Next you should figure out how to apportion costs, obtain money for your project, and keep track of the group's money. In some sharing arrangements, money may never change hands. But in a sharing arrangement where the group owns property, makes purchases, or collects dues, it's important to keep track of the money.
Here we introduce some of the money issues you might face and strategies for handling them. You'll find details on using these methods for particular sharing arrangements in Part II.
Group members often make some sort of initial contribution, which could take the form of in-kind contributions, a lump sum, monthly installments, contributions of services, and so on. Keep a written record of each person's contributions. You should also decide whether and how people can get a refund, particularly if they leave the group.
The group may have regular expenses that will be fairly fixed, no matter who uses the shared item and how much it is used. Such expenses could include rent and insurance. In deciding how to apportion these expenses, the group may decide to divide them equally or unequally, depending on ownership percentages or use.
The group might want to assign some variable costs to members based on use of the shared item. For example, a carsharing group may require members to pay for gas based on how much they use the car, either by tracking mileage or by always returning the car with a full tank.
Instead of, or in addition to, dividing costs, a group could estimate likely costs and charge each member a regular fixed fee. The group can deposit the fees in a special account from which it pays expenses.
It's always a good idea to expect the unexpected. Your group may either want to create a reserve fund for unexpected costs or decide in advance what to do if the group needs more money in the future.
For example, co-owners of a house might write down the following agreement:
"We agree to create a joint savings account and pay $75 each into the account every month. This will create a reserve fund that we can use if we need to make major or unforeseen repairs on the house or one of us is unable to pay his or her share of the mortgage, insurance, or property taxes. We will aim to accumulate and maintain at least $5,000 in the account. As much as possible, we will try to pay for most expenses out of pocket before tapping into the reserve fund. If we tap into the reserve fund to pay one person's portion of the monthly mortgage, taxes, or insurance, that person will be expected to reimburse the reserve account.
If the reserve fund isn't adequate to cover an unforeseen expense, we will meet to discuss our options. If one of us is unable to pay for the expense, the other may pay a larger amount. The one who could not make the payment will compensate the other over time."
Although you won't have to work out all of the details ahead of time, your group will need to create a budget and decide how to keep track of its money. Sloppy bookkeeping can easily lead to disputes over who paid what. In our experience, sharing arrangements go more smoothly when everyone pays a fixed amount on a regular basis, rather than reckoning expenses at the end of each month.
EXAMPLE: Kristen, Colin, and Mojo share a house. They used to pile up their bills and receipts at the end of each month, figure out who had paid what, and then reckon everyone's payments. The math was often complicated and someone was usually annoyed to find that the bills were higher than anticipated. Furthermore, Mojo was always losing receipts for his purchases of household goods. Then they came up with a better plan: They created a budget and estimated monthly expenses at about $400 per person. They created a joint account, and everyone paid $450 per month (the extra $50 was to meet any budget deficits and build a reserve for unforeseen expenses). Each of them got a debit card to use for household expenses. They also kept some cash in a jar in the kitchen, for spontaneous trips to the corner store.
If your group is going to borrow money or property, think carefully about who signs the promissory notes, who is responsible for repayment, and what property is used to secure the loan. If your group can't pay back the loan, the person who signed could be at risk of a lawsuit—and you might lose any property put up for collateral.
When a group member loans money or property to the group, be sure to write down who loaned what, a description of the loaned property, and how the member will be repaid or when the property will be returned.
It's hard to talk about, but you'll need to decide what will happen if a member doesn't make required payments. Do missed payments constitute grounds for kicking the member out of the group? If another member takes up the slack, will the payment automatically be considered a loan from that person to the one who didn't pay? If so, what are the terms for repayment? If someone gets kicked out the group, how will the group collect the missing money?
Many sharing groups make use of barter and sweat equity as part of their arrangement. If someone provides goods or services in exchange for other goods or services, with no money changing hands, that is barter. When someone works in exchange for an ownership share or increased value of their share, that is sweat equity.
If your arrangement involves barter or sweat equity, it's a good idea to create a clear agreement about the exchange. If services are being exchanged, how do you plan to measure the services—by hours worked or by the job completed? Likewise, when goods are being exchanged, be sure to describe them in detail. To keep things clear, it's often a good idea to agree on a dollar value for the work performed or goods exchanged, even if you never actually exchange any money.
EXAMPLE: Genevieve, Tim, and Elena are lawyers who share office space in a building Genevieve owns. In lieu of paying rent, Tim and Elena make court appearances on behalf of Genevieve. They put the following into writing:
"We agree that the market value of the office rent is $600 per month. In lieu of paying rent, Tim and Elena will each make three court appearances on behalf of Genevieve every month."
Taxes are an important consideration in barter exchanges. Even though no money changes hands when bartering, the IRS may consider the value you receive in exchange for your goods or services to be taxable "bartering income." In the example above, Tim and Elena would have to report the $600 value of the office rental as income. Likewise, Genevieve would have to report the market value of Tim and Elena's services as income. (At the same time, because everyone involved is self-employed, they will each be able to deduct the value they "paid" in the exchange as a business expense.)
You don't have to pay taxes on everything you receive through barter. Casual, one-time, and noncommercial exchanges are not taxed. But if one or both of you are in the business of selling the goods or services exchanged, you'll probably owe tax.
EXAMPLE: Julie has a peach tree and Rex has an apple tree. In the summer, Julie gives Rex peaches and Rex "pays" Julie back with apples in the fall. Neither Julie nor Rex will need to pay taxes on the value of the fruit they received, because neither of them is in the business of growing and selling fruit.
Now assume Julie grows peaches on a farm and sells her peaches at wholesale prices to small grocery stores. She also has a vegetable stand on her farm. Rex has a similar farm operation with his apples. Julie gives Rex free peaches to sell at his farm stand, and Rex gives Julie free apples to sell at her farm stand. Without the barter arrangement, Rex and Julie would have to buy and sell their fruit, and their sales revenue would become part of their taxable income. With the barter arrangement, Julie and Rex should calculate the fair market value of the fruit they exchange and report that value on their tax returns.
It won't be clear in every case whether you should pay taxes on value you receive through barter. If you aren't sure, consult a tax professional.