That is a reason some clubs charge new members a "Fee" in addition to their first monthly payment. Since a fee increases the value of everyones share of the club, it is felt that that helps to compensate those who have paid a larger share of startup expenses.
Laurie Frederiksen Invest with your friends! www.bivio.com
Again, we're a relatively new club and the other unanticipated outcome is the effect on ownership % when a new member joins months after start-up expenses like State filing fees, bivio, insurance, etc have been paid.
We just set the valuation date to the transaction date for each contribution. That way everyone is treated equitably regardless of deposit amount or timing. And in fact each of our members deposits a slightly different amount so that the treasurer can tell who made the deposit and credit the appropriate account. One of the powers of the Bivio software is that it manages all of this so that member contributions are credited properly.
I'll leave the investment account to the experts, but IMO there seems to be two issues here:
The allocation of expenses - which should be done based on the number of shares each member holds at the time of the expense (or equally allocation as Laurie indicates). That should be equitable if you are allocating shares (depositing dues) on a single date during the month.
If you are allocating shares when dues are paid, or collecting dues in advance, I would suggest moving to a Suspense Account.
We have always done all our dues deposits on the 15th of the month of all members. This eliminates one of the problem(s) that you list below since all deposits are recorded at the same time. Dues paid in advance, or late dues are all offset in a Suspense Account (https://www.bivio.com/site-help/bp/Suspense_Account_Help. I have an old green book (Better Investing?) on Investment Club Accounting from years ago that outlines the Suspense Account process better than online information today. Someone else may know of a good reference.
An Example: Someone pays $100/mo in dues and decides to pay a $1,000 in advance for 10 months. We would deposit the $1,000 into checking (our money management) then enter a corresponding -$1,000 into the Suspense Account representing the "liability" that we, the club, owe that person. You now have access to the cash, but the net impact to the club is 0 as the two offset each other.
On the 15th, we would "collect" their $100 from the Suspense Account which would reduce the club's liability to them to $900 (a -$900 balance in the Suspense Account) and this would continue month-over-month until the offset went to 0. The way I like to think about the Suspense Account is it is the deviation between the club's ideal value (where everyone pays their dues at the same time, every time with no advanced dues) and reality where you must deal with the exceptions.
Correspondingly, if someone is late sending in their dues, we collect their regular payment from the Suspense Account on the 15th which raises the Suspense Account. When they pay, we enter the corresponding transfer between Checking and Suspense.
In reality, what we really do is collect dues by cash or check at the meeting. When the Treasurer makes the deposit to the checking account, we make a single monthly corresponding entry between the Suspense account and Checking account that accounts for all the deviations.
So...because I puzzled over this inquiry...Laurie, you are saying that if an expense is entered during the month before all of the member's monthly investments are in, those who have paid will have a (slightly) larger percentage share than if all of the investments had been recorded before the expense. Therefore they would be allocated a greater share of the expense.
Surely this is an exceedingly nominal amount unless the club is very new, and/or if the expenses are large amounts -- which should not normally be the case. The longer the club is in existence, the lesser the impact, until it would be immaterial.
I suppose this would also be the case if someone is in the habit of paying several months in advance. Again, with diminishing impact as the club's total assets grow.
Changing to 'per partnership exception' should be fully understood before choosing that option, as it may not be what the partners intend.
Linda Glein
Linda
On Sat, Mar 7, 2020 at 10:15 AM Laurie Frederiksen <laurie@bivio.biz> wrote:
By default, expenses are allocated to members based on their ownership percentage on the date the expense is entered.
You can also choose to allocate them "per partnership exception" which will allocate an equal dollar amount to each member regardless of their percent of ownership.
Laurie Frederiksen Invest with your friends! www.bivio.com
We are a relatively new club and it seems that members who pay on time or early every month get hit with a higher share of club expenses. In some instances it doesn't seem fair.
Laurie Frederiksen on
Using a single valuation date each month by itself doesn't even out how expenses are allocated if payments come in on different dates of the month. Transaction dates are important in your club accounting since expenses are allocated on the date they occur based on ownership percentage on that date. Ownership percentage doesn't change until the date a payment is recorded.
If you are worried about expenses being allocated in the same dollar amount to each person, make sure you allow that in your partnership agreement and when you enter them select to allocate them "per partnership exception".
