Industry Sector: Dental Lab You have decided that you want to run a dental lab - now decide how you will achieve this. Will you:

buy an existing business start up a new business from scratch

The course of action you choose will affect the costs you will incur and may also affect how soon you start to receive income from the venture.

This Bizguide will help you to complete your cash flow. The topics listed under Income and Expenditure relate to fields in the cash flow section of the Business Plan.

Cash sales

'Cash sales' means all income from your main business activity which is received at the time of sale. Although some customers may pay you in cash, remember that Cash sales can also include cheques and card payments.

To prepare your cash flow, the first step is to estimate how much income you will receive over the next 12 months from the manufacture of dental appliances and any related services you will provide. Then decide how much of this income will be Cash sales and how much will be income you receive from customers that you invoice and who pay you some time later. It is likely that most of your customers will have an account with you and the payments you receive from them will be entered in 'Cash from debtors' in the cash flow.

There are a number of things to consider when you make your estimates:

Type of business

who will be your customers. Will you be targeting local dental practices or offering a mail order service to a national market

will you be offering specialist services to other labs where will your premises be and how big will they be. You will need to have large

enough premises to house all your equipment and you may want to be located in a town or city centre so you are near a number of dental practices

how will you advertise your services do you have the necessary skills, training and experience? Bear in mind that statutory

registration for dental technicians is now compulsory. For admission to the register you either have to hold a recognised qualification, or demonstrate that you have several years experience

will you have problems recruiting skilled technicians - the dental laboratory sector is currently suffering from a shortage of skilled personnel

Your services

what range of work will you undertake will you specialise, for example in crown and bridge work or in denture work, or will you

offer a full service will you offer a delivery and collection service how will you keep track of each job will you put some work out to other laboratories where will you source your raw materials from how will you monitor productivity and quality how will you monitor wastage and remakes will you be able to sell any scrap or waste

Give some thought also to:

what sector of the market you are targeting - will you accept NHS work or will you target the dental practice which mainly deals with private or independent patients

whether you are likely to have approximately the same amount of work all year round, or whether you will get seasonal lulls and surges. Many labs are very busy in the run up to Christmas

Pricing

what will be your pricing policy (don't forget, you must be able to cover your costs, overheads and drawings)

will you have separate tariffs for NHS, private and independent work will you have fixed tariffs or will you quote for precious metals separately how often will you review your prices will you offer discounts

Be aware that:

if you depend on only a few major customers they will be in a strong position to beat you down on price

many dental practices take a long time to pay their bills

Competition

Because barriers to entry have traditionally been low, it has been relatively easy for people to set up a dental laboratory and this has led to overcapacity and keen competition within the industry. The position has been made worse by dental practices choosing to get dental appliances made abroad, in order to cut costs.

To compete effectively in this market place it's vital that you offer your customers a high quality, speedy and reliable service at a reasonable price. Achieving a quality standard such as DAMAS or ISO 9002 is likely to help you to win better quality and more highly paid work.

To help with your decisions, click on the checkpoints for guidance. Once you have worked out a Cash sales figure add it to the relevant field in your cash flow forecast.

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Executive Summary

Dental Laboratory is being established with the goal of providing dentists with restorations of superior quality and value. We offer all the state-of-the-art esthetic materials. Our product quality and services are excellent.

At our Dental Laboratory, we recognize that every practice is different... and every doctor is unique. We will take the time to listen to casework problems. Examine the doctor's individual situation. In short, we reach a full understanding of their needs before we recommend a solution. Then, working as their partner, we put our extensive resources to work for them.

The result is creative and practical solutions to their casework needs on a consistent basis. All backed by over twenty-five years of experience and an investment in the techniques that

enhance patient care quality like Procera, Targis, Vectris, Empress & Empress 2, as well as all the premier implant systems. At Wright's Dental Laboratory, our products and services are a valuable complement to well-established restorative treatment plans that promote aesthetics, tooth reinforcement and conservative preparation techniques.

1.1 Keys to Success

The keys to success for Wright's Dental Laboratory are:

1. Our dental laboratory must continually adjust its methods to meet the constantly evolving challenges of dentistry and aspirations of the dental professional.

