S & H Tax Accountants

Tag: business partnerships

  • What are the different type of taxation obligations in Australia

    What are the different type of taxation obligations in Australia

    Different Types of Taxation Obligations in Australia

    Australia, like many countries, relies on a robust tax system to fund essential public services, infrastructure, and social welfare programs. The Australian taxation system is progressive and multifaceted, with different taxes imposed at the federal, state, and local levels. Understanding the various types of tax obligations is essential for individuals, businesses, and organizations to ensure compliance and optimize their financial planning. In this article, we’ll explore the different types of taxation obligations in Australia, highlighting the major taxes and how they affect taxpayers.

     

    1. Income Tax

    Income tax is one of the primary forms of taxation in Australia. It is levied on the earnings of individuals, businesses, and corporations, and is a major source of revenue for the government. The Australian Taxation Office (ATO) is responsible for administering income tax.

    • Personal Income Tax:
      • Individuals in Australia are taxed on their taxable income, which includes wages, salaries, business income, investment income, and certain government benefits.
      • The income tax system in Australia is progressive, meaning the rate of tax increases as income rises. The rates for individuals (as of the 2023-2024 financial year) range from 0% for income below a certain threshold, to 45% for income above AUD 180,000. There is also a Medicare Levy of 2% applied to most taxpayers’ income, which helps fund the country’s public health system.
      • Taxable income can be reduced by deductions for work-related expenses, charitable donations, and certain other expenses, as well as tax offsets for eligible individuals.
    • Corporate Income Tax:
      • Australian companies pay tax on their profits, with the standard corporate tax rate being 30%. Small businesses with an annual turnover of less than AUD 50 million may qualify for a lower tax rate of 25%.
      • Companies can also claim deductions for legitimate business expenses, such as wages, rent, and operating costs, to reduce their taxable income.

    2. Goods and Services Tax (GST)

    Goods and Services Tax (GST) is a value-added tax applied to most goods and services sold in Australia. It is one of the most widely encountered taxes for businesses and consumers alike.

    • GST Rate: The standard rate for GST is 10%, which is added to the price of most goods and services.
    • Who Pays GST: The tax is ultimately paid by the consumer, but businesses are responsible for collecting and remitting it to the ATO. Businesses that are registered for GST must charge GST on their taxable sales and can claim GST credits for the GST paid on business-related purchases.
    • GST Exemptions: Some goods and services are exempt from GST, including certain healthcare services, educational courses, and basic food items.

    3. Payroll Tax

    Payroll tax is a state-based tax levied on businesses with a certain level of payroll. This tax is paid to the state or territory in which the business operates, not the federal government.

    • Who Pays: Employers are required to pay payroll tax if their total taxable wages exceed the threshold set by the state or territory in which they operate. This threshold can vary significantly from state to state, but in many places, it starts around AUD 1.5 million annually.
    • Rate: The payroll tax rate typically ranges from 4% to 6%, depending on the jurisdiction. For example, in New South Wales, the rate is 5.45%, while in Victoria, it is 4.85%.

    4. Capital Gains Tax (CGT)

    Capital Gains Tax (CGT) is a tax on the profit made from the sale of certain assets, such as real estate, shares, and business assets.

    • Who Pays CGT: Both individuals and businesses are subject to CGT when they dispose of an asset and make a capital gain. The tax is calculated on the difference between the asset’s purchase price (or cost base) and the sale price.
    • Exemptions: Primary residences are generally exempt from CGT (though there are exceptions), as are certain assets held for longer than 12 months, which may qualify for a 50% discount on the capital gain.
    • Taxable Event: The tax is triggered when the asset is sold or otherwise disposed of, such as when it is gifted or transferred.

    5. Fringe Benefits Tax (FBT)

    Fringe Benefits Tax (FBT) is a tax paid by employers on certain non-cash benefits provided to their employees or associates. This tax is designed to capture benefits that are provided in lieu of salary or wages, such as company cars, low-interest loans, or subsidized housing.