Note that we do not refer to this as "equally" since those with smaller percentages of ownership bear a proportionally larger percentage of the expense. Some wouldn't consider that equitable.
Laurie Frederiksen Invest with your friends! www.bivio.com
On Sun, Mar 8, 2020 at 2:15 PM Laurie Frederiksen <laurie@bivio.biz> wrote:
That is a reason some clubs charge new members a "Fee" in addition to their first monthly payment. Since a fee increases the value of everyones share of the club, it is felt that that helps to compensate those who have paid a larger share of startup expenses.
Laurie Frederiksen Invest with your friends! www.bivio.com
Again, we're a relatively new club and the other unanticipated outcome is the effect on ownership % when a new member joins months after start-up expenses like State filing fees, bivio, insurance, etc have been paid.
We just set the valuation date to the transaction date for each contribution. That way everyone is treated equitably regardless of deposit amount or timing. And in fact each of our members deposits a slightly different amount so that the treasurer can tell who made the deposit and credit the appropriate account. One of the powers of the Bivio software is that it manages all of this so that member contributions are credited properly.
I'll leave the investment account to the experts, but IMO there seems to be two issues here:
The allocation of expenses - which should be done based on the number of shares each member holds at the time of the expense (or equally allocation as Laurie indicates). That should be equitable if you are allocating shares (depositing dues) on a single date during the month.
If you are allocating shares when dues are paid, or collecting dues in advance, I would suggest moving to a Suspense Account.
We have always done all our dues deposits on the 15th of the month of all members. This eliminates one of the problem(s) that you list below since all deposits are recorded at the same time. Dues paid in advance, or late dues are all offset in a Suspense Account (https://www.bivio.com/site-help/bp/Suspense_Account_Help. I have an old green book (Better Investing?) on Investment Club Accounting from years ago that outlines the Suspense Account process better than online information today. Someone else may know of a good reference.
An Example: Someone pays $100/mo in dues and decides to pay a $1,000 in advance for 10 months. We would deposit the $1,000 into checking (our money management) then enter a corresponding -$1,000 into the Suspense Account representing the "liability" that we, the club, owe that person. You now have access to the cash, but the net impact to the club is 0 as the two offset each other.
On the 15th, we would "collect" their $100 from the Suspense Account which would reduce the club's liability to them to $900 (a -$900 balance in the Suspense Account) and this would continue month-over-month until the offset went to 0. The way I like to think about the Suspense Account is it is the deviation between the club's ideal value (where everyone pays their dues at the same time, every time with no advanced dues) and reality where you must deal with the exceptions.
Correspondingly, if someone is late sending in their dues, we collect their regular payment from the Suspense Account on the 15th which raises the Suspense Account. When they pay, we enter the corresponding transfer between Checking and Suspense.
In reality, what we really do is collect dues by cash or check at the meeting. When the Treasurer makes the deposit to the checking account, we make a single monthly corresponding entry between the Suspense account and Checking account that accounts for all the deviations.
So...because I puzzled over this inquiry...Laurie, you are saying that if an expense is entered during the month before all of the member's monthly investments are in, those who have paid will have a (slightly) larger percentage share than if all of the investments had been recorded before the expense. Therefore they would be allocated a greater share of the expense.
Surely this is an exceedingly nominal amount unless the club is very new, and/or if the expenses are large amounts -- which should not normally be the case. The longer the club is in existence, the lesser the impact, until it would be immaterial.
I suppose this would also be the case if someone is in the habit of paying several months in advance. Again, with diminishing impact as the club's total assets grow.
Changing to 'per partnership exception' should be fully understood before choosing that option, as it may not be what the partners intend.
Linda Glein
Linda
On Sat, Mar 7, 2020 at 10:15 AM Laurie Frederiksen <laurie@bivio.biz> wrote:
By default, expenses are allocated to members based on their ownership percentage on the date the expense is entered.
You can also choose to allocate them "per partnership exception" which will allocate an equal dollar amount to each member regardless of their percent of ownership.
Laurie Frederiksen Invest with your friends! www.bivio.com
We are a relatively new club and it seems that members who pay on time or early every month get hit with a higher share of club expenses. In some instances it doesn't seem fair.
John W Ranby Trustee PGM Cariboo Trust on
In my humble opinion there is no "right" answer to this
discussion. However, as a treasurer I would encourage clubs
to keep it simple.
