Are you a business partner? Do you trust your business partner to administer the finances? Or, If you are administering the finances does your business partner know what is going on?
SV Partners has recently been appointed to prepare a report to determine the amount of money that was taken by one business partner (who administered the finances) and to regulate if any of the money that was taken by that business partner was used for other than business purposes. The obvious issues in this matter became the definition of what constitutes business expenditure, what is considered to be private expenditure and what is an acceptable level of expenditure without the approval of the other business partner.
The client SV Partners is dealing with has been operating for many years through a Company with two business partners, each owning 50% of the company. Obviously, taking a client or referrer out for lunch is likely to be considered business expenditure, but what happens when the expenditure situation is more complex and there are no policies for the business partners to adhere to. There are many scenarios to consider here, including:
- What is the accepted level of business related expenditure; is $1,000 per month or $5,000 per month for each business partner acceptable?
- Can the business partner take someone out for a business dinner, and what is the maximum acceptable expenditure? What about a golfing trip or something similar overseas?
- What about when one business partner relocates to another country, what is the accepted business related expenses?
- What if the expenditure is with a member of a social group; is it to be considered personal or does the membership and related costs have a business related purpose?
With the matter SV Partners is involved in, the company has no policies regarding what is acceptable expenditure to assist in resolving the current dispute. There are several emails regarding a relocation of one business partner to an overseas location and some associated expenditure records.
In this particular matter, three solicitors have been appointed; one by the Company and one by each of the 50% shareholders. SV Partners has also been engaged by the Company to determine if there is any fraudulent expenditure. Engaging in such legal and accounting advice would be a considerable cost for all the parties involved, with the matter most likely to eventuate into court and further cost.
If you are in a business partnership, you need to ensure you discuss and document your company policies on what is acceptable expenditure, what expenditure can be done with sole approval and what expenditure needs to be done with joint approval. Make sure you have a shareholders agreement in place which details what to do if the need arises for parties to separate. Schedule regular financial reviews and ensure all parties understand how company expenditure is classified.
If you would like further information on how SV Partners can assist you with forensic accounting matters, please contact our team on 1800 246 801 or visit svpartners.com.au.
Article written by Ross Mottershead, Director, New South Wales