2. Our dental laboratory must be deeply and loyally committed to maintaining CONSISTENT product excellence.

3. Our dental laboratory's only dynamic resource is people. It must develop opportunities for each person to use his/her abilities to the utmost of their potential.

1.2 Objectives

The objectives of Dental Laboratory are as follows:

Increase sales significantly each year. Increase the number of dentists using lab services aggressively each year. Expand service area to include the entire Israel area.

Company Summary

Dental Laboratory offers state-of-the-art dental restorations services to dental professionals.

Charles Wright attended State University in Oregon and is a certified dental technician. He entered the dental laboratory industry in 1994 and by 2000 he had established his own small dental laboratory. Charles now joins his expertise with that of his brother, David, to create Dental Laboratory. The synergy of their respective talents will allow the precision restorative capabilities of Wright's Dental Laboratory to consistently provide leading-edge technologies and a high index of progressive services to the profession in Monroe.

As an advocate of continuing dental education, Mr. Wright's commitment to continuing education is illustrated by his involvement with metal-free restorations. Charles has successfully completed training in such state of the art techniques as Empress & Empress 2 and Targis/Vectris. He has also completed training for all the premier implant systems including Paragon, Sulzer-Calcitek, Steri-Oss, Nobel BioCare, 3i, and ITI.

Among his accomplishments, Charles has held the posts of vice president, secretary and treasurer of the Oregon State Dental Laboratory Association. Additionally, he is a member of the National Association of Dental Laboratories (NADL), the Oregon State Dental Laboratory Association and the American Academy of Cosmetic Dentistry (AACD).

David Wright attended State University and is a certified dental technician. He has spent over ten years working with some of the region's most respected practitioners. David is committed to continuing education and has successfully completed Productivity Training Corporation's Advanced Crown & Bridge Dental Studies. He has also successfully completed training in all the premier implant systems including Paragon, Sulzer-Calcitek, Steri-Oss, Nobel Biocare, 3i and ITI.

David entered the dental laboratory industry in 1991. He began his training under the tutelage of his father with various phases of fixed and removable techniques. Over the years, David completed his training to become fully proficient in the design and fabrication of precision attachment restorations, implants and full mouth rehabilitation cases.

2.1 Start-up Summary

The start-up cost of Wright's Dental Laboratory will consist primarily of equipment. Charles and David will each invest personal funds and also secure a long-term loan.

Start-up

Requirements

Start-up Expenses

Legal £1,000

Stationery etc. £300

Brochures £1,000

Insurance £2,000

Rent £2,000

Lab Setup £30,000

Office Setup £20,000

Expensed Equipment £20,000

Total Start-up Expenses £76,300

Start-up Assets

Cash Required £71,700

Start-up Inventory £10,000

Other Current Assets £12,000

Long-term Assets £80,000

Total Assets £173,700

Total Requirements £250,000

2.2 Company Ownership

Wright's Dental Laboratory, located in a custom designed, 8,000 square foot facility using the latest, state-of-the-art restoration production systems and compterized case tracking, is owned by Charles and David Wright. The company will operate as a general partnership with both Charles and David performing management functions.

Wright's Dental Laboratory offers the following products:

CROWN AND BRIDGE

Ceramics Cristobal+® Targis®

Porcelain to metal Cristobal+® inlay/onlay Targis® inlay

Porcelain veneers Cristobal+® to metal Targis® Vectris

Procera®

Enamelux®

Empress®

In-Ceram®

In-Ceram® zirconia

REMOVABLES

Dentures & Partials Splints/Stents Orthodontics

Full dentures Thermo-Splint®

Partial dentures Hard splint (night guard)

Night guards Implant stent

Relines Sports guard

Laser welded repairs Surgical template

Soft liners Bleaching fluoride trays

Ivocap®

Market Analysis Summary

The Monroe tri-county area has over 300 dentists. Next to salaries and benefits for associates, assistants and hygienists, dental laboratory fees are a dentist's greatest expense.

Currently, there are seven dental labs in Monroe. Of the seven, only four are full service. Most importantly, a new lab has not opened in the Monroe area in the past six years. Over the past six years, the area's population has grown tremendously. The current labs have not invested in the newest technology. Wright's Dental Laboratory will set a new standard for products and services.