My club had a new member join last year with the minimum
contribution. At one point, the percentage of ownership
ranged from 20.8% to 0.5%. Yes, that meant that one partner
was paying over 20 cents of each dollar of expense while
another was only paying half a cent. But you know, the first
partner was also earning over 20 cents of each dollar of
profit while the other only received half a cent. After a
year of membership, that new member has made a significant
additional capital contribution to enjoy more participation
in the profits and expenses.
The one suggestion made earlier that goes against my mantra
of keeping it simple is to use the suspense system for
advance capital contributions. From the treasurer's point of
view, I don't need the extra work. From a member's point of
view, once the club has received the money and is putting it
to work, the contributor should receive the additional units
in the partnership at that time. Any profits, losses, or
expenses that occur there after should flow to that partner
based on the financial stake he/she has made in the
partnership.
As treasurer, I require all members to authorize our broker
to pull monthly capital contributions automatically from
each member's checking account on the same date. Date
received at broker is automatic valuation date in bivio.
With equal monthly payments, everyone receives the same
number of new units. However, it causes the percentage of
ownership by the lowest percent partners to increase. A good
thing.
If I were in a club that was so new that start up expense
were a big deal, I would choose Laurie's suggestion of a fee
over reverting to equal expenses for the long haul.
Jack Ranby
ira smilovitz on
One additional comment going back to the original post. The poster was concerned that those who contributed earlier received a larger share of the expense. It should be noted that those who contribute earlier also receive a larger share of any income that is received between their contribution date and that of the later contributions.
In my humble opinion there is no "right" answer to this
discussion. However, as a treasurer I would encourage clubs
to keep it simple.
My club had a new member join last year with the minimum
contribution. At one point, the percentage of ownership
ranged from 20.8% to 0.5%. Yes, that meant that one partner
was paying over 20 cents of each dollar of expense while
another was only paying half a cent. But you know, the first
partner was also earning over 20 cents of each dollar of
profit while the other only received half a cent. After a
year of membership, that new member has made a significant
additional capital contribution to enjoy more participation
in the profits and expenses.
The one suggestion made earlier that goes against my mantra
of keeping it simple is to use the suspense system for
advance capital contributions. From the treasurer's point of
view, I don't need the extra work. From a member's point of
view, once the club has received the money and is putting it
to work, the contributor should receive the additional units
in the partnership at that time. Any profits, losses, or
expenses that occur there after should flow to that partner
based on the financial stake he/she has made in the
partnership.
As treasurer, I require all members to authorize our broker
to pull monthly capital contributions automatically from
each member's checking account on the same date. Date
received at broker is automatic valuation date in bivio.
With equal monthly payments, everyone receives the same
number of new units. However, it causes the percentage of
ownership by the lowest percent partners to increase. A good
thing.
If I were in a club that was so new that start up expense
were a big deal, I would choose Laurie's suggestion of a fee
over reverting to equal expenses for the long haul.
Jack Ranby
V Johnson on
I'm the original poster and absolutely appreciate every comment. Each new member makes a $100 pmt to join so I plan to use Laurie's fee suggestion.
One additional comment going back to the original post. The poster was concerned that those who contributed earlier received a larger share of the expense. It should be noted that those who contribute earlier also receive a larger share of any income that is received between their contribution date and that of the later contributions.
In my humble opinion there is no "right" answer to this
discussion. However, as a treasurer I would encourage clubs
to keep it simple.
My club had a new member join last year with the minimum
contribution. At one point, the percentage of ownership
ranged from 20.8% to 0.5%. Yes, that meant that one partner
was paying over 20 cents of each dollar of expense while
another was only paying half a cent. But you know, the first
partner was also earning over 20 cents of each dollar of
profit while the other only received half a cent. After a
year of membership, that new member has made a significant
additional capital contribution to enjoy more participation
in the profits and expenses.
The one suggestion made earlier that goes against my mantra
of keeping it simple is to use the suspense system for
advance capital contributions. From the treasurer's point of
view, I don't need the extra work. From a member's point of
view, once the club has received the money and is putting it
to work, the contributor should receive the additional units
in the partnership at that time. Any profits, losses, or
expenses that occur there after should flow to that partner
based on the financial stake he/she has made in the
partnership.
As treasurer, I require all members to authorize our broker
to pull monthly capital contributions automatically from
each member's checking account on the same date. Date
received at broker is automatic valuation date in bivio.
