[dropcap1]G[/dropcap1]oing into business with a friend might seem like the perfect way to start your business. You can combine your resources, draw on each other for support, and have fun working together. After all, you really enjoy spending time together, so why not bring those good feelings into your new business?
There are a lot of reasons why it may not be the best idea to go into business with a friend. Some examples include:
- Disagreements over business goals and finances
- The discovery that your management or working styles are incompatible
- Tensions or resentments over the failure of the business, which each of you may blame on the other
- Financial burdens that you may each blame on the other
Starting a business is hard work. When things don’t go as well as you would like, you may blame your friend for the failure. Or you may feel resentful if you think that you are doing more work or contributing more resources. Or you may have conflicts because one or both of you made assumptions about the role you would have.
If you feel really strongly about going into business with a friend, you must take some precautions to help your business be a success while also saving your friendship. Here are a few things you can do to make sure that your business venture with a friend is successful:
Clearly Define Roles
One of the major disagreements you may have with a friend is over who is supposed to do what. You may struggle with your friend assuming more responsibility than he was meant to have—trying to become your boss or to make decisions about the company unilaterally. Or you may struggle with the opposite: your friend not taking on enough responsibility while you do all the work.
[quote_right]OUTLINE EXACTLY WHAT EACH OF YOU WILL BE RESPONSIBLE FOR[/quote_right]
You can reduce the potential for arguments by having an open conversation that clearly defines each of your roles before you begin your company. Outline exactly what each of you will be responsible for, and create a list of tasks that must be delegated, as well as employees that must be hired. Set timelines for completion of goals, and create a process for reviewing the work you have each done to ensure quality control.
Determine Financial Responsibilities & Division of Profits
When you are putting together your business plan, you should have an open conversation about where you will get the startup capital. If you plan to fund the business yourselves, you must determine who will be contributing what and how that will affect the division of profits. For example, if your friend puts in more money, does that mean he gets to keep a greater percentage of profits? Or does it mean that you will have to pay him back out of your profits for a short time?
[quote_center]DETERMINE WHO WILL BE CONTRIBUTING WHAT AND HOW THAT WILL AFFECT THE DIVISION OF PROFITS[/quote_center]
If you find investors for your company, you still need to discuss how you will split your company’s profits. Will you have an equal share? Or will one person take more profits as compensation for playing a larger role in the company? You need to answer all these questions before you ever start doing business.
Create a Contract
Once you have made decisions about these important issues, you must put it in writing. Create a business contract between you that outlines your roles, your financial responsibilities, the division of profits, and any other relevant information. Make this document as comprehensive as possible, and get help from a business consultant or lawyer when creating it. You will refer to this document when conflicts arise, so it needs to be as clear and complete as possible.
Create Contingency Plans
You may find that, even with the best of intentions and the best planning, that you no longer want to work with your friend after a couple of years. Or one of you may want to leave the business because of some family obligations or other life changes. You need to have a plan in place for how one or both of you can gracefully exit the contract and leave the business. Will you sell it together and split the profits? Or will one of you have to buy out the other? Or will one of you become a silent partner who collects a smaller percentage of profits? Make sure you answer these questions for yourselves and have this information included in your business plan and contracts that you sign.
Going into business with a friend has the potential to be an acrimonious situation is disagreements arise, but it doesn’t have to be. If you want to go into business with a friend, you need to think carefully about all the issues that might arise, and you need to have a plan for all of them. These strategies can help you make a plan that will allow you to be successful without having to sacrifice your friendship.
Did you go into business with a friend? Tell us how you handled it and whether it was ultimately a good idea in the comments!
Editor’s Note: Kelly Opferman is a seasoned writer who at this time focuses on her car payment calculator site. Her educational background includes finance, teaching, and economics.