Tradition has it that there are three things you should never discuss at the dinner table: politics, religion, and personal finances. Even if you’ve never personally experienced the emotional eruptions that seem to inherently simmer in these topics like lava in an active volcano, common sense whispers that it’s best to avoid them when you’re not 100 percent sure of your audience.
As far as I know, going into business with a friend isn’t a concept that tradition forewarns against with the same sort of memorable pithiness.
As with the example above, common sense might whisper that the arrangement is a potentially dangerous one, but emotions such as shared excitement over the idea of spending your working hours with someone you’re close to can provide a convincing counterargument.
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Experience, as always, is the best teacher to turn to when in doubt – and I have had plenty of experience when it comes to starting businesses with people with whom I also share social ties of one kind or another. I can state with conviction that though it is possible to successfully join financial and emotional forces with someone toward whom you feel affectionate, there’s no guarantee that the relationship will remain the same regardless of the outcome.
With so much on the line, it’s crucial to consider this option deeply and from every angle before making any irrevocable decisions. Happily, a lack of proverbial wisdom about the subject doesn’t mean that its trailblazers haven’t provided a rich fund of practical knowledge for your careful consideration:
1. Clarify Roles, Responsibilities and Expectations
One of the most critical steps in starting a business with a friend is defining each partner’s roles and responsibilities. While it may seem unnecessary at first—especially if you share similar skills or interests—ambiguity in this area can lead to misunderstandings and resentment over time.
- Assess individual strengths and weaknesses: Identify what each partner brings to the table. For example, one person might excel in marketing and sales while the other is better suited for operations or financial management.
- Clearly define job titles and duties: Assign specific tasks to each partner to avoid overlap or confusion. This ensures accountability and allows the business to operate efficiently.
- Set performance expectations: Agree on work hours, deadlines, and levels of commitment. If one partner is working full-time on the business while the other is part-time, this disparity needs to be addressed upfront.
By clarifying these roles early on, you can prevent disputes about who is contributing more or falling short of expectations.
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2. Establish a Shared Vision and Goals
A shared vision is the foundation of any successful business partnership. Before committing to a venture, sit down with your friend to discuss your long-term goals for the business.
- Align on priorities: Ensure you both agree on the purpose of the business. Is it about making money quickly, building a lasting legacy, or pursuing a passion? Misaligned priorities can lead to friction later.
- Define success: Success means different things to different people. For one partner, it might mean rapid expansion, while for another, it could mean maintaining a small but steady operation.
- Anticipate future challenges: Discuss potential obstacles and how you plan to handle them. For example, what happens if one partner wants to exit the business or if financial difficulties arise?
Having these conversations early ensures that both partners are on the same page regarding the direction of the business.
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3. Draft Legal Agreements
Even if you trust your friend implicitly, formal legal agreements are essential when starting a business together. These documents protect both parties and provide clarity in case disputes arise.
- Partnership or operating agreements: These agreements outline ownership percentages, profit-sharing arrangements, decision-making authority, and procedures for resolving disputes.
- Exit strategies: Plan for scenarios such as one partner wanting to leave the business or sell their share. Specify how ownership transfers will work and whether remaining partners have first refusal rights.
- Contingency plans: Address what happens in case of unforeseen events like bankruptcy, illness, or death. Having these measures in place can prevent emotional and financial turmoil.
A well-drafted legal agreement not only safeguards your interests but also minimizes misunderstandings that could jeopardize your friendship.
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4. Communicate Openly and Frequently
Good communication is vital in any partnership but especially important when collaborating with a friend. While you may already have strong personal communication habits, professional relationships require additional layers of transparency and formality.
- Schedule regular check-ins: Hold weekly or monthly meetings to discuss progress, challenges, and goals. This keeps both partners aligned and ensures issues are addressed promptly.
- Be honest about concerns: If something isn’t working—whether it’s workload distribution or decision-making processes—address it immediately rather than letting resentment build.
- Set boundaries between personal and professional life: Avoid letting workplace disagreements spill into your personal relationship. Similarly, don’t let personal issues interfere with business decisions.
Open communication fosters trust and ensures that both partners feel heard and valued.
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5. Evaluate Your Friendship’s Strength
Before diving into business together, take an honest look at your friendship to determine whether it’s strong enough to withstand the pressures of entrepreneurship.
- Test your working relationship: Consider collaborating on a smaller project before committing to a full-fledged business venture. This allows you to assess how well you work together under pressure.
- Discuss conflict resolution styles: Everyone handles disagreements differently. Talk about how you’ll approach conflicts—whether through mediation, voting systems, or third-party arbitration.
- Assess life circumstances: Make sure both partners are in stable positions personally and financially before starting the business. If one partner is dealing with significant life changes (e.g., divorce or debt), it may not be the right time for them to take on additional responsibilities.
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I’ve been through the friendship-to-business-partner transition, and it can be done. But it can also go wildly wrong. Keep firmly in mind that you’ll most likely never be able to completely separate the business from the personal. One of my firmest convictions as a lifelong entrepreneur is that those are artificial distinctions whether you’re partnering with your sibling or a college roommate. All business is personal, so make sure you’re ready to weather the storm before risking something as precious as a friendship.
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The post Do Friends Make Good Business Partners? 5 Things to Consider Before Risking It appeared first on StartupNation.