With equal monthly payments, everyone receives the same
number of new units. However, it causes the percentage of
ownership by the lowest percent partners to increase. A good
thing.
If I were in a club that was so new that start up expense
were a big deal, I would choose Laurie's suggestion of a fee
over reverting to equal expenses for the long haul.
Jack Ranby
Peter Dunkelberger on
I am sure that you have a purpose in doing that. I have been the treasurer on and off for a club that is over 20 years old, and no one remembers start up costs or how they might have affected the initial partners. But if I told a new member that they would have an additional fee to pay to "make up" for the the start up costs that were incurred 20 years ago, I would get a laugh and a "hell no". Keep it simple and let the chips fall where they may. On down the road so many things will happen to affect valuations that it is not worth it to try and make things "equal."
Peter Dunkelberger
Financial Partner, Sumner Stock Selectors Investment Club
One additional comment going back to the original post. The poster was concerned that those who contributed earlier received a larger share of the expense. It should be noted that those who contribute earlier also receive a larger share of any income that is received between their contribution date and that of the later contributions.
In my humble opinion there is no "right" answer to this
discussion. However, as a treasurer I would encourage clubs
to keep it simple.
My club had a new member join last year with the minimum
contribution. At one point, the percentage of ownership
ranged from 20.8% to 0.5%. Yes, that meant that one partner
was paying over 20 cents of each dollar of expense while
another was only paying half a cent. But you know, the first
partner was also earning over 20 cents of each dollar of
profit while the other only received half a cent. After a
year of membership, that new member has made a significant
additional capital contribution to enjoy more participation
in the profits and expenses.
The one suggestion made earlier that goes against my mantra
of keeping it simple is to use the suspense system for
advance capital contributions. From the treasurer's point of
view, I don't need the extra work. From a member's point of
view, once the club has received the money and is putting it
to work, the contributor should receive the additional units
in the partnership at that time. Any profits, losses, or
expenses that occur there after should flow to that partner
based on the financial stake he/she has made in the
partnership.
As treasurer, I require all members to authorize our broker
to pull monthly capital contributions automatically from
each member's checking account on the same date. Date
received at broker is automatic valuation date in bivio.
With equal monthly payments, everyone receives the same
number of new units. However, it causes the percentage of
ownership by the lowest percent partners to increase. A good
thing.
If I were in a club that was so new that start up expense
were a big deal, I would choose Laurie's suggestion of a fee
over reverting to equal expenses for the long haul.
Jack Ranby
John Rice on
I think that a $100 fee to sign up is too high. We charge a $25 fee for new membership because we feel that they are getting a benefit of our subscriptions that we prepaid and the research that we have done. Also, to have some skin in the game. Our club started about 12 years ago and our start up costs were about $25 per person when we started so we just kept it.
I am sure that you have a purpose in doing that. I have been the treasurer on and off for a club that is over 20 years old, and no one remembers start up costs or how they might have affected the initial partners. But if I told a new member that they would have an additional fee to pay to "make up" for the the start up costs that were incurred 20 years ago, I would get a laugh and a "hell no". Keep it simple and let the chips fall where they may. On down the road so many things will happen to affect valuations that it is not worth it to try and make things "equal."
Peter Dunkelberger
Financial Partner, Sumner Stock Selectors Investment Club
One additional comment going back to the original post. The poster was concerned that those who contributed earlier received a larger share of the expense. It should be noted that those who contribute earlier also receive a larger share of any income that is received between their contribution date and that of the later contributions.
In my humble opinion there is no "right" answer to this
discussion. However, as a treasurer I would encourage clubs
to keep it simple.
My club had a new member join last year with the minimum
contribution. At one point, the percentage of ownership
ranged from 20.8% to 0.5%. Yes, that meant that one partner
was paying over 20 cents of each dollar of expense while
another was only paying half a cent. But you know, the first
partner was also earning over 20 cents of each dollar of
profit while the other only received half a cent. After a
year of membership, that new member has made a significant
additional capital contribution to enjoy more participation
in the profits and expenses.
The one suggestion made earlier that goes against my mantra
of keeping it simple is to use the suspense system for
advance capital contributions. From the treasurer's point of
view, I don't need the extra work. From a member's point of
view, once the club has received the money and is putting it
to work, the contributor should receive the additional units
in the partnership at that time. Any profits, losses, or
expenses that occur there after should flow to that partner
based on the financial stake he/she has made in the
partnership.
