joint venture marketing
You have spent much of your precious time researching potential joint venture partners, making proposals, and finally making a JV agreement that excites both you and your new JV partner. However, once your new business process begins, you and your partner need to agree to an accurate bookkeeping process that one or both of you will need to attend.
Accounting for joint ventures is just the same as for any other business. Revenues and expenses must be accounted for, and statements must be prepared to help in making future business decisions for the JV. The only difference is the process. However, it’s important to provide each partner with a complete reporting of all JV related accounting transactions.
Separate Joint Accounting System
The business model you choose for your JV may predetermine your accounting process. If you and your JV partner have agreed to form a separate entity such as a corporation, LLC, or Limited Partnership, you will need to create a separate bookkeeping system for that entity. This is important not only for profit sharing purposes, but for government reporting for tax purposes as well.
Separate Ledger Account
In many cases, a simple joint venture is created between two business owners and the accounting system can be assimilated into one or both owners’ existing systems. For instance, if your JV is the type that simply cross promotes each others’ business, or sells a package deal of both your products, you can simply keep track of the income and expenses related to the JV in your own accounting system, and share the results with your JV partner at the end of each month.
To do this, you can create two separate temporary accrual ledger accounts called “Joint Venture With X Income” and “Joint Venture With X Expenses”. Within these ledger accounts, you can record all purchases you make on behalf of the joint venture, and record the income you receive from related sales.
At the end of each month or fiscal quarter, you can make adjusting entries to close these accounts. For instance, if you have agreed to split profits 50/50, simply make two closing entries in the “Income” account, one with half the amount going out in a cash transaction to your JV partner, and the other half going to your own sales ledger account. Expenses can be closed the same way.
What Type of Accounting System?
Most businesses use an automated accounting system via computer software. Popular software packages such as Peachtree or QuickBooks offer easy accounting processes and user-friendly ways to create new accounts and even new entities for complete and separate JV bookkeeping.
You could also use a spreadsheet application such as the popular MS Excel to keep track of expenses and revenues. A spreadsheet will allow you to easily make charts and graphs.
However, don’t forget about the age-old handwritten ledger book. If your joint venture is a simple cross-promotional type of agreement, the way to keep track of bookkeeping may be to simply make manual entries in a ledger book. This method has worked for thousands of years and you can make it work for you too.
Accounting is important for the financial reporting of a JV business. Keep in mind accounting methods when you form your joint venture entity, and make sure you have a way to keep each JV partner fully informed of all financial transactions.
christian fea is CEO of Synertegic, Inc. A joint venture marketing firm. He exemplifies how to profit from Joint Venture relationships by creating profit centers with minimal risk and maximum profitability.
To discover more joint venture marketing Strategies join his free joint venture marketing Wealth Report.
One Reply to “Accounting for Your Joint Venture”
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