December 14, 2019

Business Advice from Berkshire Partnership Agreements

If ever I am asked about partnerships, one thing I feel strongly about is that a partnership agreement should be drawn up. Everyone knows how much upset and anger can happen when a couple get divorced, well the same can arise when a partnership has a change in partners. This can be dramatically reduced if something is put in place at the start.

Book coverAlso, it is not just about splits to, or extra partners joining the partnership, if one partner is unwell, or even worse dies, what will happen to the business then? If the partner was married does the remaining spouse want to continue with, and contribute to, the business at the same level as their late spouse? Are they technically able? If inheritance tax has to be paid, how will the business be valued? How will the tax be paid?

On a more positive note, a simple point is how the profits are going to be shared. Does each partner contribute capital and actively work in the business equally? I had a recent call where I was asked what could be done. A client wanted to invest some capital so that her friend could carry out a project to enhance the value of the investment and then share the proceeds. One would get a share of the sale proceeds over the investment as reimbursement for risk and interest on the ‘loan’ plus the return of the original investment. The other would receive the remaining share of the sale proceeds over initial investment in recognition of their efforts for the increase in value. I suggested they sat down together to consider all aspects such as running costs, anticipated date of sale, what if something happened to one of them and then draw up a simple agreement and both sign it and keep a copy. My feeling was that at least they had documented their original intention as a starting point for discussions in the future.

I have another client who, if they had done this when they entered a joint venture some years ago would not now be dealing with solicitor’s letters. It could have all been resolved four years ago rather than dragging on taking time and money to resolve.

Even if all you are doing is asking someone to do some freelance sales work for you, it is worth writing out the expectations of both sides which should, of course, include confidentiality so you start with a full understanding of who is responsible for what and how the rewards are going to be shared.

bill view pennyIf you are already working with someone but have no agreement in place, it is not too late to create one. If you choose to involve a solicitor, save yourself money by preparing your joint list of things you feel need to be included before making the appointment. A solicitor may have a template but it will not include clauses specific to your business.

Two or more people working together are usually stronger than the sum of the individuals. Two or more people fighting does not get the job done.

If you feel it would be useful to have a facilitator to prepare the list of items to be covered, contact Wellington Consulting who would be happy to help.

What will you do differently in 2013 ?

I have just finished completing my mileage claim for last month. If you drive for work, how do you keep your mileage log up to date – and remember to put the claim in?

 

Whether you are employed as a director of your own company, employed by someone else, or are a sole trader or partner who claims mileage, you need to keep a log of miles you do for work. I recently saw a client who was paid 40p by his employer. He was good at keeping a log but did not realise that, if he did under 10,000 claimable miles a year, he could claim the difference between 40p and HMRC approved rate of 45p. By claiming 5p times 9,000 miles he could claim an expense of £450. As a higher rate tax payer, when you multiply this by 40% it works out to £180 of tax he could get back. If he was reimbursed at 25p, the refund would have been £720 of tax – a nice payout.

 

The other thing to check is that your car insurance covers the business miles you do. A simple check and often there is no extra charge to have business listed on the certificate.

 

So, whether you run your own business, or are employed, it is worth noting the mileage and other expenses you pay out on and ‘forget’ to log at the moment. The important point to remember is the more legitimate expenses you claim, the smaller your tax bill and the more money you will have.

 

May 2013 bring you every success, happiness and money.

What if the unexpected happens?

Contingency planning is not just for large firms. Over the last week I have been working with several clients who had exactly this.

For one I am working with the loss adjustor for loss of earnings following a fire. Another client currently has a compensation claim progressing for loss of business following their road being closed for new water pipes to be laid. The third is a breakup of a partnership. Could any of these happen to you?

Disaster recovery I can helpThe easiest and cheapest one to guard against is the partnership breakup. A simple partnership agreement which sets out how the profits are to be split during the partnership, what should happen if one partner is ill and unable to fully contribute, how the business is to be valued if a partner wants to leave – or a new one join, how a partner leaving is to be paid out to list a few points. All these can be covered and agreed at the start. It makes any breakup much less painful. My client did have the good grace to admit I had suggested it when they started and they now wish they had spent the time creating one.

If you are a limited company, the same applies. If there is another director, or you choose to take one on, what are there powers, are they to have a contract of employment? If you are looking for investors, have you got a shareholders agreement? This can cover the same things as the partnership agreement mentioned above.

If you are a sole trader or sole director you may feel this doesn’t apply to you. If something did happen, who is going to wind up your business affairs? Just because you are not able to continue does not mean that your suppliers and customers will go away. These matters would all need sorting out.

When you next have five minutes, have a review of what would happen if … put something in place and with luck it will never happen!

Like some help with planning your unthinkable contact me