Trading with a relative: who put in what and how profit is shared

"My brother and I will open a shop together", "my sister put in the money and I brought the stock", "my cousin will be a partner too". At first everything is wonderful: everybody is happy and everybody works. A year later the talk is different: "I put in more", "I work harder", "who took this item?" In trading with relatives, disagreements seldom come from the money itself but from nobody having written down who contributed what and how the profit is shared. To protect the relationship, one sheet at the start is enough.

Three kinds of contribution

People usually count only money as a contribution, but there are three kinds:

1. money: cash or a transfer put into the business;
2. goods and equipment: the opening stock, shelves, a display case, a computer, scales;
3. work and space: who works how many hours a day, whose shop or room is used.

Money and equipment are clear: they can be given a value in so'm. Work and space are harder, so discuss them separately at the outset: is the person who works paid a wage or given a share of profit? Is the owner of the premises paid rent or not?

The opening sheet

The opening sheet is simple: take a page and draw a table: date, who, what was contributed, agreed value, note. Write a separate line for each contribution, and let both sides review it and keep a copy. When valuing goods, use the purchase price, not the selling price: the goods are not yet sold and their profit lies in the future.

Say you contributed 10 million so'm in cash. Your partner brought goods valued at 6 million so'm and a display case worth 2 million. The total is 18 million so'm. The ratio of contributions: yours is 10/18, your partner's 8/18. This simple sheet does not replace an official document; if you need formal registration or a contract, ask a specialist. But in an argument the answer to "what did we agree?" is at least on paper.

How profit is shared

This question is put off longest, because there is no profit yet. But when profit appears, no answer can be found. Three ways are usual:

• equally: half each, whatever the contributions;
• in proportion to contributions: whoever put in more takes more;
• a wage for work, with the rest shared in proportion to contributions.

Example: if monthly profit is 3 million so'm, sharing by contribution (10/18 and 8/18) gives roughly 1,667,000 and 1,333,000 so'm. Nobody can say beforehand which way is best, but whichever you choose must be written down.

Profit may be absent for a long while at first, so agree one more thing in advance: in the early months is profit kept in the business for stock, or is a set share taken each month? Put that on the sheet too, or one will say "buy more stock" and the other "we need money".

Keep money and goods apart

The shop's money should be separate: a separate till or a separate wallet. Do not pay personal expenses from it; if you must, write it in a "taken" book and note that the amount will be deducted from profit. Goods taken home go in the same book.

Once a week count the stock together. Better still, let one person count and the other check it against the book: that is not distrust but the two-pairs-of-eyes rule.

When contributions change, update the sheet. If somebody adds money or brings new goods, write a new line. If somebody wants to leave, fix a day, count all the stock, work out the value of what is left and write down how the payout will be made. Because everything is in view on the day of the count, later arguments are fewer.

Common mistakes

• agreeing contributions by word of mouth and writing nothing down;
• ignoring work and premises, then feeling resentful;
• leaving the question of sharing profit until the profit arrives;
• taking money from the shop for personal use without recording it;
• not thinking beforehand about how someone can leave.

Conclusion

In trade with relatives good intentions are not enough; a written record is needed too. The three kinds of contribution, the opening sheet, a profit split agreed in advance and keeping money apart from goods protect the relationship. If partners dispute the balance of stock or their shares change, the Sanab team can act as a neutral party, count the goods and give the exact figure in a report.