No where is this more important than in the dental care for children and seniors. The new materials and techniques creates more options for dentists to serve their young and senior patients. Wright's Dental Laboratory is investing heavily in these new techniques and materials.

4.1 Market Segmentation

Wright's Dental Laboratory will focus on dental professionals who work in the following three areas:

Dental services for seniors; Dental services for children; General dental services.

Market AnalysisYear 1 Year 2 Year 3 Year 4 Year 5

Potential Customers Growth CAGRDental Services for Children

10% 60 66 73 80 88 10.05%

Dental Services for Seniors

15% 40 46 53 61 70 15.02%

General Dental Services

13% 200 226 255 288 325 12.91%

Total 12.64% 300 338 381 429 483 12.64%

Strategy and Implementation Summary

Wright's Dental Laboratory will aggressively pursue dental professionals in the Monroe area by offering discounted services to encourage them to try the new lab. Charles Wright will manage the marketing campaign to promote the business. He has extensive contacts in the dental community that will be critical to the building of the business.

5.1 Sales Strategy

The sales strategy will focus on offering dental professionals the new techniques and equipment that will assist them in serving their speciality populations (i.e. children and seniors).

5.1.1 Sales Forecast

For the first month there will be no sales, as the company will be establishing its operations. We anticipate that sales will grow quickly during the second and third month of operation.

The following is the sales forecast for three years.

Sales ForecastYear 1 Year 2 Year 3

SalesDental Products £615,000 £750,000 £880,000 Other £0 £0 £0 Total Sales £615,000 £750,000 £880,000 Direct Cost of Sales Year 1 Year 2 Year 3Dental Products £221,000 £269,250 £315,920 Other £0 £0 £0 Subtotal Direct Cost of Sales £221,000 £269,250 £315,920

Management Summary

The management team for Wright's Dental Laboratory will be Charles and David Wright. Charles will be responsible for marketing, sales, customer r elations. David will be responsible for managing the dental lab operation.

6.1 Personnel Plan

The personnel plan for Dental Laboratory is as follows:

Marketing/sales manager; Lab manager; Lab techs (4); Customer service (1).

Part way through the second year of operation it is estimated that the Lab will have to hire an additional customer service operator.

Personnel PlanYear 1 Year 2 Year 3

Marketing/Sales Mgr £48,000 £50,000 £52,000 Lab Mgr £48,000 £50,000 £52,000 4 Lab Techs £144,000 £152,000 £160,000 Customer Service £24,000 £38,000 £60,000 Total People 7 7 7 Total Payroll £264,000 £290,000 £324,000

Appendix

Sales ForecastMonth

1Month 2

Month 3

Month 4Month

5Month 6

Month 7

Month 8 Month 9Month

10Month

11Month

12SalesDental Products 0% £0 £30,000 £30,000 £40,000 £40,000 £50,000 £60,000 £65,000 £70,000 £70,000 £80,000 £80,000 Other 0% £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 Total Sales £0 £30,000 £30,000 £40,000 £40,000 £50,000 £60,000 £65,000 £70,000 £70,000 £80,000 £80,000 Direct Cost of Sales

Month 1

Month 2Month

3Month 4

Month 5

Month 6Month

7Month 8 Month 9

Month 10

Month 11

Month 12

Dental Products £0 £12,000 £12,000 £15,000 £15,000 £18,000 £21,000 £22,000 £25,000 £25,000 £28,000 £28,000 Other £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 Subtotal Direct Cost of Sales

£0 £12,000 £12,000 £15,000 £15,000 £18,000 £21,000 £22,000 £25,000 £25,000 £28,000 £28,000

Personnel PlanMonth

1Month

2Month

3Month

4Month

5Month

6Month

7Month

8Month

9Month

10Month

11Month 12

Marketing/Sales Mgr

0% £4,000 £4,000 £4,000 £4,000 £4,000 £4,000 £4,000 £4,000 £4,000 £4,000 £4,000 £4,000

Lab Mgr 0% £4,000 £4,000 £4,000 £4,000 £4,000 £4,000 £4,000 £4,000 £4,000 £4,000 £4,000 £4,000 4 Lab Techs 0% £12,000 £12,000 £12,000 £12,000 £12,000 £12,000 £12,000 £12,000 £12,000 £12,000 £12,000 £12,000 Customer Service

