Hi workpie, I can understand your concern, I would have to say that if it was me you where asking I would find it offensive. As you said it is her personal finances. How would you feel if she wanted to look into your personal finances to see if there are any issues. Also what you might see as an issue she might not look at it the same way. Now this is just my opinion and I am sure there are many other posters out here that have had their own experiences. So come and share and help out here please.
One question I have is why is she looking for a partner at this point? She must need additional money for the business. It is more important to see if the business is profitable now. IF not why not. Do not fool yourself into thinking that the issues that she has now will just magically disappear. I would have a accountant look over the financials and also get a lawyer involved. I am about to take on partners and that is because I need a specified amount of money to complete the funding for the business Lawyers will be involved.. Are you putting in cash or a letter of credit. A letter of credit will allow you to keep your funds where they are and the business will use these to get a loan from the bank. This would be much better for you because you can still keep your money in bonds or where ever you want to keep it.
I agree with gerontology. Concentrate on the business. Ask for the books and take them to a good accountant. If your partner has a problem with that, then that is a red flag. Also a word to the wise, with an LLC there is NO salary per-say. The business gets taxed on gross income and the books look totally different. There are many ways to draw from an LLC. I would highly recommend speaking to your accountant about that as well. Make sure you know exactly all the ways that you can possibly "manipulate" the financial accounting to benefit both of you. I personally would not agree on a fixed salary but a percentage of gross income. Again, I don't know the specifics and I would speak to an accountant.
As far as the personal finances are concerned, when you have a business partner things like that usually come to light very quickly. You will spend a lot of time together and you will get to know each other.
A sole proprietorship is not a separate entity from the person running the business. As such, you will certainly want to see the personal finances that in any way relate to the revenue, expenses, etc. of the business. If they refuse, I would be concerned about why. Going into business together is a big decision and should considered carefully, which would certainly include financial due diligence.
I'm neither a Lawyer, nor an accountant. And I don't play one on TV. But I gotta tellya...most people go into partnerships for the wrong reasons. I've seen some partnerships work well; but the majority don't. Why ? Again, - entered into for the wrong reason.
One person having money and the other having the business already, or the expertise, CAN be a good reason. The best reason for a partnership is complementary skills. Each possessing skills that the other needs.
The major two problems that plague partnerships are:
1) Different goals, or different opinions of what to do with accumulating funds
2) People going in to business have the minds of an entrepreneur. That is, each wants to
control the various elements of business. Different minds = tehcniques =
IMHO, one of the "partners" should have a controling interest in the business. Someone should have the "tie-breaking" vote.
And also... (remember....I'm not a lawyer)...There should be incorporated within the partnership agreement, EXACTLY how the relationship can be terminated, should the principals determine they wish to do so. Who buys who out ? How is that to be determined ? How is the value of the business and the cost of the buy-out to be determined ?
Even the most cordial of seperations is often, not very cordial.
Great points Uncle Leon. Thanks for sharing your thoughts with us.
"Great points Uncle Leon. Thanks for sharing your thoughts with us.
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Best of luck for your new partnership. It will be like an important point to know about the partners debt and assets before entering an agreement. Also the progress report. Every business is now going for business financing. So, you must know what are the finances and their terms and conditions.
cash flow for small business
I am entering into a new partnership with an established business. We will be an LLC, and I we are working through the partnership agreement now. The business is changing from a sole proprietorship run by my new partner. Is it appropriate for me to ask about her personal finances? If there is stress in that area, it can impact the business and her needs for our agreed upon salaries. All opinions and experiences are appreciated.