about the company’s performance and the employee’s performance. When employees are secure in their job, their performance and loyalty increases and the company creates a better overall product and/or service for the customer. Monthly or quarterly newsletters, regular posting of notices to employees, and training provide reassurance to staff that the company cares and is doing well.