Starting a new business can be a frightening endeavor, especially if you’re tackling the task alone. Sharing the workload with a business partner can provide a certain level of comfort, but many people struggle to find someone they trust.
Entrepreneurs often turn to friends for help with new business ventures (think Ben and Jerry or Jobs and Wozniak). There can be advantages to building a company with someone you already trust, but managing a profitable partnership is different than maintaining a friendship. Here are several steps you should take before going into business with your best friend.Tweet This
Talk About Money
You probably don’t know your best friend’s personal credit score, do you? Discussing your finances may be awkward, but in this case, you need to be frank and open with one another. If you do go into business with a friend, each of you will put money at risk. There will be financial entanglements that you may not foresee. Shying away from conversations about money at this stage can lead to trouble down the line.
You should both understand each other’s financial situations. Have either of you declared bankruptcy or struggled with excessive debt? How much personal debt are you currently carrying? Do you each have enough cash to keep the business going if it struggles right out of the gate? While these questions may seem intrusive, the answers could take on new urgency once the business is in operation. Better to discuss money now before it becomes an issue.
Divide Management Responsibilities
Business partnerships have been compared to marriages, with compatibility being instrumental to success. Even if your best friend has been in your life since grade school, you may have no idea how he approaches work. That needs to change, since you’ll soon be faced with managing business risks together. It’s important that both of you understand the responsibilities that come with owning a business. Have an open discussion to answer questions such as:
- How much money will each partner invest, and how will ownership percentages be determined?
- Who will handle the various day-to-day tasks that come with running a business, such as permitting, sourcing, sales, and customer service?
- How many hours per week will you both dedicate to running the business?
- Who will employees report to?
As co-owners of a business, you’ll need to come to an agreement on major business decisions that guide you towards the same overall goal. It’s crucial that the questions above are answered before the pressure to succeed kicks in.
If your friend seems tentative about how they’ll operate the business, it may be a sign that they’re not ready for this commitment. After all, the whole idea behind a partnership is that working together will bring advantages. There’s little point in sharing the profits if they’re unwilling to share the responsibilities.
Gauge Your Objectivity
One advantage of going into business with a friend is that you have an existing relationship built on trust. The support that comes from the friendship can help ease the doubts or stress of starting a small business. However, you need to be aware that working alongside someone you genuinely like can cloud your judgement when it comes to business decisions.
You’ll each need to be able to separate yourselves from the friendship in order to make choices that are best for the business. Objectivity should be maintained as you create a business plan, seek investor dollars, find manufacturers, and promote the brand. This will create tension at times, as everyone has disagreements. A healthy business partnership will be able to weather these bumps in the road.
Are both of you capable of communicating your feelings, even if it might cause conflict? How have you handled disagreements in the past? If you sense that the friendship could hamper management decisions, it may not be a good idea to bring a friend into the business.
Discuss an Exit Strategy
One of the biggest risks of going into business with a friend is the chance that your relationship will crumble under pressure. Small businesses can struggle to reach profitability, and many fail with little to show for it. Before agreeing to partner with your friend, set business goals and decide what should happen if you don’t achieve them. For example, how many unprofitable years can you tolerate? What signs would suggest changes need to be made, and who has the final call on what happens to the business if one partner wants to exit?
If you do go into business together, it’s a good idea to have a lawyer help draft contracts and agreements that clearly spell-out how the company is structured, and the means by which it can be taken apart.
The decision to go into business with a partner is one that should not be made lightly. While a close friend may be the ideal co-owner, there are several pitfalls to entering into such an important arrangement with someone you intend to have in your life for many years. Frank conversations can help ensure that a fruitful professional relationship underpins the business.
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