Post: #1

Hello..

Background
I have a business, that my partner owns 60% and I owe 40%. He is also a good friend of mine. Its a small advertising media company. I invested most of the capital in the company. (computers, equipment, office stuff, admin) As of right now he is doing 90% of the work and generating all the revenue for our company. I'm still at my regular job till he is making at least 10K per month, than I'm going to quit my job and start to working for my company. However, I am still doing admin stuff for the company. While im working at my regular job.

Problem
My partner is generating and making most of the money for the company by busting his ass. He is very good at sales!! I admire that and respect his hard work. The problem is, he using the company credit card for his personal purchases, going to the bars, etc. I called him out on it. and he has bad money management skills. His credit sucks too.
So We are having a hard time building the company's equity and saving. my goal is to have at least 15K saved in our savings and as of today we only have 4K in our account. If he didn't abuse the funds, i think we would been at at least 7K. I know his intentions are to work hard and make money and I doubt he is trying to do anything shady.

Solutions?
Besides talking to him... he says he is working on it.. but he still sometimes abuses the company funds.
What kind of program or account can we use to determine how to pay ourselfs and have money to go back to the company? What do you all suggest??? share some of your stories and how did you deal with an abusive business partner.

thanks

Post: #2

I'd go with a set salary based on 10% of whatever you bring in. And make sure you agree to who owns what account. It seems to have worked for my company.

Post: #3

1. Dissolve the company immediately.

2. The next time you start a business - try and maintain no less than 51% control. Equity and percentage of profits may be less, but you must be able to have 51% control.

RE: 1.

The KEY to the success of any business venture is the people involved - not so much the business itself.

If you have partner the most critical element is that both of you share the exact same vision and objective AND how to get there. IF you dont' share this 100%, it will not work and furthermore it will ruin your friendship - the resentment is already building in you ......
You and your partner do not share the same vision 100%. So end it now.....if you want to preserve the friendship. Doing it later, when something big is potentially at stake and he refuses to get in line and it destroys the business, you will regret no cutting the cord sooner.

Post: #4

Does he try and justify these expenditures as business costs, or does he just blatantly spend the money on things that have nothing to do with the company? You only specifically mentioned bars, which could be spun as a business expense if he's out pitching sales with potential clients.

Figuring out payroll for a startup can be difficult. I initially took a very small salary as one of four co-founders of my company. Enough to get by, while growing the bottom line for the company as much as possible. It's always tricky when you have partners and we've had major conflicts in the past. Mostly about some individuals giving more to the company than others. I have access to all of the employee spending accounts, and have raised questions in the past as to the validity of certain purchases for people- but I've never had an issue with someone just blatantly using company money for major frivolous purchases. The fact that you have established a distrust and are already having issues is definitely a red flag.

From my experience, you need to put it all out on the table and be firm about your vision for expenditures. Don't throw hints or be coy. Tell him what you expect. Letting issues linger has always been the biggest headache for my group. Good luck.

Post: #5

thanks for everyone's advice. He spent about 1K of company's money on stupid stuff, like buying drinks at the bars, strip club, fast food. (non business related) I called him out 3 times on it, I even told him, every sale you generate, take 20% as your commission. I made it clear to him.
Again, he is generating all our revenue.

after that, he is somewhat behaving, sometime its a 2.00 or 4.00 purchases. Even though its not much, that shit adds up and its a bad habit.

Does anyone know anything about Draw Accounts??? Or who is the best person to talk to in regards to this? CPA??? Tax person?? Financial advisor?

(08-18-2012 01:59 PM)Single Dad Swag Wrote:  Does he try and justify these expenditures as business costs, or does he just blatantly spend the money on things that have nothing to do with the company? You only specifically mentioned bars, which could be spun as a business expense if he's out pitching sales with potential clients.

Figuring out payroll for a startup can be difficult. I initially took a very small salary as one of four co-founders of my company. Enough to get by, while growing the bottom line for the company as much as possible. It's always tricky when you have partners and we've had major conflicts in the past. Mostly about some individuals giving more to the company than others. I have access to all of the employee spending accounts, and have raised questions in the past as to the validity of certain purchases for people- but I've never had an issue with someone just blatantly using company money for major frivolous purchases. The fact that you have established a distrust and are already having issues is definitely a red flag.

From my experience, you need to put it all out on the table and be firm about your vision for expenditures. Don't throw hints or be coy. Tell him what you expect. Letting issues linger has always been the biggest headache for my group. Good luck.

Post: #6

Get a lawyer to write up a contract.

Get him to sign.

It is the only way to sort it out, and you should have done so already.

