Family partnership - trapped!

[Stockwell]

I think I’ve got myself into a pickle mainly down to my own naivety.

I’m a partner in the family business - my father and myself.
we’re a tenanted farm with a reasonably sizeable livestock enterprise.
In terms of profit, we are split 51% to my father and 49% to me. Total profits on the accounts would be around 100k per year but I draw £24000 per year and leave the rest of my share of profit in the business - same for father.

the issue is as I’ve been looking more into the accounts, I actually have virtually no capital in the business (20k ish). We’ve expanded a lot over the last 4/5 years so we’ve got a big overdraft which me and my father both signed for as partners. So I think I’m response for about 150k of overdraft but have hardly any capital.
i think basically without personally growing capital in the business then I’m no more than an employee, or more accurately - an employee with a load of debt.
me and my wife are at the stage we think we’d be much better going on our own but surely I’d have to pay my share of debt to leave the partnership? So we’d be in a massive hole straight away.
Got a meeting with the accountant in 10 days so will get some clarity.
basically I’d be doing all the physical work and putting in a lot of hours so never get chance to look at the inner runnings of the business which gets left to father.
another key point is - we don’t have a partnership agreement
Anybody have an opinion on my situation?

 

[Mc115reed]

If your partners 51% and 49% then surely you own 49% of assets… not just the £20,000 youv put in..

 

[organicguy]

Depends on the partnership agreement no agreement sohow did you decide on the profit split?
Assets and profit can be split differently.
Talk to your father! Communication is key in any relationship.

 

[Stockwell]

How I interpret it, is that that percentage split is for the profits only, which I think is mainly to spread the tax liability as otherwise my father would be paying 40% tax.

 

[chaffcutter]

You definitely need an urgent meeting with father and your accountant, first decision MUST be to get a proper agreement drawn up. The accountant needs to explain to you your exact financial position in relation to the total assets and the debt situation.

 

[Flatlander]

Lots of things to consider before you move to pastures green. I’d say get talking with your father and let it be known your concerns. The whole making profit but having a large overdraft bit would worry me. If between you both your only drawing a small sum ti live on something is amiss. In the event of your farthing passing will the entirety pass to you or will siblings come with hands out. Not being nosey but if anyone here is to give an honest opinion all the info needs to be present. Also you said leaving profits in the business but those profits are not necessarily in cash form but assets that will increase or decrease from everyday farming events. A trip to the accountant for both involved to clarify the state of the business would be a good start. Many a son kept in the dark that’s working like a dog for an ever decreasing size bone.

 

[chaffcutter]

Are you tenants or does father own the farm?

 

[holwellcourtfarm]

You definitely need an urgent meeting with father and your accountant, first decision MUST be to get a proper agreement drawn up. The accountant needs to explain to you your exact financial position in relation to the total assets and the debt situation.

At that meeting ask where the rest of your 49% profit share you didn't take has gone since you became a partner. The accounts should reflect it.

 

[Jerry]

Are you tenants or does father own the farm?

Tenanted according to opening post.

 

[Still Farming]

No agreement = no good?
Who owns what?

 

[chaffcutter]

Sorry missed that. So the livestock will be the majority of the capital I assume, so the
outcome of this will depend entirely on father’s views going back to the beginning of your involvement, and working out profit shares, amounts reinvested in the business etc.

 

[N.Yorks.]

How old are you both?
What size of farm with what enterprises?
What is the tenancy agreement ie. how long have you got the farm in the family?

 

[egbert]

I'm not getting the picture.

The business is making £100k profit.
That's great.
You're only drawing half of 'your half'.....so where is the rest going?

If you think you liable for £150k of overdraft...does that mean there's £300k altogether?
Against whose assets is the overdraft secured?
Have you put a lot of money in prior?

Does the £100k profit include the shrinking BPS?

If you're tenants, and the debt is secured against Dad's lifetime's assets, ....hmm.

It's complex, and hard to help without knowing the fuller picture.
Hope you and Dad and accountant can sort it out, agree where you both are...get summat written down.

 

[Flatlander]

Sorry missed that. So the livestock will be the majority of the capital I assume, so the
outcome of this will depend entirely on father’s views going back to the beginning of your involvement, and working out profit shares, amounts reinvested in the business etc.