0% £2,000 £2,000 £2,000 £2,000 £2,000 £2,000 £2,000 £2,000 £2,000 £2,000 £2,000 £2,000

Total People 7 7 7 7 7 7 7 7 7 7 7 7 Total Payroll £22,000 £22,000 £22,000 £22,000 £22,000 £22,000 £22,000 £22,000 £22,000 £22,000 £22,000 £22,000

General AssumptionsMonth 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

Plan Month 1 2 3 4 5 6 7 8 9 10 11 12Current Interest Rate

10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%

Long-term Interest Rate

10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%

Tax Rate 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% Other 0 0 0 0 0 0 0 0 0 0 0 0

Pro Forma Profit and Loss

Month 1 Month 2 Month 3 Month 4 Month 5Month

6Month

7Month

8Month

9Month

10Month

11Month 12

Sales £0 £30,000 £30,000 £40,000 £40,000 £50,000 £60,000 £65,000 £70,000 £70,000 £80,000 £80,000 Direct Cost of Sales

£0 £12,000 £12,000 £15,000 £15,000 £18,000 £21,000 £22,000 £25,000 £25,000 £28,000 £28,000

Other Production Expenses

£0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0

Total Cost of Sales £0 £12,000 £12,000 £15,000 £15,000 £18,000 £21,000 £22,000 £25,000 £25,000 £28,000 £28,000 Gross Margin £0 £18,000 £18,000 £25,000 £25,000 £32,000 £39,000 £43,000 £45,000 £45,000 £52,000 £52,000 Gross Margin % 0.00% 60.00% 60.00% 62.50% 62.50% 64.00% 65.00% 66.15% 64.29% 64.29% 65.00% 65.00%

ExpensesPayroll £22,000 £22,000 £22,000 £22,000 £22,000 £22,000 £22,000 £22,000 £22,000 £22,000 £22,000 £22,000 Sales and Marketing and Other Expenses

£2,000 £2,000 £2,000 £2,000 £2,000 £2,000 £2,000 £2,000 £2,000 £2,000 £2,000 £2,000

Depreciation £1,000 £1,000 £1,000 £1,000 £1,000 £1,000 £1,000 £1,000 £1,000 £1,000 £1,000 £1,000 Leased Equipment £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 Utilities £500 £500 £500 £500 £500 £500 £500 £500 £500 £500 £500 £500 Insurance £600 £600 £600 £600 £600 £600 £600 £600 £600 £600 £600 £600 Rent £2,000 £2,000 £2,000 £2,000 £2,000 £2,000 £2,000 £2,000 £2,000 £2,000 £2,000 £2,000 Payroll Taxes 15% £3,300 £3,300 £3,300 £3,300 £3,300 £3,300 £3,300 £3,300 £3,300 £3,300 £3,300 £3,300 Other £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0

Total Operating Expenses

£31,400 £31,400 £31,400 £31,400 £31,400 £31,400 £31,400 £31,400 £31,400 £31,400 £31,400 £31,400

Profit Before Interest and Taxes

(£31,400) (£13,400) (£13,400) (£6,400) (£6,400) £600 £7,600 £11,600 £13,600 £13,600 £20,600 £20,600

EBITDA (£30,400) (£12,400) (£12,400) (£5,400) (£5,400) £1,600 £8,600 £12,600 £14,600 £14,600 £21,600 £21,600 Interest Expense £833 £833 £833 £1,000 £1,156 £1,146 £1,136 £1,126 £1,115 £1,105 £1,095 £1,084 Taxes Incurred (£9,670) (£4,270) (£4,270) (£2,220) (£2,267) (£164) £1,939 £3,142 £3,745 £3,748 £5,852 £5,855 Net Profit (£22,563) (£9,963) (£9,963) (£5,180) (£5,289) (£382) £4,525 £7,332 £8,739 £8,746 £13,654 £13,661 Net Profit/Sales 0.00% -33.21% -33.21% -12.95% -13.22% -0.76% 7.54% 11.28% 12.48% 12.49% 17.07% 17.08%