    • Who Pays: The employer is responsible for paying the FBT, not the employee. However, the cost of FBT can influence an employer’s decision to provide fringe benefits.
    • Rate: The current FBT rate is 47%, which reflects the total grossed-up value of the benefits provided to employees.

    6. Stamp Duty

    Stamp duty is a tax levied by state and territory governments on certain legal documents and transactions, such as the transfer of property and vehicles.

    • Property Stamp Duty: When purchasing property, buyers must pay stamp duty, which is calculated as a percentage of the property’s purchase price or market value. The rate varies between states and can be a progressive tax, where the rate increases as the property value rises.
    • Vehicle Stamp Duty: Buyers of new or used vehicles must also pay stamp duty, based on the value of the vehicle or its market price.

    7. Superannuation Contributions Tax

    In Australia, superannuation is a system that requires employers to contribute a portion of employees’ wages into a superannuation fund to support the employee’s retirement. Contributions to super are taxed at a lower rate than ordinary income.

    • Employer Contributions: Employers must contribute 11% of an employee’s earnings (as of 2023) into a superannuation fund. This is known as the Superannuation Guarantee (SG).
    • Tax on Contributions: Contributions made by employers to employees’ super accounts are taxed at a flat rate of 15% for most people, which is lower than the individual income tax rates. However, individuals earning more than AUD 250,000 per year are subject to an additional 15% tax on contributions above this threshold.

    Conclusion

    Australia’s tax system is comprehensive and designed to cater to various aspects of personal, business, and economic activity. Understanding the different types of tax obligations—such as income tax, GST, payroll tax, and others—is essential for ensuring compliance with the law and minimizing the risk of penalties. For individuals, businesses, and investors alike, staying informed about the changing tax landscape and seeking professional advice when needed can help make the most of available tax deductions and exemptions, ultimately contributing to a more efficient and fair tax system for all Australians.

    If you need assistance in makings sure which tax obligations are eligible for you, then please contact S & H Tax Accountants today. We have an excellent team of well-qualified, vastly experienced and very professional individuals. Book an appointment today with S & H Tax Accountants as we prioritise your growth, call us on 03 8759 5532 or you can email us on info@sahtax.com.au

  • Financial best practices for small business

    Financial best practices for small business

    When you run your small business, you have a lot on your plate. That makes it tempting to let some tasks slide, especially tasks that are related to finances, which can be challenging and is often outside your preferred skill set or experience.
    There are some tips you can follow that keep your finances healthy and enable you to thrive. Here are some financial best practices for managing your business, so you can have the best chances of success.

    Pay yourself

    As a small business owner you may be tempted to keep putting every cent you earn back into your small business, but it’s important to compensate yourself as well. You need to pay your own bills and be financially sound personally. You’ll also need to have money set aside for your retirement.
    Make sure you draw a regular income from your business that you use to take care of your personal expenses.

     Have a separate business bank account

    Keeping your business and personal finances together makes it more difficult to track how your business is doing, and how you’re doing. When you have separate bank accounts for your business and personal finances you can more easily monitor where and how you’re spending money. Finally, it makes things easier to track for tax purposes.
    Have separate accounts for your business and for your personal finances and deposit your salary (see the above tip) into your personal account. 

    Have a good billing strategy

    When you own a business you’ll deal with clients who are slow to pay their bills. Money your clients owe you isn’t accessible to you until it’s in your bank account. Monitor your invoicing system to see which clients pay you on time and who takes their time paying your invoices. If you have too much money tied up in unpaid invoices, you may need to adjust your payment policies.
    Consider charging interest on late payments or giving more strict terms. Or you could offer a slight discount if they pay within 10 days of invoicing. See if you can charge a deposit for your goods or services so you still have some cash flow while waiting for clients to pay the remainder.
    Remember to invoice immediately and follow up before the payment deadline, so you aren’t stuck waiting for payment. If your clients are large companies with their own payment terms, find out what those are and be mindful of them when billing. 