Post: #7

Tell his ass that he better stop expensing personal spending to the corporation or you guys are going to get in trouble with the IRS. Every expense on the books MUST be a justifiable business expense. This isn't just good business practice, this is the law.

Post: #8

It is hard to tell you what to do since we really don't know what his duties. Does he need account access for spending to purchase advertisement? The best thing to do is take off his access to the bank account. His spending won't stop and probably get worst when you start raking in more cash.

Post: #9

Send him an email with a link to this thread in it.

Post: #10

I have been running three successful companies since I was in my 30s. This is what I think of this. Your business partner is the asset to the company since he is generating sales. You're the liability since you're not making any sales. Also you're doing admin work which is easily replaceable by another. You are at disadvantage here. If I were you, I'd learn from him how to generate sales before cutting loose.

Post: #11

There are some very intelligent responses in this thread and a very valid question to ask.

I had the exact same problem except I was going to school full time, working an internship (which i quit for my business), and doing well over 60% of the work while paying my partners bills. Think VERY VERY hard about this, it isnt that hard for you to be in my past situation. A few changes here and there and BOOM your basically subsidizing your business partners lifestyle. He obviously thinks he is entitled to alcohol and strippers from the business expense account so i think your future is what happened to me.

You need to do 2 things:

1) Drop $1-3K on a legit entity/partner contract. Do not skimp, do not make it yourself, do it right and do it RIGHT NOW! The lawyer will cover all loose ends and make sure its fair to BOTH of you.

2) Get a book keeper with ALL access to the money. Demand it put in the contract and make up an excuse for why but make it stick. Bookkeeper is needed one way or another whether it is you or your partner or someone you hire. But you hire the bookkeeper to disperse business funds, ie after they have been used for the business. This book keeper is not going to subsidize reciepts for buying beer in bars. This is the only way your going to prevent your partner abusing it, because now its small time but soon enough he will have a luxury car and high payments, insurance, etc and the business is going to pay for it because thats the car he uses to drive around to do business.

On a side note- I would LOVE to be in situation where I own 30% of a sucessful business and someone else owns 70%. I can do nothing and still make money and they have to buy out mky ownership to get rid of me. I would never sit around doing nothing and mooching but having that option is a HUGE security net. This guy needs you more than you need him, he is doing 90% so that is def working in your favor... you fucked yourself by not having majority ownership though because you DID pay for everything.... what gave him the right to majority ownership? investors typically get 70% of a company when they pay for everything.

Back to my advice, if he isnt down for creating a legit contract, he is up to something screwy. IDK who he is or what he thinks he knows or what excuse he has, no honest and intelligent person does business without a solid entity contract. Drop everything, liquidate, cut your losses and move on if you do not get a partnership/entity contract ASAP. Also, and this is just my personal opinion because of my past experience with partners; if he doesnt agree to bookkeeper with 100% control of the expenses and how they are dispersed being put into the said contract i would cut my losses.

Keep us updated I am curious to know how this is dealt with. Best of luck.

Post: #12

Simple question: does your partner need you? He is obviously acting like he own alone the company.

Thing is if you don't bring anything to the table, why should you eat from it?

I've been in some business meetings in 5 star hotel bars, kinda like hollywood movies.
There is no bullet proof agreement. Only trust. Agreements might have some deterent efect. If you don't trust each other don't do it. Simple as that.

Post: #13

I agree with Pepini there are no bullet proof contracts. I had the same problem with my partner, I had a contract and he said "sue me." I could have won and bankrupted his ass but I didnt want to be blamed for ruining the life of his unborn daughter. AFC I know....

Lawsuits suck and people know this, so a contract while it does make things legal may not protect someone from stealing from the business bank account. Best you can do is have a bookkeeper with 100% of business funds and expenses who reimburses everything after business expenses are made. And yes, if you NEED to do these things just to make sure your not getting fucked then take it from me and several other people who have already posted, cut your losses now. Liquidate.

@ all the other people asking how he doesnt contribute anything - the guy put all his $ up front and paid for the business. Most investors get 70% for doing the same thing. This guy (for some reason I do not know) has less than half of the business despite paying for it. My best guess is the guy is a close friend, cant land or keep a job, got desperate and sweet talked him into starting a business even though he had nothing to contribute but his "hard work" potential. I think moderator is learning the hard way that hard work is worth didly squat if they just throw money away or arent smart with their work and earnings. Especially when down the line hard work with have diminishing returns when you have enough money to just pay a salesman... think your partner is gonna want to do 90% of the work indefinitely?

His work ethic will have diminishing returns while his spending habits and lifestyle demands increase.