Can’t see there being much profit if running the size of overdraft to be honest.

 

[N.Yorks.]

You say you are responsible for 150K of overdraft, but have also expanded over the last 4/5 years. You need to look at what the cash flow projection for the next five years is (sorry crystal ball territory!) so you can understand how the borrowing may/may not support future profits........ and future rewards for your work?

Got to look at it in a future context I reckon.

 

[Still Farming]

Big profits tick
Why big overdraft?
Big expansions or what?

 

[crashbox]

I think I’ve got myself into a pickle mainly down to my own naivety.

I’m a partner in the family business - my father and myself.
we’re a tenanted farm with a reasonably sizeable livestock enterprise.
In terms of profit, we are split 51% to my father and 49% to me. Total profits on the accounts would be around 100k per year but I draw £24000 per year and leave the rest of my share of profit in the business - same for father.

the issue is as I’ve been looking more into the accounts, I actually have virtually no capital in the business (20k ish). We’ve expanded a lot over the last 4/5 years so we’ve got a big overdraft which me and my father both signed for as partners. So I think I’m response for about 150k of overdraft but have hardly any capital.
i think basically without personally growing capital in the business then I’m no more than an employee, or more accurately - an employee with a load of debt.
me and my wife are at the stage we think we’d be much better going on our own but surely I’d have to pay my share of debt to leave the partnership? So we’d be in a massive hole straight away.
Got a meeting with the accountant in 10 days so will get some clarity.
basically I’d be doing all the physical work and putting in a lot of hours so never get chance to look at the inner runnings of the business which gets left to father.
another key point is - we don’t have a partnership agreement
Anybody have an opinion on my situation?

You must have some kind of agreement, as you say it is a 51% to 49% partnership?

If you don't have an agreement, and the partners can't agree, the partnership is dissolved and value shared equally between the partners.

Take the agreement to your accountant, and ask how it relates to the Partnership Act 1890.

 

[farmerm]

First thing to say is I doubt many 2 man livestock tenants are clearing anything like £100K in profit. Either you deserve serious praise for what you are doing or are you confusing profit with turnover?

Assuming you are making £100K profit then something doesn't stack up.. if you are only drawing out half your share of the profits your other half has to be showing somewhere on the balance sheet else it has to be going out of the business in some other form of drawings.

1) Where is your income tax paid from? Out of the £24,000 paid into your account or from the business account, if the later it it is part of your drawings and you need to add that to the £24,000. Regardless what you take as drawings your £49K profit would mean a £10,700 tax bill to be paid from somewhere, more if you have student loan repayments.

2) Any other drawings are attributed to you apart from the cash? Private expenses such as council tax or utility bills paid from the business account for instance?


You share a £300,000 overdraft? Ouch. Overdrafts are primarily for cash flow borrowing, high cost, short term. If you are always deep in the overdraft 12 months of the year you need to restructure your borrowing!

 

[crashbox]

First thing to say is I doubt many 2 man livestock tenants are clearing anything like £100K in profit. Either you deserve serious praise for what you are doing or are you confusing profit with turnover?

Assuming you are making £100K profit then something doesn't stack up.. if you are only drawing out half your share of the profits your other half has to be showing somewhere on the balance sheet else it has to be going out of the business in some other form of drawings.

1) Where is your income tax paid from? Out of the £24,000 paid into your account or from the business account, if the later it it is part of your drawings and you need to add that to the £24,000. Regardless what you take as drawings your £49K profit would mean a £10,700 tax bill to be paid from somewhere, more if you have student loan repayments.

2) Any other drawings are attributed to you apart from the cash? Private expenses such as council tax or utility bills paid from the business account for instance?


You share a £300,000 overdraft? Ouch. Overdrafts are primarily for cash flow borrowing, high cost, short term. If you are always deep in the overdraft 12 months of the year you need to restructure your borrowing!

Might be if they are growing stock, no?

This guy is, apparently...

 

[DRC]

Can’t see there being much profit if running the size of overdraft to be honest.

Overdraft could be short term, ie- part of the year when they buy cattle or something . A big overdraft doesn’t necessarily mean they still can’t be making decent profit. Money is just another tool like a tractor .