Pro Forma Cash Flow

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9Month

10Month

11Month 12

Cash ReceivedCash from OperationsCash Sales £0 £7,500 £7,500 £10,000 £10,000 £12,500 £15,000 £16,250 £17,500 £17,500 £20,000 £20,000 Cash from Receivables £0 £0 £750 £22,500 £22,750 £30,000 £30,250 £37,750 £45,125 £48,875 £52,500 £52,750 Subtotal Cash from Operations

£0 £7,500 £8,250 £32,500 £32,750 £42,500 £45,250 £54,000 £62,625 £66,375 £72,500 £72,750

Additional Cash ReceivedSales Tax, VAT, HST/GST Received

0.00% £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0

New Current Borrowing £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 New Other Liabilities (interest-free)

£0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0

New Long-term Liabilities £0 £0 £0 £20,000 £20,000 £0 £0 £0 £0 £0 £0 £0 Sales of Other Current Assets

£0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0

Sales of Long-term Assets £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 New Investment Received £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 Subtotal Cash Received £0 £7,500 £8,250 £52,500 £52,750 £42,500 £45,250 £54,000 £62,625 £66,375 £72,500 £72,750

Expenditures Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9Month

10Month

11Month 12

Expenditures from OperationsCash Spending £22,000 £22,000 £22,000 £22,000 £22,000 £22,000 £22,000 £22,000 £22,000 £22,000 £22,000 £22,000 Bill Payments (£437) £250 £20,057 £17,247 £25,374 £22,569 £30,852 £35,775 £35,961 £41,450 £38,533 £46,536 Subtotal Spent on Operations

£21,563 £22,250 £42,057 £39,247 £47,374 £44,569 £52,852 £57,775 £57,961 £63,450 £60,533 £68,536

Additional Cash SpentSales Tax, VAT, HST/GST Paid Out

£0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0

Principal Repayment of Current Borrowing

£0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0

Other Liabilities Principal Repayment

£0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0

Long-term Liabilities Principal Repayment

£0 £0 £0 £0 £1,233 £1,233 £1,233 £1,233 £1,233 £1,233 £1,233 £1,233

Purchase Other Current Assets

£0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0

Purchase Long-term Assets £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 Dividends £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 Subtotal Cash Spent £21,563 £22,250 £42,057 £39,247 £48,607 £45,802 £54,085 £59,008 £59,194 £64,683 £61,766 £69,769 Net Cash Flow (£21,563) (£14,750) (£33,807) £13,253 £4,143 (£3,302) (£8,835) (£5,008) £3,431 £1,692 £10,734 £2,981 Cash Balance £50,137 £35,387 £1,580 £14,833 £18,976 £15,674 £6,839 £1,831 £5,262 £6,954 £17,687 £20,668

Pro Forma Balance SheetMonth 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12

AssetsStarting Balances

Current AssetsCash £71,700 £50,137 £35,387 £1,580 £14,833 £18,976 £15,674 £6,839 £1,831 £5,262 £6,954 £17,687 £20,668 Accounts Receivable £0 £0 £22,500 £44,250 £51,750 £59,000 £66,500 £81,250 £92,250 £99,625 £103,250 £110,750 £118,000 Inventory £10,000 £10,000 £13,200 £13,200 £16,500 £16,500 £19,800 £23,100 £24,200 £27,500 £27,500 £30,800 £30,800 Other Current Assets £12,000 £12,000 £12,000 £12,000 £12,000 £12,000 £12,000 £12,000 £12,000 £12,000 £12,000 £12,000 £12,000 Total Current Assets £93,700 £72,137 £83,087 £71,030 £95,083 £106,476 £113,974 £123,189 £130,281 £144,387 £149,704 £171,237 £181,468 Long-term AssetsLong-term Assets £80,000 £80,000 £80,000 £80,000 £80,000 £80,000 £80,000 £80,000 £80,000 £80,000 £80,000 £80,000 £80,000

Accumulated Depreciation

£0 £1,000 £2,000 £3,000 £4,000 £5,000 £6,000 £7,000 £8,000 £9,000 £10,000 £11,000 £12,000

Total Long-term Assets £80,000 £79,000 £78,000 £77,000 £76,000 £75,000 £74,000 £73,000 £72,000 £71,000 £70,000 £69,000 £68,000 Total Assets £173,700 £151,137 £161,087 £148,030 £171,083 £181,476 £187,974 £196,189 £202,281 £215,387 £219,704 £240,237 £249,468 Liabilities and Capital Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12Current LiabilitiesAccounts Payable £0 £0 £19,913 £16,820 £25,053 £21,969 £30,082 £35,005 £34,998 £40,597 £37,401 £45,514 £42,317 Current Borrowing £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 Other Current Liabilities

