One of the challenges we have had to tackle when starting our partnership business is how we split the profits. My brothers and I had a long session of discussion about it. We found out that there were many options in which we could do it and it depended on the nature of establishing the business. The plan we devised on splitting profits came from the realization that we all wanted to gain optimally from the business. It all started by finding out ways we could ensure we get the same returns every time we divide our profits.
Making same capital contributions
Prior to starting our business, we budgeted for the business capital needs. This made us contribute equal amounts of capital toward the venture. Up to this date, we share our profits equally because we contributed equal amount of capital. We have seen it works pretty well and brings no conflicts. Everyone feels financially taken care of by the business.
Meeting personal contributions to the business
At times, we have been compelled to seek personal contributions especially when we feel that we are short of cash to run the business or launch a product. Instead of borrowing from a bank or a payday lender, we have asked any of us to offer their support. This has seen us obtain the funding easily and at a cheaper cost.
However, since this is a personal contribution, we have planned to refund or payback the contributed amount plus some interest. In this case, we have capped the interest at 10 percent, which is way below what the banks demand and even ten or more times better than what a payday loan lender would levy on a loan we take for the business. The profit, which we are supposed to share equally, is however reduced by taking away what had been contributed from personal financial kits.
Investing more in the business
As our business grows, we plan to give ourselves flexibility and greater opportunities to invest. For example, when we want to expand and open more branches, we may need capital. Instead of taking a loan, we may opt that we add more money from personal contributions. Instead splitting the profits like we have done it before, we would take away a certain percentage, which goes towards financing the new undertakings. This again means we reduce the profit we share.
Our plan on splitting profits in our partnership business is to have a 50/50 or equal share. We do not want any of us to feel that they are being taken on a ride. However, should one become so committed with other obligations in the future, we may have to work out another profit sharing plan depending on the amount of time each puts in the business.