    Keep your receipts

    Now that there are digital platforms for managing the financial aspects of your business, you don’t have to have physical receipts taking up space in your office. Instead, you can go paperless, and keep all your receipts digitally.
    Make sure you know the laws in your area for how long you have to hold onto receipts, pay stubs and other financial documents and keep them for at least that long. If you do still use paper receipts, make sure you have a way of storing them so they’re easy to manage and find when you need them. 

    Have a budget

    Your budget is your plan for success. It shows how much money you expect to bring in and how much you might spend in a given period. You can anticipate times when your profits may be higher and times when you may have a surge in your expenses. Additionally, bankers, investors, and other stakeholders may ask for a budget when they consider financing your business.

    Final thoughts

    There are other strategies that can help you run your business and set yourself up for financial success. Those include automating your bill payments, having a cash flow statement, and choosing the right business structure for you. But as a place to start, creating a budget, keeping your receipts, adjusting your billing strategy and drawing a salary that you keep in a separate bank account are important first steps.
    Want to learn more about how we can help you stay on top of your finances? Contact us to learn more. 

    Starting of a new business can be difficult, however the tips listed above are extremely beneficial. If you do need assistance in starting off your business, then please contact S & H Accountants. We offer business services, such as registering the business, registering the name and all of the important services needed for a business to be set up. We also offer bookkeeping services, that assist a business in maintaining and organizing their finances. Our team includes well-qualified, vastly experienced and extremely professional, we always aim to provide our clients with the best level of services possible. Book an appointment today with S & H Accountants, call us on 03 8759 5532 or you can email us on info@sahtax.com.au.

  • Business Update – 15 February 2023

    Business Update – 15 February 2023

    Welcome back to our Weekly Digest. Read on for the latest updates and some ideas to help us all move forward.

    RBA governor’s statement met with confusion

    Philip Lowe will appear before the senate this week to answer for the RBA’s rate hike strategy. Last week, he said that further interest rate hikes would be necessary to tame inflation, leaving observers confused as it seems to have already peaked.

    Faster internet is on the way

    Millions of Australians will benefit from the government’s $2.4 billion funding boost to the NBN.

    ATO seeks to boost the use of eInvoicing

    eInvoicing is a digital system that allows businesses to send and receive invoices through their accounting software, eliminating the need for physical documents, scanned papers, or PDFs. However, less than 1% of businesses have adopted it.

    Households spending power decreased due to inflation

    Middle-income households are major drivers of the nation’s economy, spending over $1 trillion annually. However, the cost of living has increased significantly, increasing spending on necessities by 23 percent. That means less money to spend on anything else.

    Homeownership becomes less likely the younger you are

    Most Australians spend much of their working lives pursuing home ownership. Yet, many millennials still pay sky-high rent for small rooms. Owning anything has become further out of reach for each generation.

    Real estate auctions pick up again

    After a severe lull following the pandemic, auction volumes are gaining steam once more. The increase is attributed to the end of a holiday lull and stabilising real estate prices.

    Money laundering is alive and well in Australia

    Due to a lack of scrutiny and regulation in some professions, Australia is a facilitator for money laundering. Real estate is a popular vehicle for the shadowy practice, with few government regulations in place to prevent it.

    The government seeks SME thoughts on payment times

    Small Business Minister Julie Collins is urging small and medium businesses to share their thoughts for a government review regarding accelerating payment times between major companies and their suppliers.

    Disney cutting 7000 jobs

    Reinstalled Chief Executive Bob Iger is seeking to cut $5.5 billion USD from its annual costs to drive profits. He is also under pressure to make Disney+ profitable and find new ways to monetise the Disney catalogue.

    UNSW psychiatry professor seeks to redefine burnout

    Gordon Parker, the founder of the Black Dog Institute, argues that burnout is not just a syndrome resulting from chronic workplace stress that has not been successfully managed. Instead, it’s a more wide-ranging condition that must be redefined to learn how to prevent it.

    Get in touch

    Contact us if you have any questions or want to discuss the next steps for your business.

  • What is inflation and how does it affect my savings?

    You can’t get through the news these days without hearing about inflation and how rapidly it’s increasing. Rates were generally low for quite some time and we all got used to it. Suddenly, however, everyone is getting squeezed by inflationary pressure.