£0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0 £0

Subtotal Current Liabilities

£0 £0 £19,913 £16,820 £25,053 £21,969 £30,082 £35,005 £34,998 £40,597 £37,401 £45,514 £42,317

Long-term Liabilities £100,000 £100,000 £100,000 £100,000 £120,000 £138,767 £137,534 £136,301 £135,068 £133,835 £132,602 £131,369 £130,136 Total Liabilities £100,000 £100,000 £119,913 £116,820 £145,053 £160,736 £167,616 £171,306 £170,066 £174,432 £170,003 £176,883 £172,453 Paid-in Capital £150,000 £150,000 £150,000 £150,000 £150,000 £150,000 £150,000 £150,000 £150,000 £150,000 £150,000 £150,000 £150,000 Retained Earnings (£76,300) (£76,300) (£76,300) (£76,300) (£76,300) (£76,300) (£76,300) (£76,300) (£76,300) (£76,300) (£76,300) (£76,300) (£76,300)Earnings £0 (£22,563) (£32,527) (£42,490) (£47,670) (£52,959) (£53,342) (£48,817) (£41,485) (£32,745) (£23,999) (£10,345) £3,316 Total Capital £73,700 £51,137 £41,173 £31,210 £26,030 £20,741 £20,358 £24,883 £32,215 £40,955 £49,701 £63,355 £77,016 Total Liabilities and Capital

£173,700 £151,137 £161,087 £148,030 £171,083 £181,476 £187,974 £196,189 £202,281 £215,387 £219,704 £240,237 £249,468

Net Worth £73,700 £51,137 £41,173 £31,210 £26,030 £20,741 £20,358 £24,883 £32,215 £40,955 £49,701 £63,355 £77,016

Organizations can divide employees' share of gains as follows:Percent of income-The bonus pool translates into a percentage of salaries, with each employee

receiving an equal percentage of compensation. This method is used in about 75 percent of the plans.Equal shares-Every employee receives the same dollar amount.Hours worked-The bonus is paid in terms of dollars per hour worked and applied to employees

accordingly.

Who will participate?What performance measures will be used?Against which baseline will performance be compared?How will a gain be determined and distributed?How will the scheme be implemented?When will the arrangement be reviewed?

You must establish a mechanism to divide the gains among the workforce.Three options are available:- Equal shares for all employees- Earnings based shares- Hours worked based shares

Sample Gainsharing SchemesExample 11 All employees except senior management are involved in the Gain-sharingscheme and all receive an equal payment regardless of position or basic salary.2 The scheme is based on the plant as a whole meeting targets for four keymetrics:Direct labour productivity (wage cost of operators/QC Inspectors as a percentageof the sales value of what was produced);Cost of quality (cost of scrap, rework, returns, etc.)On time deliveriesNumber of customer complaints3 For each of the above metrics, a target is set for the quarter. This target is setexclusively by management and is not subject to negotiation. However, it isimportant that the targets are reasonable and as such Management put a littlestretch in each successive period but if the current target is not reached theykeep it as it is.4 When they prepare the financial plan for the year, they budget the amount tobe paid out, per quarter, through the scheme. Again, management sets thisfigure.5 If the workforce meets the targets set, then management will pay out theamount set aside in the budget, divided equally among all qualifyingemployees. The amount is subject to tax and PRSI in the normal manner.

6 Currently, each employee in the scheme can earn £50 per quarter (gross) if thetargets are met. Management intends to increase this amount as the financialposition of the company improves.7 In terms of making payments to the staff, all the amounts are accumulatedthroughout the year and paid out at Christmas.8 When the scheme was devised, it was intended to be simple and easy tooperate. The company did not want to create an administrative workload ofany significance in administering the scheme.

An improshare plan is a type of gainsharing plan which is based on a mathematical formula that compares a baseline of performance (is based largely on the technical knowledge, personal experiences and collective wisdom that are kept by individual contributors and as a whole establish a considerable knowledge base) with actual productivity during a given period.