Profit-Sharing System in Culinary Business: Types, and How to Calculate

Many culinary businesses start from a partnership between investors and business operators. The challenge often lies in profit distribution, which can lead to conflicts if there is no clear system from the beginning. A profit-sharing system serves as a solution, ensuring fairness for both parties.

In this article, we’ll discuss what a profit-sharing system is, the different types, and how to calculate it. Let’s dive in!

What Is a Profit-Sharing System?

A profit-sharing system is a form of collaboration between two or more parties with the main purpose of fairly distributing profits and sharing risks.

In this system, one party provides the capital while the other manages the business. The collaboration is usually formalized in a contract outlining profit distribution rules as well as responsibilities for potential losses.

The profit ratio is agreed upon from the start, so each party knows their share. Transparency is also a key aspect, ensuring that all financial elements, such as revenue, expenses, and capital returns are clearly recorded.

In practice, a profit-sharing system in the culinary business helps build healthy partnerships. Both investors and managers feel secure because their rights and responsibilities are clearly defined.

Simply put, a profit-sharing system in culinary business is an agreement to share profits and losses in a mutually beneficial way.

Types of Profit-Sharing Systems in Culinary Business

Source: freepik.com

In running a food business, choosing the right profit-sharing model is crucial. Each system has its own calculation method and risk level, so it must be tailored to the business condition and partnership agreement. Here are the main types:

1. Revenue Sharing

This model divides profits directly from total revenue or gross sales before deducting operating costs. It’s simple and quick to calculate, making it popular in franchises or food booth partnerships. However, the operator bears heavier risks since they cover all expenses.

2. Gross Profit Sharing

In this model, profits are shared from revenue after deducting COGS (Cost of Goods Sold). Other expenses such as taxes, promotions, or administrative costs are not yet included. This system suits businesses with simple bookkeeping.

3. Net Profit Sharing

Here, distribution occurs after all operational costs are deducted, leaving net profit as the basis. This system is considered fairer but requires well-organized financial reporting.

4. Capital-Return Scheme

This model gives investors a larger portion of profit until their initial capital is fully recovered. After that, the profit split adjusts to a new ratio. While this provides security for investors, it may feel burdensome for operators in the early stages.

Key Components to Agree on From the Start

To ensure a smooth and fair profit-sharing system, the following elements should be agreed upon at the beginning to avoid disputes later:

1. Initial Capital

Includes cash, assets, equipment, and the first batch of raw materials used to start the business.

2. Roles of Each Party

Decide whether the partner will act only as a passive investor or also take part in operations.

3. Operational Costs

Covers employee salaries, utilities, raw material purchases, and rental fees.

4. Profit-Sharing Period

Can be distributed monthly, quarterly, or annually, depending on the agreement.

5. Business Risks

Clearly define who bears potential losses and how disputes will be resolved.

Read more: Pay Attention to This Before Starting a Culinary Business Partnership

How to Calculate Profit Sharing in Culinary Business

The calculation method depends on whether the investor is only a funder, also an operator, or acts as a lender.

1. Investor Only

If the investor only provides funds, profit distribution is based on their shareholding percentage. The investor does not manage the business, as operations are handled by the operator.

The ownership percentage is agreed upon when the business is established. The larger the share, the bigger the return. Meanwhile, the operator receives a monthly salary and dividends according to their shares.

2. Investor and Operator

If the investor also manages the business, they receive both a salary and dividends. This provides dual benefits, recognizing their role as both capital provider and active operator.

Dividends are usually distributed annually, while salaries are received monthly.

Example:

Liam owns 25% shares in a Bandung specialty restaurant.

He also serves as COO and earns IDR 18,000,000 per month.

At year-end, the company distributes IDR 2,000,000,000 in dividends.

With a 25% stake, Liam receives IDR 500,000,000 as dividends.

3. Investor as Lender

In this model, investment works like a loan. The investor acts as a creditor without owning shares, so they don’t receive dividends. The operator must repay the loan according to agreed terms.

The investor is not affected by the business’s profit or loss. Their focus is solely on repayment from the operator.

FAQ About Profit-Sharing in Culinary Business

1. Is profit-sharing suitable for small culinary businesses?

Yes, it’s highly relevant as long as financial transparency is maintained.

2. What happens if the business suffers losses?

Losses are usually borne by the investor according to their capital share, unless otherwise agreed.

3. Is a notarized agreement required in profit-sharing?

Not mandatory, but highly recommended to make it legally binding.

4. Can this system follow Islamic (Sharia) principles?

Yes, through contracts such as Musyarakah or Mudharabah.

Read more: 26 Sources of Capital for Culinary Businesses in 2025 That You Must Know

Conclusion

A profit-sharing system can be a win-win solution for culinary businesses, as long as the terms are clearly agreed upon from the start. This helps prevent conflicts and fosters healthier cooperation.

To support transparency and efficiency, culinary businesses can also embrace digitalization. ESB provides an integrated ecosystem for F&B businesses, including POS systems linked with display kitchens, ERP, kiosks, online ordering systems, supply chain management, and customer queue systems. With ESB, business management becomes more transparent, efficient, and growth-ready. Consult your business needs with ESB today!