Going into business with friends


Some business ideas originate as concepts jointly developed by friends who are partners from the beginning.

Other small business owners may find that they would like to bring their friends into the business further down the road for strategic reasons (e.g. the friend has financial resources or skills and networks that would benefit the business).

Going into business with your friends might seem like something that will make life easier. After all, as friends, you know one another’s thought processes and worldviews, working styles, and strengths and weaknesses. Trust already exists, and working together is likely to be fun and tension-free.

Before making the decision to go into business with a friend, small business owners should be honest with themselves about the dynamics of the friendship.

Perhaps one of the reasons it works is because you only see each other occasionally, and working closely together would change that pattern and stress both of you. Perhaps one of you is used to being dominant in the friendship, but the business relationship requires role reversal and one or both of you cannot adjust.

Perhaps your friend’s strengths and weaknesses do not complement yours in the business context, or there are behavioral traits that make him or her unsuitable as a business partner. Just because you are dealing with a friend does not mean you as a small business owner should be less discriminating and selective about who you go into business with.

Once the decision has been made to proceed, small business owners should accept that people and relationships change over time, no matter how long and deep the friendship.

This is not necessarily a bad thing for either the friendship or the business, both of which could be enriched by these changes. But it does mean that a degree of formality in the form of contracts and other signed agreements are necessary to protect both parties and keep things amicable.

A laissez-faire attitude of ‘we’ll figure it out later’ could prove to be disastrous for both the business and the friendship.

For instance, you and your friend should agree on and document the following:

• How the ownership of the business will be shared.

• The roles you will play in the business, including the time each of you will contribute.

• The steps to be followed in the event one of you decides to exit the business (e.g. giving your friend the first option to buy you out).

• The stance on spouses and family members having partial ownership or working in the business.

• How to manage the business’ finances, especially keeping business assets and bank accounts separate from personal ones.

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1 comment
  • Great article. I would suggest having a commercial lawyer look at what you will do when one of you dies. What happens to the shares? Otherwise, you might end of with your friend's spouse, whom you hate and cannot get along with, sitting on your board.

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