As treasurer, I require all members to authorize our broker
to pull monthly capital contributions automatically from
each member's checking account on the same date. Date
received at broker is automatic valuation date in bivio.
With equal monthly payments, everyone receives the same
number of new units. However, it causes the percentage of
ownership by the lowest percent partners to increase. A good
thing.
If I were in a club that was so new that start up expense
were a big deal, I would choose Laurie's suggestion of a fee
over reverting to equal expenses for the long haul.
Jack Ranby
V Johnson on
The subscription to Better Investing is $45 per member. That's part of what we use the $100 for. Then there's the annual cost for Bivio and the fidelity bond, etc.
By the way, do you record the $25 as a regular payment or as a fee?
I think that a $100 fee to sign up is too high. We charge a $25 fee for new membership because we feel that they are getting a benefit of our subscriptions that we prepaid and the research that we have done. Also, to have some skin in the game. Our club started about 12 years ago and our start up costs were about $25 per person when we started so we just kept it.
I am sure that you have a purpose in doing that. I have been the treasurer on and off for a club that is over 20 years old, and no one remembers start up costs or how they might have affected the initial partners. But if I told a new member that they would have an additional fee to pay to "make up" for the the start up costs that were incurred 20 years ago, I would get a laugh and a "hell no". Keep it simple and let the chips fall where they may. On down the road so many things will happen to affect valuations that it is not worth it to try and make things "equal."
Peter Dunkelberger
Financial Partner, Sumner Stock Selectors Investment Club
One additional comment going back to the original post. The poster was concerned that those who contributed earlier received a larger share of the expense. It should be noted that those who contribute earlier also receive a larger share of any income that is received between their contribution date and that of the later contributions.
In my humble opinion there is no "right" answer to this
discussion. However, as a treasurer I would encourage clubs
to keep it simple.
My club had a new member join last year with the minimum
contribution. At one point, the percentage of ownership
ranged from 20.8% to 0.5%. Yes, that meant that one partner
was paying over 20 cents of each dollar of expense while
another was only paying half a cent. But you know, the first
partner was also earning over 20 cents of each dollar of
profit while the other only received half a cent. After a
year of membership, that new member has made a significant
additional capital contribution to enjoy more participation
in the profits and expenses.
The one suggestion made earlier that goes against my mantra
of keeping it simple is to use the suspense system for
advance capital contributions. From the treasurer's point of
view, I don't need the extra work. From a member's point of
view, once the club has received the money and is putting it
to work, the contributor should receive the additional units
in the partnership at that time. Any profits, losses, or
expenses that occur there after should flow to that partner
based on the financial stake he/she has made in the
partnership.
As treasurer, I require all members to authorize our broker
to pull monthly capital contributions automatically from
each member's checking account on the same date. Date
received at broker is automatic valuation date in bivio.
With equal monthly payments, everyone receives the same
number of new units. However, it causes the percentage of
ownership by the lowest percent partners to increase. A good
thing.
If I were in a club that was so new that start up expense
were a big deal, I would choose Laurie's suggestion of a fee
over reverting to equal expenses for the long haul.
Jack Ranby
Norman Gee on
The subscription to Better Investing is paid directly by our members and not out of the club. We figured it is an individual expense. We have a number of married couple as members and they don't both need a subscription.
On Monday, March 9, 2020, 10:47:10 AM PDT, V Johnson via bivio.com <user*37873600001@bivio.com> wrote:
The subscription to Better Investing is $45 per member. That's part of what we use the $100 for. Then there's the annual cost for Bivio and the fidelity bond, etc.
By the way, do you record the $25 as a regular payment or as a fee?
The subscription to Better Investing is paid directly by our members and not out of the club. We figured it is an individual expense. We have a number of married couple as members and they don't both need a subscription.
The subscription to Better Investing is $45 per member. That's part of what we use the $100 for. Then there's the annual cost for Bivio and the fidelity bond, etc.
By the way, do you record the $25 as a regular payment or as a fee?
The subscription to Better Investing is paid directly by our members and not out of the club. We figured it is an individual expense. We have a number of married couple as members and they don't both need a subscription.
The subscription to Better Investing is $45 per member. That's part of what we use the $100 for. Then there's the annual cost for Bivio and the fidelity bond, etc.
By the way, do you record the $25 as a regular payment or as a fee?