The nightmare of joint venture profit splits


Simon Misiewicz

12th January 2016

By Simon Misiewicz

Do you have concerns over the administration of your joint ventures?

Do you find the process of sharing profits confusing?

The problem – the agreement and payment of profits 

You may have an agreement in place to share the profits 50/50 but there are a number of issues that can cause confusion. These include:

– Who is doing the bookkeeping?
– How are profits agreed?
– When are the profit numbers agreed?
– How will the money be paid over?
– How will each partner be taxed?

There are a lot of administrative tasks that need to be undertaken, which can lead to confusion, frustration and countless debates.

Can you relate to the above?

If you have answered yes to these questions then the scenario below may seem familiar.

A real life client example – joint venture nightmare

For the purpose of this article we are going to name my client John to protect his identity.

Janet and John decide to set up a partnership called JJ Property Investments. They agree to split everything 50/50. They set up a web page, develop social media communications, pay for lavish marketing brochures and order business cards.

Within the first three months they are fortunate enough to get a House in Multiple Occupation (HMO) that generates a profit of £1,000 per month, according to John’s forecast.

By the third month they agree that they should take whatever is in the bank accounts and split it two ways. The issue is that there is only £800 instead of the forecast £3,000.

The difference is that there were a number of costs that John did not take into account within his forecast. These were:

£1,000 property training course for Janet
£350 travel expenses for John, paid out of his bank account
£250 networking costs
£600 marketing costs

As you can imagine, they had not agreed this expenditure beforehand. A heavy debate ensued and they did not speak to each other for a few days.

After six months of this type of “carry on” they agreed to go their separate ways — a lot of time and expense needlessly spent.

Practical steps you should now take to have a successful JV partnership

It is one thing to understand the theory but it is another to put it into practice. This is why I have written a step-by-step guide to implementing this strategy.

1. Agree who is going to do the bookkeeping
2. Build and agree a financial forecast for the next three months (ongoing)
3. Review the financials every month without fail
4. Agree the profit share
5. One person invoices the other for their share of the profits
6. Both keep a record of the profit and loss accounts for their respective tax returns

Next steps – building a successful JV partnership

If you want to understand how to implement this strategy or to discuss other finance/tax questions then please book some time with us using the below calendar:

If you are looking for a new accountant then please book some time with us using the below calendar. Please note that this booking is to describe our services and will not be used to discuss your personal tax affairs.

Book a call to see how we can help you.