    But what exactly is inflation, and how does it affect the money you have in the bank? Read on to learn more about what it is and what it means for your savings.

    What is inflation?

    Inflation is an increase in prices. Everything from a can of soup to a home costs more to buy. Of course, not all goods get more expensive at the same rate, and there are many reasons why prices go up.

    Year after year, things are more expensive than they were before. You’ll see this in action if you look at an old advertisement from 100 years ago. Things that used to cost a bit of change now cost much more.

    This is purposeful to some degree. Economists generally agree that a target rate of 2% annually is desirable to keep balance in the economy and promote growth. This rate allows central banks to lower interest rates to stimulate the economy if necessary without putting too much of a burden on the consumer.

    What causes inflation?

    The factors that cause inflation are varied and somewhat complex. There are a few different types of inflation as well. Supply and demand, production costs, worker shortages, printing money, and rising wages – all of these factors and more contribute to inflation.

    When the entire picture is considered, you can see why understanding any given inflation situation becomes a matter of healthy debate. While it’s clear that we as individuals have little control over inflation, we all want to know what it means for our bank accounts.

    Buying Power

    Any time your savings grow slower than the inflation rate, you will effectively lose money. Put simply, the money in your savings account must earn a higher interest rate than the inflation rate to continue to hold the same value.

    Currently, the global inflation rate is a few percentage points higher than the average savings account pays in interest. So while you have the same dollar amount in your account, that money now buys less than it could when prices were lower.

    The “Rule of 72”

    One interesting way of estimating how the inflation rate will affect your money is known as the Rule of 72. While it’s only to be used as a general estimate, it can help you imagine what will happen to your money if rates continue at their current level.

    To determine how long your savings will take to double, take 72 and divide it by your annual interest rate. For example, if you hold $100 in a savings account with a 2.5% interest rate, it would take 28.8 years for that account to reach a balance of $200.

    You can also use the rule to calculate how quickly these new higher prices would halve the value of your savings. Take 72 and divide it by the annual rate of inflation. If it’s currently 6.5%, for example, it would take just over 11 years for your $100 to be worth $50.

    You can see why an inflation rate higher than the interest you’re earning is problematic. While your actual dollar amount will continue to rise, inflation will undercut those earnings by making each dollar worth less.

    Remember that this is only a general estimation and doesn’t consider many factors. For example, it’s unlikely that the inflation rate would remain the same for 11 years or anywhere close to that. The Rule of 72 is only meant to illustrate the pace at which your money changes – to help understand the gap between the two rates.

    Final thoughts

    It’s easy to get caught up in the talk about inflation and how it devalues your money, but try to remain calm. Remember that while prices may never go down to what they once were, periods of high inflation have happened before, and they will happen again. However, they don’t last forever, and by continuing to make educated choices about where to invest your money, you will successfully weather the storm.[gravity form id=”3″ title=”true” description=”false”]

    If you have concerns about the rising inflation and how this would effect you, you can always talk to an accountant at S & H Tax Accountants, we have experienced and friendly staff who would love to help you. Book an appointment today at S & H Tax Accountants, email us on info@sahtax.com.au or call us on 03 8759 5532

  • Employee vs contractor – what you need to know

    Employee vs contractor – what you need to know

    Depending on the nature of your business, you may have workers who are employees or contractors, or you may have both. Each has their merits, but it’s important to review which are which in order to meet your tax obligations.

    When you have an employee, you must withhold income tax as well as report on additional benefits. Contractors generally look after their own tax obligations.

    It’s against the law to treat an employee as a contractor. Significant penalties apply if you do, so it’s important to get it right.

    The simplest way to remember is:

    An employee works in your business and is part of your business.
    A contractor is running their own business.

    But how can you be sure that you’ve got an employee or a contractor on your hands, especially with remote work blurring the lines between employees and contractors?

    Does there come a point that you should actually be hiring a worker as an employee, when you thought they were a contractor?

