Too often, I see partnerships end with costly devastation. To find out that your trusted partner was misappropriating company funds for their own personal gain has to be the worst feeling of all. It's hard enough to find out an employee was embezzling money, but a partner is on a completely different relationship level.
If you or anyone you know is in or is entering into a partnership make sure they start it by following some foundation rules.
Don't just download an operating agreement from the Internet. Your operating agreement is an agreement among all parties and should be drafted or at least reviewed by an attorney.
1. If you don't have it drafted by an attorney, make sure you aren't leaving items out just because you don't want to hurt your Partners feelings.
2. Have your operating agreement and fraud policy notarized.
3. Some important items to discuss with your partner and include in your operating agreement.
a. Who is going to run the business?
b. What specific job does each partner have?
c. How often are the meetings going to be?
d. How much will the salaries be?
e. How will you address raises?
f. What benefits will be covered?
g. Are those benefits for employees as well?
h. How much financial power or obligation does each partner have?
i. Whose credit is going to be used? (If you don't want your partner to apply for company credit using your information without your knowledge, it would be a good idea to include this.)
j. Can one partner open or close a bank account or do they all need to do it together?
k. Are there going to be ATM or credit cards provided and if so, how many?
l. What is acceptable or not to purchase using the business credit or ATM card?
m. What financial responsibilities does each partner have?
n. If the partnership doesn't work, how do you exit?
o. If the partner commits fraud, what will happen to their portion of the partnership?
If your company whether a partnership or not, has employees but does not have a fraud policy in place, it could end up costing you more in the long run. A good defense attorney could argue that the employee or partner didn't know what they were doing was wrong because no one told them not to do it. A fraud policy should be signed by the employer and employee or all partners and it should clearly state what actions the company will take against fraud. It should also include what it considers to be fraudulent and the consequences of the fraud. A fraud policy signed by both partners and then notarized will give you more credibility if you ever need to prove that a partner was misappropriating assets.
Some major "Dont's" in a partnership: The second you see it happening, have a board meeting and put a stop to it!
1. Never allow any partner to use the business account (bank and credit) as a personal checkbook.
2. Don't allow the partner to apply for credit in your name.
3. Do not allow excuses for missing or lack of data.
4. If a partner is using company funds for personal use don't ignore it, discuss it and end it immediately.
5. Don't get too busy not to look at the books.
6. Don't ignore your gut instinct.
7. Don't ignore unhappy employees.
What your partnership needs to be doing:
1. If you are a silent partner, you MUST be involved in monthly meetings to review financials.
2. Have an internal control system set in place that shows accountability and procedures that back up all activity.
3. Have your procedures mandate signatures by authorized partners upon reviewing important data.
4. Any errors or questions regarding the business operation and financials are addressed immediately and do not linger on.
5. Listen to your employees. Sometimes they are afraid to talk because of retaliation, especially from a bully.
6. If a partner needs to borrow money, write-up a loan agreement or an employee advance agreement and have all partners sign it.
7. Know how the partnership is doing.
8. Have a fraud hotline or "hot" email address where anyone can contact you with concerns without fear of retaliation.
If you know someone who is already in a partnership, it's never too late to start implementing foundation rules and procedures. It could be the difference between running a successful partnership or finding out you were a victim of fraud.
Julie A. Mucha-Aydlott is a Certified Fraud Examiner and owner of Business Fraud Prevention, LLC. Visit - http://www.businessfraudprevention.org to protect your small business from fraud. Start now by gaining control of your internal controls and download our free risk assessment PDF file at - http://www.thevitalicsystem.com/free_risk_assessment_form.html
Copyright 2012 - Julie A. Aydlott, CFE All Rights Reserved Worldwide.
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