5 Capabilities to Look For in a Partnership Accounting Solution

Useful Tools to Help Simplify Partnership Accounting for Wealthy Families

Family limited partnerships are one of the most common organizational structures among family offices and wealthy families. Unlike trusts which are managed by outside trustees and fiduciaries, they allow the family to retain control over their investments, while reducing tax impacts, protecting assets and streamlining the transition of wealth.

Despite their appeal, the accounting behind family partnerships poses distinct challenges for family offices and advisors to high-net-worth families, especially when it comes to partner allocations, capital activity, changes in ownership and nested relationships.

Without the right partnership accounting solution in place, partnership accounting operations become increasingly manual, time-consuming and overwhelming.

As a family office fintech provider, we understand the common challenges associated with partnership accounting and have spent the past two decades refining the Archway Platform^SM to adeptly handle the most complex partnership accounting scenarios – from side pockets and sleeves to multi-layered ownership and sophisticated allocation structures.

Based on our experience delivering partnership accounting technology and outsourced partnership accounting solutions, we put together a short list of capabilities to be on the lookout for as you evaluate potential partnership accounting solutions for your family office or high-net-worth client.

1. Flexible Allocation Methods

Allocation methodologies can depend based on internal business rules and partnership agreements. Choose a partnership accounting solution that gives you a variety of options for income and gain allocations to accommodate your specific requirements. For instance, Archway Platform users can choose from four unique income allocation methods including by capital account, by committed capital, by called capital and by units, and four unique gain allocation methods including the option to mirror the income allocation method, by full or partial netting and by tax layering.

2. Automated Ownership Calculations

Ownership oftentimes changes throughout the lifecycle of a partnership through investor contributions, withdrawals or holdings transfers. Rather than having to manually calculate and track changes in spreadsheets, a sophisticated partnership accounting solution will automatically calculate the changes in ownership based on activity entered into the system.

As a result, your family office can deliver reporting across the partnership and the underlying partners that accurately depicts each partner’s pro rata ownership of the partnership’s assets as of a point in time.

3. Multi-Layer Relationships

Keeping track of the relationships between partnerships and their owners can be a complex process, particularly when entities own other entities within master-feeder or partnership-investor structures. At SEI, we refer to these multi-layer relationships as nesting. Advanced partnership accounting technology like the Archway Platform helps you untangle the web of nested relationships, and all other ownership structures within the family office. This functionality helps family offices allocate profit and loss from the top-level entities down to the individual partners and ultimately deliver clear, concise reporting for the partnerships and the underlying partners.

4. Advanced Partnership Reporting

Reporting on investment partnerships is a complicated task that is only compounded by a lack of advanced partnership accounting technology. As you evaluate partnership accounting solutions, look for a solution with integrated reporting tools that give you on-demand access to consolidated partnership and individual partner reporting. We recommend asking for report samples to confirm the availability of financial statements, general ledger reports, investment performance analyses, partner statements and tax detail reports.

5. Outsourced Partnership Accounting Service

Family office partnership accounting solutions can be delivered in a variety of formats – from partnership accounting software to specialized outsourced service offerings. Even if you plan to implement an in-house partnership accounting software for your family office staff, ask if the provider offers an outsourced partnership accounting service option as well. Outsourced partnership accounting services help provide accounting and reporting continuity in the event of a sudden or unplanned loss of staff, reassigned job responsibilities or simply not enough bandwidth across the family office. By selecting a provider that can deliver both technology and service solutions, you can ensure your partnership accounting needs will always be met.

Within SEI Family Office Services, we offer both. Our team of accounting and tax professionals are trained to serve as a seamless extension of our clients’ in-house staff to provide assistance with partnership accounting operations like capital activity processing, book and tax allocation management, tax reporting and 704(c) tracking.

While investment partnerships and the supporting partnership accounting operations vary from firm to firm, leveraging a purpose-built partnership accounting software or service can help you flexibly handle a wide variety of partnership accounting scenarios within a single, dedicated solution.

Interested in learning more about the Archway Platform's integrated partnership accounting capabilities?

Discover the platform's purpose-built partnership accounting tools here.