    There are six factors to consider:

    1. Ability to subcontract or delegate

    An employee is not able to subcontract or delegate the work. They must perform the outlined tasks themselves. If they can’t do the work themselves for any reason, say a prolonged illness, and someone else does it, this is substitution. Your business would then pay the other person to carry out those activities.

    A contractor can delegate the work as long as they’re not obligated to do it themselves as per the contract. If your contractor can’t work, they would arrange for another qualified person to do it. You would pay your contractor as usual, who would then pay their subcontractor.

    2. Basis of payment

    An employee is paid a set amount per period of time. The most obvious example would be an annual salary or hourly wage.

    Some employees are paid piece-work rates. They receive an amount per successful sale, or per the number of pieces produced. A commission basis would be a price per item structure.

    A contractor, however, is paid an agreed-upon price in exchange for a predetermined result. Some contracts may specify the amount to be paid in increments as stages of the project are completed. But the key takeaway is that a contractor is paid when the agreed-upon result is achieved.

    3. Equipment, tools, and other assets

    If your business is responsible for providing the equipment, tools, and other assets required to perform the job, that’s characteristic of an employee.

    If the worker is providing these items, they are likely a contractor.

    4. Commercial risks

    Employees do not bear commercial risk and they are not liable for correcting any defects in the work at their own expense. Instead, your business takes this responsibility. The worker will be paid for the time required to perform the task to completion.

    A contractor assumes the commercial risk. They are responsible for fixing any mistakes on their own time. This extra work would fall under the umbrella of the terms set at the beginning of the project. Your business does not have to pay for any extra time taken or materials used, unless otherwise specified in the contract.

    5. Control over the work

    Employees have to complete the work the way the employer specifies. What work is done, where it’s done, how it’s done, and when it’s done are all up to the employer. The employee then completes the work as required.

    Contractors are not subject to the same rules. They decide when and how the work is done, so long as it meets the obligations laid out in the contract. For example, a contractor could choose to work three 10-hour days to complete a job, rather than working four 8-hour days.

    6. Independence

    An employee works within a business. They complete tasks as required until they leave the job.

    A contractor operates independently and may have any other number of contracts on the go with other companies. They can freely accept and refuse other work. Their obligation is complete when they deliver the specified outcome.

    Final thoughts

    It can be confusing to make the determination between an employee and contractor, but it’s important that you do so in order to meet your tax obligations and play by the rules. Contact us to learn more about your tax obligations for employees and contractors. If you have any questions then feel free to call S & H Tax Accountants Cranbourne. S & H tax Accountants offer services to small business as an accountants. We are experienced advisors in Cranbourne and Accountants in Malvern East area. Book an appointment with S & H Accountants today! Call us on 03 8759 5532 or you can email us on info@sahtax.com.au

  • When to raise your prices

    When to raise your prices

    It’s an inevitability in every business – you have to raise your prices to continue making a profit. There are many factors that go into deciding how much to charge, all of which are dynamic. The rising cost of goods, inflation, and a changing market are just a few reasons why any small business has to reevaluate its rates regularly to stay competitive (and to stay in business).

    While it may seem like you just set your prices or recently adjusted them, this is a task that should be done once a year at minimum – preferably more. Read on for some signs your business is ready to charge more.

    1. You have a loyal customer base

    Once you’ve been in business for a while, it’s likely that you’ve built up a loyal base. People will return to you when they know they will get a quality product. They’re also more likely to return when they get to know you personally.

    If your business has a lot of customers who bargain shop because you offer rock-bottom prices, choosing to raise your rates likely won’t go well. Wait until you’ve established a base of loyal customers who will be happily willing to pay more knowing they’ll get fantastic, personal service from you.

    People buy from those they know, like, and trust, so once they get to know, like, and trust you, they’re likely to keep coming back. Build relationships to foster that customer base.

    2. It’s been a while since you raised your rates

    The rate of inflation is reason enough to raise your prices, otherwise you’re operating at a loss. Keep track of the rate of inflation each year and adjust accordingly. People generally understand raising prices in times of high inflation–even if they don’t like it–since every business on earth must either keep up, or accept the loss to their bottom line. It’s just good business sense.

