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Heard About Joint Ventures, But Not Sure Where To Start? Here’s The Information You Need To Know.

Partnerships and joint ventures are both valid structures for businesses, but there may be factors in place that prompt you to choose one over the other when it comes to deciding what’s best for your business. In some instances, a joint venture might be the preferred structure for the situation as is required.

A joint venture, for example, is different from a typical business partnership. For one, it’s not a partnership as such, but rather an agreement or arrangement between two or more individuals or companies (and usually entered into with a specific goal in mind).

A joint venture essentially is an agreement to work with another business in a specific limited way, e.g a business requires a way to sell a product, and another business has the means to do so. This can be done in an internal manner (if you, for example, own two businesses) or externally (coming to an agreement with an outside party). A joint venture can either be structured as an unincorporated business or as an incorporated business.

An unincorporated joint venture (i.e. the joint venture agreement includes the terms); or
An incorporated joint venture (i.e. a separate company is incorporated, with the parties each becoming shareholders in the company).

A key difference between a business partnership and a joint venture is that there is generally an agreed-upon, clearly defined end or outcome that will conclude the joint venture. Rather than tying the two businesses together for the foreseeable future, a joint venture generally is a short-term arrangement that sets out to accomplish a goal.

Entering into a joint venture is a good business move if both parties are looking to breach into new markets or distribution channels, but are lacking in something that the other can provide. This allows businesses to work together on larger scale projects that they may not have been able to handle individually or independently.

Each party that enters into a joint venture agreement maintains their business as a distinct legal entity from the other in the agreement. This agreement should govern the relationship between the parties, and set out their objective and the management of the project (including financial matters).

Each party is legally responsible for the debts that they accrue while in the joint venture, and the profit is typically divided between the two parties according to the terms set out in the agreement. Both parties contribute assets to the joint venture, while also agreeing on how to divide up the income and expenses in pursuing the goal. This means that they should be able to garner more capital overall individually and lessen the overall financial burden and risks.

If you’re looking at a joint venture agreement for your business, you must carefully consider the benefits and disadvantages of choosing to enter into one.

Benefits of a Joint Venture

Benefits of a joint venture agreement include that the parties:
-are only bound by a temporary arrangement;
-gain access to additional resources as they come together to pursue a mutual and specific goal;
-may complete a project which they may not have had the finances or staff to complete on their own;
-can share risks and costs; and
-can access increasing opportunities for growth, including financial growth.

Disadvantages of a Joint Venture

Disadvantages of a joint venture agreement include:
-dealing with different working arrangements, workplace cultures and management styles between the parties;
-either of the parties making poor tactical decisions which may affect the desired outcome of the project; and
-the joint venture parties may have a lack of commitment to the project.

For a joint venture to reach the predetermined goal set forth in the agreement, it is critical to ensure:
-That all parties involved in the venture are in accordance with one another, are unified in their goals and objectives and share all information regarding the venture openly.
-That there are clear lines of communication between the established key players of the joint venture.
-That regular reviews are conducted on the progress towards the goal, for improvement to the processes, effectiveness, efficiency and to check for changes to the situation.
-That the agreement states all of the rights and obligations of your business as a party, as well as the other involved pirates.

How the venture is to be structured should be discussed with both the parties and their business planning advisors. It would be advisable to contact and speak with us prior to entering into a joint venture agreement to ensure that the agreement maintains the separate statuses of the businesses from one another and be beneficial to both parties.

If you’re someone who often finds it difficult to make large lump sum payments for goods or services, you may want to consider looking into “Buy Now Pay Later” services.

Buy now pay later essentially means that, rather than paying in a full lump sum payment for a product or services rendered, there may be an option to pay through instalments of a certain amount over a set period to make the sum of the full amount in total. This method should allow you to pay in full for the product or service without overly straining your finances – you pay back what you can, as agreed upon when you begin the buy now pay later service.

Some popular buy now pay later services include Afterpay, Zip Pay, Brightepay, and some credit card networks such as  Mastercard and Visa, can offer buy now pay later arrangements.

Though it can be a convenient, immediate solution, it may be challenging to juggle the necessary repayments with other financial commitments. It’s not always the most appropriate method for people, and you should bear in mind your situation and ability in paying back the amounts. 

Before you sign up, keep in mind: 

  • It becomes easier to overspend with buy now pay later services, so know your limits on what you can and can’t afford.
  • You will be charged fees and costs to use the service, which can add up to a princely sum in and of itself.
  • Keeping track of your payments can be tricky if you’ve signed up for multiple services.
  • It could affect your loan applications for a car or mortgage as lenders consider buy now pay later spending just as much as your credit score.
  • Late repayments can appear on your credit report, which affects your ability to borrow money in the future.
  • Layby can be a cheaper alternative to buy now pay later, with no account-keeping or late fees to consider

If you are someone who could make use of BNPL services, you may wish to:

  • Ensure that when using the BNPL service, you stick to a set limit on what you spend so that you can comfortably pay it back later. 
  • Aim only to have one BNPL account at a time to manage payments through, rather than confuse yourself with multiple payments across different providers.
  • Always budget for bills, loan payments and BNPL payments, and 
  • Rather than use your credit card for payments to your BNPL account, consider linking to your debit account instead.

If you would like assistance in planning your financial future, help in managing your budget or some friendly advice, see us for a chat about what we can do for you.

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John Briggs

Jane Noller has been my accountant for the last 15 plus years. I can testify to Jane’s professionalism and expeditious manner in dealing with the day to day issues that surrounds our business accounting.

John Briggs

Registered Building Certifier