Forums: Discussions for entrepreneurs and small business.

I am starting a business with a partner. I have 51% & he has 49%. We will have a business bank account. He suggested we make it so BOTH partners must sign before money is taken out. If one of us wanted to take out money we would have to get permission from the other. Is this normal? This seems like a headache. Thanks.

The business should have one account where revenue is deposited and expenses the business incurs is taken out.  Its best to have two signatures on a business account, this creates internal control for the business.  Withdrawing funds for personal use will decrease your owner`s equity.  If you can try to wait it out unless this is your only source of income.  Owners would usually receive income through dividends of profit. 

By having two signatures you and your partners will be aware of funds being distributed.  It protects you and the business.

 

That makes sense. But should we be paid salary AND dividends? What is the norm? Obviously we won`t be turning a profit for awhile but how does this work? If I want to use a company credit card to pay for business expenses like server fees, office equipment, website maintenance etc, do I need my partner`s permission as well or is this separate from actually walking into a branch & withdrawing money?

You can be paid a salary and since you are and your partners are owners, there will be a dividend pay out when you have profit.  Depending on the availability of the cash.  It highly important to have an internal control set for the company operations.  If there is a company credit card, and you are the only authorized signor to the account, you dont need the partners signature. 

The two business accounts and each has a different authorized signor seems unecessary.  Create one business account with a dual signature required for checks written against the account.  Of course consider a threshold amount where a dual signature is required.  For instance anything of $500 or more will require a dual signature of both authorized signors. 

In the past I have had clients who have a check card against the business checking account and was terrible at keeping track of these expenses and in supporting documents for these expenses.  Who ended up just charging all kinds of transactions that did not relate to the business. 

You should have a business credit card separate from the business checking account to help with internal control.  If you must use the business checking account and have a check card against it your business ethics and judgements in charging a type of transaction will come into play.  Only use this for business expense.  Keep all supporting documents.  IRS or your department of revenue should they audit you will require the support of these payments. 

If you purchase equipment and other business needed expense online, inform your partner of it.  You should start an authorization to charge the card for business needs with you and your partners signature on it.  This way you will free yourself from questions in the future of why you had charge a certain transaction to the business card.  Withdrawing money should be done by check and not a check card.  Again here an internal control is needed.  A check request form should be drafted with both you and your partners signature and what the withdrawal is for, be it personal or business.  If it was cash for the business, keep all receipts to support the amount of the check, if there is any change back from the transaction, deposit it back to the bank account.  if you intend to use the change for personal again, keep a receipt of the transaction and it should count as owner`s draw.

Bree

sorry bout that sizzle! there was no mention of two separate accounts, mis read  that. 

Bree

wow thanks bree! that was informative.

how do we determine when to get paid a salary? we won`t be making money right away. does this come out of the initial investment he is offering? man this is one area I am confused in.

We just want to be paid our percentages when we start bringing in enough money. but what is enough?

also is there a customary percentage amount that should go back into the company?

Most times when a business is starting up, there is more cost that revenue generated.  Its the managing of these costs that is overlooked.  In your business venture it is recomended to have a business plan and forecast of profit, cash flow, and budgets.  Determining what your start up costs may be is analytical an estimate, it is a guideline of what you are to expect.  If you wish to be on a payroll register, you have options of being on a salary or hourly wage.  Of course when you are on payroll, the company will be liable for federal and state taxes. 

Before dividends are distributed an expected forecast of cash flow is needed and a budget plan so that the company does not exceed expenses.  Once you are confident in your figures, you should leave enough funds for the business to be able to support itself through out the year, usually based on the budget figures you and your partner are in agreement of.  Budgets are meant to keep your business afloat and not expense over what was allowed.  You should also set a sales projections and how to attain these sales (marketing, advertising, etc).  Be reasonable dont under estimate expesnes to look good or over estimate your sales projections for the first year. You should try not to depend on the business for income at the developmental stage since it will assume mostly costs and not revenue.   

 If this is your only source of income, then allow enough of your salary to compensate for your personal expenses.  Your goal is try to not overwhelm the business with expenses.  Research all things you will purchase for the business, for quality, affordability, and versatility.  What you need now may not be what you need in the future as your business grows. 

It is best to focus on the solid foundation of your operations and how you will earn your revenue, your company may or may not afford to assume payroll, unless your budget allows for it.

Bree

 

Sizzle- if you need a guide or template in figuring these projections let me know i can forward a packet i give out to my clients. 

Bree

-------------------------

Bree

So how do we determine at which point we start getting paid a salary? Sure we can arbitrarily agree upon it but is this something that should be laid out in our partnership agreement?

You will need a cash flow projection, a budget plan and a sales projection.  Once you have estimated a figure on expenses or overhead costs.  You can allow for your payroll register to take place.  If you dont have a plan your company may have way too much expenses to afford payroll on the start up phase of your business.  Since you have a partner, it is best to get an mutual and written agreement for your salary pay or hourly pay.  The basic needs in operations and getting the business off the ground to start generating revenues is currently your focus.  Do you have an email that I may send a business packet that has a plan and template for you and your partner to work with?  In most start up businesses, they dont put too much emphasis in their business goal and the plans to their company`s success.  This is the first step a company should take when venturing in a business of their own. 

Bree