    For decades, the average rate of inflation has hovered somewhere around the 3% mark, with some years worse than others. If you’ve paid attention to the news lately, you’ll know that things are a little different in 2022. Take into account what’s going on in the bigger picture, and then adjust your rates accordingly to avoid absorbing the hit.

    3. You’ve added value

    This doesn’t necessarily mean that you’re offering more literal services for the same price. Value can also come in the form of increased experience or new skills. When you and your staff have added value to what they’re able to offer, that can and should be passed along to your customer base. People are almost always willing to pay more for a superior product or service.

    4. Your competitors are charging more than you

    Be sure to take a look around to see what your direct competitors are charging. As your business evolves and becomes better with time, check to make sure that you’re comparing yourself against other businesses of the same class.

    If you don’t keep up with regular rate increases, you may be surprised to find that competitors you initially considered to be equal to you have raised their rates significantly. You will then find yourself in a position where you have to raise your rates significantly in one go just to keep up. Keep on track by regularly checking what they’re doing.

    5. Your close rate is over 80%

    Some people like hard and fast numbers, so this is a good rule of thumb. You want to aim for your close rate to be between 75-80%. If it’s lower than that, you likely have an issue with perceived value. If it’s higher than that, you’re probably overworked and also attracting mostly bargain hunters – not a true loyal customer base.

    If everyone is saying yes to your prices, you probably aren’t charging enough.

    Final Thoughts

    There is a lot to consider when raising your rates, and you don’t want to do too much too fast. Make a point to reevaluate your rates every six months, and you’ll find that you can keep your customer base while also keeping up with the increased cost of doing business.

    If you need advice, on how setting new prices may effect your accounts and how this would then effect your costs, please contact S & H Tax Accountants. We have qualified staff that can help you in the best possible way. Book a consultation with one of our accountants today, call us at 03 8759 5532 or emails us at info@sahtax.com.au.

  • 5 ways outsourcing payroll can help you

    When you start a business, you’re typically your only employee and payroll is about as simple as it gets. But as you grow, you hopefully find yourself in the position of needing to take on more employees. Before you know it, what was once a very straightforward task becomes a giant undertaking that’s sucking up most of your time.

    This is when it makes sense to outsource your payroll. While this is yet another cost to consider, it’s actually a great idea that easily pays for itself. Here are the ways outsourcing your payroll can help you:

    1. Free up your time

    In any small business, there is a lot of legwork that comes with running payroll. The percentage of time spent on it is quite large compared to the other aspects of your business. This is because it’s a complex task that needs to be done every single week – forever. You may feel that payroll is never done and that’s because it truly never is.

    Outsourcing your payroll is one of the easiest ways to free up more of your time, which can then be put into other tasks that actually help your business thrive. Once you reclaim this huge chunk of time, you’ll wish you made the switch sooner.

    2. Reduce errors

    Yes, there are the actual hours worked that you need to account for. That’s complicated enough. But add in sick days, holiday pay, other types of leave, employees leaving early or arriving late, and other complications, and suddenly your payroll has become a daunting task that you would probably rather just ignore.

    This is where the beauty of outsourced payroll comes in. Because you are paying a professional to worry about all of these little things, you no longer have to worry about all of the potential areas where you could make a mistake.

    And the thing about a payroll mistake is that it typically takes even more time and energy to fix. Not to mention, you likely now have to assuage a disgruntled employee.

    With outsourced payroll, this mammoth task is simply done for you, and done correctly. Every single time. And that’s good for you and good for your employees.

    3. Reduce costs

    While you may initially balk at the cost of outsourcing your payroll, it’s actually a money-saver. When you put a dollar amount on all of the time you spend struggling through, this is often enough in itself to pay for a pro to take it off your hands.

    Not to mention, the cost of fines and penalties that can arise from mistakes. If you find yourself having to cough up money in these circumstances, you’ll wish you outsourced your payroll sooner.

