We are in partnership for 8 years now and no major disagreements yet! However, there have been changes since the partnership began and the issue of the share of rent has only arisen since the joint ownership of the building and the decrease in working of hours my partner. At what level do you generally suggest an option out if he continued to significantly decreases his hours in the years ahead?
Thanks and great question.
I’ve generally used days or hours worked, NOT a production based threshold. For example, if both partners are working 36 hours per week on average, the threshold might be 18 hours (50% of the other partner). Meaning, once one partner is working less than 18 hours per week on average, they should NOT be an owner. Could be 24 hours (or 3 days) if you wanted to make it more stringent. There could be other financial disincentives to decreasing hours as well, a lower percentage of the hygiene profits (less then 50%), if an association is brought in, a lower percentage of their profit.
Maybe below 24 hours they simply get percentage of their collections, say 45%, below 18 hours they must sell.
Again, I like to keep it simple, however, I realize that sometimes there may be a need for multiple thresholds.
If you have an associate do you split their income 60/40 (for example)?
Again, try to keep it simple. One way to look at the associate, specialist, etc. is that any NET profit they generate is simply THEIR contribution to the OH. Therefore, the total OH that is being split, shared, allocated is less for the owners. How ever you’ve decided to split OH or profits will automatically include the NET profit of those profit centers.
If you sublet that would simply reduce your rent expense if you share that 50/50.