Going into a business partnership with a friend can be an exciting opportunity. Some great businesses have been built by co-owners who started off as friends.
However, before jumping into any business partnership with a friend, there are a few things you should consider so that you can start your venture together with confidence.
Decide On the Business Structure And How to Split The Profits/Losses
As with any business venture, with a friend or otherwise, it is important to decide ahead of time the sort of structure and how profits and losses will be handled. However, in the case of friends, these details may be overlooked because of a preexisting trust from the friendship. It may be more critical to have the necessary plan in place, even if it may seem superfluous because of the relationship. For instance, maybe the reason for getting into business with a friend is because there is trust, communication, and mutual understanding. Maybe it seems silly to set up paperwork enforcing these things within the company. It is a good idea to have these things decided and put in writing. Make sure you get legal contracts written out that list the kind of business partnership arrangement you have. The contract also must state how profits will be split and shared. Perhaps you will split the profits 50/50 or perhaps you’ll come to some other arrangement that is a little complex, but supports the goals of the business overall.
Don’t underestimate the importance of having your roles and responsibilities clearly defined upfront. According to a study by Mass Mutual Financial Group in 2010 that examined 518 family-owned businesses, the most successful businesses had the roles and responsibilities of each person clearly defined upfront.
In the long run, it could save the friendship if these matters are handled through legal documentation, and it will help the business to not have to rely just on the friendship for matters of trust and responsibility to be addressed.
Goals And Vision
As friends, there may have been a mutual dream of a certain type of business. It is easy to dream about things in friendly company. While musing about things as friends, it may have appeared that there was a mutual vision, but when drawing up the official business plan there are different overall goals. It is important to figure this out as soon as possible, and not rely on the compatibility of the friendship to dictate or allow for assumptions about the future of the business.
Talk About Values
Knowing someone as a friend is a much different situation than working with a person. It is easy to assume that we know all facets of people, especially our friends. It is important to know how each person handles work, stress, money, and business, and what their beliefs surrounding those things are, not just how they are on the weekends.
Sometimes people are generous and easygoing in friendly scenarios because they work hard to budget and calculate money privately. As well, some people may have the belief that personal profits are important, and others may find charity to be the most important.
Being in business with a friend requires both people to understand more about each other than just friends business partners would. To preserve both relationships, personal values and work values should be discussed.
Get An Exit Strategy
In the event that one, or both partners wish to dissolve the business, it is important to have a plan. As with the initial startup, this also should be in writing.
As a friend, it will be easy to understand if a sudden life-changing event takes place, or if it is just a sudden change of heart. However, as business partners, there is more at stake if something life-altering takes one partner away from the business. It isn’t just a question of being there for a friend to celebrate or commiserate, and so some safety measures should be put in place.
As with all business relationships, it is important to have these precautions. In the case of friends, it may be too easy to imagine that neither of you would ever let the other down, or that if something catastrophic happened, you’d bail each other out because you are friends. This isn’t always possible, or even sensible in business. Knowing these things before hand will also go towards preserving the business and friendship in the long run.
Are Both Partners In A Stable Place?
This is an obvious question when going into business with an acquaintance, but it may be harder to sort out with a friend. As a friend, it may feel natural to try and help each other in times of need, or it may seem rude to inquire about financial status. This is still a necessary step that partners must take to insure the success of the business and each other.
If one partner isn’t willing to take such steps out of fear of overstepping the friendship, it may be worth rethinking the wisdom of the partnership. Both partners should be aware that this endeavour will take the friendship to a new level of responsibility and compromise.
Starting a business can be exciting and it’s even more exciting to have a friend to go on the adventure with. Knowing how to negotiate what is best for the business and both parties, while maintaining the friendship is key to the overall success of both partners.
These are just a few things to consider. If you’d like to know more about entering a business partnership with a friend, get in touch with one of our legal experts and we’ll help you make sure all of your legal bases are covered first.