Inboard/Outboard Repair - new partnership - salary and employees

[amy]

Evening, new to the forum. Hoping to find some guidance on a question. My spouse and his friend both operate a sole prop and break even, they both had the same gross sales in 2011 although the friend seemingly put forth more effort (higher volume) and my spouse had a 1/3 of the invoices but bigger jobs. That is the background, not the question :) - I am figuring that the guys will each have to take a salary in order to say, eat and put shoes on their feet and pay the mortgages on their homes - I see no way around that. My spouse currently works alone and the friend has his wife helping him as an administrative assist. every day (I do our books only on the weekends as I have a full time job) .... obviously it would be to the company's best interest and this lady's best interest if she were also paid a salary but then to me it seems that "they" will be getting "more" out of the company...am I being emotional in my feelings of this not being "quite right" or am I onto something? Is there a better way to handle this?

[Steve B]

If they're putting more in - wouldn't it make sense they get more out? It seems quite right to me. Since you work part-time on the books and things have a tendencey to change - maybe each of the administrative assistants should be paid on a per hour basis.

My only other advice is to not go into the partnership at all if it's not too late. It's bound to ruin the friendship. You're already having heartburn - it's just human nature when two different people are involved in something as important as running a business. Considering there are two COUPLES involved makes this a recipe for disaster in my opinion.

[amy]

yes, it does make sense that they should get more out if the put more in...just doesn't sit well with me....I am the only one with heartburn....the guys quite frankly can't work alone - much of the work they do needs two people, either physically or diagnostically since they work on some pretty tough things....already they call and support each other constantly....there are many pros logistically but also many cons when it comes to the finances part as far as I am concerned... - anyone have any creative suggestions to allow these 2 sole prop to work together without merging finances? What is a joint operation or associative agreement?

[lucas.bowser]

It's simple really. If everyone is uncomfortable with the informal barter arrangement you currently have, your husband enters into a labor contract with the other guy, and he vice versa. The contract will spell out how, when and how much each will get paid for working on one another's jobs. Then at the end of each Calendar year, they will need to 1099 one another for the labor performed for each other for tax reporting purposes.

Is there an underlying reason they are looking to change their current arrangement? Why are they looking to enter into a partnership at this time. If the answer is because it just seems like the right thing to do, then i would echo what Steve B says and don't make it a partnership. A partnership needs to make both businesses better than they currently are today in order to justify it.