joint venture marketing
Joint ventures typically involve two or more businesses coming together in some sort of partnership agreement for the purpose of expanding sales and boosting bottom lines. Most joint ventures are somewhat limited in terms of their scope and time frame, with most considered a short-term agreement that does not necessarily constitute its own accounting system.
However, as longer joint ventures become more popular, it is important to understand your accounting options in joint ventures to ensure the financial interests of both JV partners are properly protected.
Even if you determine that separate books are the best option for your joint venture, you will typically open a joint bank account to hold the investment of each JV partner, as well as any profits that are made during the agreement. This type of accounting is characterized by the following:
- Contributions by each partner are debited to the joint bank account and credited to individual accounts of each partner
- Expenses for the joint venture are directly debited from the joint account
- Sales are directly credited to the joint account
- At the end of the joint venture, the profit or loss will be directly transferred into the personal accounts of the JV partners
- The account will be closed, with equal disbursements made to all of the JV partners
While this tends to be the easiest type of accounting for joint ventures, it is usually reserved for those partnerships that will be perpetuated for some time. Short-term agreements will often pass on separate books in favor of maintaining the joint venture records within each partner’s own record-keeping system.
No Separate Books
When JV partners determine that a separate account for the joint venture is not necessary, they will need to account for the transactions under the joint venture partnership on their own. This means that each partner will open an account for the joint venture and one for his partner. This allows for accounting of expenses made on either partner’s account, as well as those done through the joint venture itself.
When it is time to balance the books, each joint venture partner submits his own ledgers to ensure the numbers all match up. This helps to hold each partner accountable while maintaining the integrity of the separate joint venture. While this accounting system may be slightly more complex, there is no separate account to close out at the end of the joint venture, which is why it tends to be a preferable method for agreements that are made for a shorter term. Profits and losses are simply tallied up, and each JV partner will record his own portion.
Like any business transaction, it is important to maintain proper books during the joint venture process. Whether you choose separate books or have each partner account for the joint venture transactions in his own books, this process is paramount to keeping the integrity of the joint venture intact. When partners are held accountable for the bookkeeping of the joint venture agreement, everyone can rest assured that individual interests, as well as the financial interests of the joint venture, are properly protected.
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.
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