Partnership - allocation of income and expenses

[theleeb]

Hello everyone, I am in the start-up stage of a salon business. I will be partnering with another hair stylist. We are not sure how to structure our business relationship with respect to the allocation of income and expenses. It seems to me that the most straightforward structure would be to split everything 50/50, understanding that, in some months, I'll pull in more income and, other months she will. Of course, there is also the possibility that one of us will consistently outearn the other!

Does anyone out there work as a partner with another stylist? I am really interested to see what your experience has been and what has worked for you.

Thanks!

 

[TheDuchess]

Hi theleeb

I don’t work on a partnership basis. If I were to do so, the first thing I’d consider would be the importance of avoiding VAT. Both of you working together will hit the registration threshold really quickly and then the taxman will take 20% of your turnover income as VAT before you pay any other personal taxes on your drawings.

For this reason it is really important to talk to an accountant and get some advice about how to structure your business. I’d say you need to imagine you’re in a business equivalent of a house share and you need to have an account that you both pay into to cover your bills and outgoings. Meanwhile keep your income money separate.

I’d divide the bills equally between you on a 50:50 basis otherwise if one of you decides they only want to work 2 days a week (for example) and pay bills pro-rata, the other might feel that they are carrying the stress of all the bills. You need to think about what happens if one of you is sick and can’t earn, or has caring responsibilities. Do they sell their share of the business to someone else? Are you jointly and separately liable for bills if one of you can’t pay their share?

Money spent now on advice from an accountant is well worth it. Then go to a solicitor to draw up a contract agreement. Good luck

 

[jlsdds]

I am in the US. I worked with another nail tech for several years. We even added one more tech eventually. We shared these expenses: products, rent, utilities, essentials like toilet paper, etc.

We kept our own appt book, our income and schedule. If we had a personal favorite product, we bought it individually. Being able to buy large sizes of products that we all used cut expenses for each of us. Buying in bulk saves money.

Bottom line in the US for me: pay half the expenses, keep all of your income.

 

[theleeb]

I am in the US. I worked with another nail tech for several years. We even added one more tech eventually. We shared these expenses: products, rent, utilities, essentials like toilet paper, etc.

We kept our own appt book, our income and schedule. If we had a personal favorite product, we bought it individually. Being able to buy large sizes of products that we all used cut expenses for each of us. Buying in bulk saves money.

Bottom line in the US for me: pay half the expenses, keep all of your income.

 

[theleeb]

Thanks for the feedback. So it sounds like you might not have formally organized as a partnership, but split the expenses nonetheless. Sounds like it worked well. We've started by splitting our profits (income, expenses) down the middle but keeping our own tips. We will reevaluate our agreement after the first full year of business. Look forward to all the administrative tasks starting to smooth a little.