New with a partnership question

[Jflower]

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Hi there, I’m only new here and have a question I am struggling to understand the answer to. It’s a bit of a complex one but was hoping someone could give me advice. I have been to an accountant but my head came out swimming!

I have worked as a florist for a little shop for 8 years, 4 years ago the owner ran into financial difficulty with her other business which forced her to fold. At the time I was being sponsored so my Australian friend took over the business and my sponsorship and allowed me to run it. Now I am citizen and in the position to own the business, my friend and I have decided to become a partnership. The tricky part is that I am the florist, and I work full time (sometimes 70hours per week) and I am currently on a salary, whereas she is not a florist but does the bookwork, BAS etc so maybe only works 10 hours per week. (Both our hours change massively with the seasons and peak periods)

My question is: How can we fairly become a partnership when one person works more hours than the other. Working a percentage of income is difficult due to the fluctuation in hours. Is there any way to continue to take a “wage” and keep the profit in the business account and pay tax, bills etc or will the profit automatically be split as income for us both? We are concerned that she will get taxed for the “income” that she hasn’t received.

I appreciate any advice. I’m sorry if my question doesn’t make sense, I’m not really sure how to ask it as I don’t fully understand.

Thank you. J

[Rowan@quaotic]

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This can be tricky as if you don’t get it right there is a high risk of one partner feeling ‘ripped off’ and causing friction. Please discuss this issue in depth between you, then go to an accountant and a lawyer to get a good sense of the business and a partnership contract, as well as independent opinions.

No matter how well you get along you must have a well written contract so both of you know where you each stand on any issue in the future as well as what will happen to assets if the business folds.

It sounds like you are already having doubts so this must be seen to as soon as possible to ensure both parties feel like equal partners.

[bb1]

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You only mention wages and time, but there is also the equity in the business which I think you say your friend took over, so that needs to be in the equation as well.

Based on your comment about the accountant, time to dump that one and find one that is prepared to talk in layman’s terms, us small business people shouldnt have to have an accounting degree to talk to an accountant, there are good ones around who will explain it in real language.

PS. Congrats on what you have achieved.

[bb1]

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You haven’t mentioned which state you are in, but I know there is one on this forum in Melbourne who when he explains things on the forums I can understand it, so thats a good start.

[Dave Gillen – Former FS Concierge]

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Hi [USER=117002]@Jflower[/USER],

Just to add some basics:

• A partnership does not have to be 50/50. It could be 80/20 or whatever you want it to be.
• The company could pay each of you a wage for hours worked. Pretend you (as the owners) were hiring a florist and an accountant.
• Start tracking your hours. If hours fluctuate, your wages can fluctuate accordingly.

Good luck!
Dave

Dave Gillen | LinkedIn

[James Millar]

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Jflower, post: 268472, member: 117002 wrote:

Hi there, I’m only new here and have a question I am struggling to understand the answer to. It’s a bit of a complex one but was hoping someone could give me advice. I have been to an accountant but my head came out swimming!

I have worked as a florist for a little shop for 8 years, 4 years ago the owner ran into financial difficulty with her other business which forced her to fold. At the time I was being sponsored so my Australian friend took over the business and my sponsorship and allowed me to run it. Now I am citizen and in the position to own the business, my friend and I have decided to become a partnership. The tricky part is that I am the florist, and I work full time (sometimes 70hours per week) and I am currently on a salary, whereas she is not a florist but does the bookwork, BAS etc so maybe only works 10 hours per week. (Both our hours change massively with the seasons and peak periods)

My question is: How can we fairly become a partnership when one person works more hours than the other. Working a percentage of income is difficult due to the fluctuation in hours. Is there any way to continue to take a “wage” and keep the profit in the business account and pay tax, bills etc or will the profit automatically be split as income for us both? We are concerned that she will get taxed for the “income” that she hasn’t received.

I appreciate any advice. I’m sorry if my question doesn’t make sense, I’m not really sure how to ask it as I don’t fully understand.

Thank you. J

It might be helpful if you post up the advice that your accountant provided and that you paid for – then you will get some feedback.

Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900

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