    4. Maintain compliance

    We can’t all be tax or finance professionals. Chances are, if you’re running a business, you have an entirely different industry on your mind most of the time. So, it makes sense to hire someone who’s in the business of payroll to look after this for you.

    Maintaining compliance with your region’s tax authorities is a challenge that has to be met every year. And tax laws and codes are always changing. The average person can’t be expected to stay on top of all of this information, so why not get someone who knows the ropes to take care of it for you? It could save you a lot of money come tax time.

    5. Eliminate headaches

    There is nothing more valuable than the feeling of being stress-free. When you hire a payroll professional, you can relax knowing that your business is in good hands, that your employees are getting paid correctly and on time, and that you’re doing everything right.

    Final Thoughts

    There are a lot of reasons why outsourcing your payroll to S & H Tax Accountants Cranbourne and S & H Tax Accountants Malvern East just makes it easy for you.. By letting go of this time-consuming, finicky task, you will likely find that you’re enjoying your business more. Not only that, but you’ll be able to put your energies into other things, meaning your business is likely to grow.

    S & H Accountants have the experience and resources to manage large payroll services. If you have any questions contac us on 0387595532.

  • 3 Reasons Why Business Partners Break Up and How to Prevent Them

    3 Reasons Why Business Partners Break Up and How to Prevent Them

    For many business owners, partnerships are an ideal way to run a business. Operating a business with a partner means you don’t have to make all the decisions on your own. It means you have someone there with you, to help you carry the burden and share ideas with. That can be a great thing, when it lasts.

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    Unfortunately, many business partnerships fail. Although they fail for a variety of reasons, there are some main factors that contribute to a business partnership breakup. Here are 3 reasons business partners break up, and steps you can take to prevent it from happening to you.

    1. Unequal contributions

    All partnerships go through periods where one person contributes—their time, money, energy, or other resources—less than the others. That’s normal. When it happens over a prolonged period or becomes a pattern, resentment can set in and the other partners can begin to feel taken for granted.

    In some cases, a disparity in contributions is natural. For example, if one of the partners has a lot more money or time to invest. These situations require a conversation, however, to ensure that the inequality is addressed and made up for in other ways. If one person has more money to contribute, can the other make it up by contributing more time? If one partner is in a stressful period—maybe they need to step back for a few months due to health issues—can they pick up the slack later so the other partner can take some time off?

    Make sure this discussion involves quantifiable amounts. You can’t measure “work extra” but you can measure “work an extra 6 hours a week for three months.”

    Unequal contributions can be addressed and managed but all partners need to talk about the situation and develop a reasonable and realistic plan for ensuring the disparity doesn’t become an insurmountable problem.

    2. Not hiring help

    Partnerships run into trouble when the people involved think they can handle every issue that comes their way, even if it falls outside their area of expertise. It doesn’t matter how many people are involved in the partnership, if none of them are good with numbers none of them should be doing the accounting.

    When people take on too many activities outside their expertise, problems arise. Mistakes get made and people get blamed. Relationships can sour.

    Discuss with your partners your areas of expertise and activities that you aren’t comfortable doing. Any tasks that no one has expertise in should be given to a professional so that each of you can focus on the areas you’re good at and comfortable in.

    3. Differing visions

    Business partners should have a shared vision for the company so they’re all working towards the same goals. It’s okay for partners to have slightly different views on how to achieve those goals, but overall the vision should be aligned.

    Problems can take hold when partners have deeply different visions for the company and how to meet their goals.

    Ensuring a shared vision is an important step. To do so, make sure your company has a formal, written strategic plan. Work with your partners to write and review the plan periodically. Make sure everyone remains committed to the same vision, and address any shifts in perspective that may have occurred.

    If you’re about to start a business partnership, discuss with your partners why they want to run a business, what their vision is for the company and what their long-term goals are. Make sure everyone is at least somewhat aligned.

    Final thoughts

    Business partnerships can be incredibly rewarding, but they also have the potential for issues. Open communication about your ability to contribute, your skill sets and your vision will help your partnership to stay on track and prevent a breakup.