Starting your own business can be tremendously exciting. Bound by neither boss nor corporate decree, you’re free to do things exactly as you please and can finally make your mark on the world.
But setting out on your own can also be incredibly scary. When you’re the boss, you’re the one making all of the tough decisions — there’s no one else to blame if things suddenly turn sour.
It’s little wonder, then, that so many people decide to go into business with a friend, family member or former colleague, pooling their collective experience and sharing the burden of running the business between them.
Starting a business with a friend isn’t without its pitfalls, however. Going into business with a buddy gives you a great deal of freedom, but it comes with a great many caveats.
Today on the RotaCloud Small Business Success blog, we’re discussing the things that every budding entrepreneur should consider before teaming up with a friend for business. Be sure to check this list before putting your business — not to mention your friendship — at risk.
Key Questions to Ask Yourself
So, you’re considering starting a business with your friend. This could be the start of something great, enriching your friendship and whisking the two of you off on an entrepreneurial journey you’ll never forget.
It could also be one of the worst decisions you’ll ever make, and one that will impact upon your friendship for years.
Before shaking hands with your new business partner, it’s important that you both ask yourself a few quick questions…
1. Do your skills complement theirs?
Arguably the most important thing to consider before going into business with a friend is whether your skillset supplements theirs.
It’s great if you and your friend are both, say, graphic designers or professional bakers — you’ll have a wealth of knowledge and experience between you and be similarly passionate about your trade. But does either of you bring any essential skills to the table that the other cannot?
If you possess identical skillsets, you and your partner will doubtlessly excel in certain areas of your business, but you’ll also really struggle in others.
Does at least one of you have a good head for figures? Do you or your partner have experience running a business, or are both of your backgrounds in the arts?
You might be a good fit as friends, but are you a good fit for business?
2. Is your partner professional?
If you’ve never actually worked with the person you’re considering going into business with, it might be worth talking to someone who has.
- Can you be certain that your friend is a reliable person to work with?
- Can they stick to deadlines?
- Do they conduct themselves professionally even during stressful situations?
- Can they be trusted to represent your business publicly?
We’re always ready to overlook our friends’ minor indiscretions, but bear in mind that your clients might not find your buddy quite as charming as you do. Only team up with a friend if you’re confident that they’ll take their work as seriously as they do your friendship.
3. Will they stick around?
You wouldn’t take a new job if you were about to relocate to another town or city. Similarly, if you or your (romantic) partner were expecting a baby anytime soon, you’d probably refrain from embarking upon any risky business ventures.
Obviously, both you and your business partner need to be in a place where you’re financially stable, but you also need to know that there’s nothing going on in their life (a messy divorce; a custody battle; ongoing legal disputes) that could preclude their ability to focus on the business.
Ask the difficult questions early and ensure that you’re both in a position to begin (and continue) your business journey together.
How to Succeed in Business With a Friend
If you’re confident that you and your friend will make a great business partnership, then congratulations — you’re off to a great start! Now it’s time to get stuck into the detail.
The following, while by no means an exhaustive list, are points that should be borne in mind when starting a business with a friend or family member.
1. Keep it personal
Your friendship was one of the key reasons that you teamed up in the first place, so why pretend otherwise?
You’ll need to lay down some ground rules before starting (more on that in a moment), but behaving like you’re simply managers in the same company is a pointless exercise and one that will be difficult to keep up.
Ignore that old adage about not mixing business and pleasure. You’ll need to conduct yourselves more professionally than you might normally, sure, but your friendship is a strength to be exploited, not a weakness to be hidden away.
2. Summarise your short- and long-term goals
You’ll need to spend some time early on outlining precisely what it is that each of you wants from your business, and how you’ll define its success or failure. After all, you might have similar passions, but don’t assume that you’re on the exact same page when it comes to your business goals.
A few things you should discuss might be:
- What do you hope to have achieved by the end of year one?
- What kind of ROI are you each hoping for?
- If it’s successful, is your goal to eventually sell the business to pursue other ventures?
- If it’s not, how long can you afford to stick at it before calling it quits?
There will, of course, be numerous other things to consider based on your particular situation and business model. You should make sure that your visions for the business align from the very start, however, otherwise you’ll risk hitting some pretty substantial bumps in the road further down the line.
3. Choose appropriate roles
While we’re on the subject of skills, an important thing to agree early on is that of the roles you will each fill in the company.
As tempting as it can be to snap up the title of CEO for yourself, you should consider whether you’re the best person for the job.
If you’re the kind of person who thrives in social situations and is a skilled networker, then you might well be the better choice for CEO. If you’d rather be keeping tabs on day-to-day operations than striking deals with fellow business owners, however, then you’d probably make a better COO.
Choose your roles based on your respective abilities rather than individual aspirations.
When you’re just starting out, roles won’t seem that important – you’ll be wearing many hats, after all – but as your business grows, it’ll help that you’ve already clarified who’s responsible for what.
4. Set some ground rules for working together
One way to ensure that your friendship doesn’t suffer as a result of working together is to set some ground rules early on. Sure, you’re cool, calm and collected now, but what happens when you’re overworked, lacking sleep and arguing about which of you last used the iPad charger?
As business partners, you’ll need to be able to have frank conversations about things like cashflow, performance, skills and results. You can’t afford to sugarcoat your words in order to spare your buddy’s feelings.
That’s why it’s important to agree right from the outset on the kind of behaviours that are and are not acceptable in your workplace.
This could be as simple as agreeing never to argue or contradict each other in front of clients or employees, promising to work a minimum of 40 hours a week, or perhaps even making a rule out of not taking negative feedback personally.
Whatever ground rules you decide on, you need to lay them all out at the beginning of your venture and stick to them like they’re contractually binding.
5. Have an exit plan
It might seem odd discussing the demise of your business when you’re just getting started, but it’s one of the most important conversations you’ll ever have.
Before you quit your current job, sign a lease on an office, or spend even a penny on office furniture, you need to agree on what happens if the situation changes and your business venture suddenly comes to an end.
Scenarios to prepare for include:
- What happens if one or both of you decide to exit the company?
- Is either party entitled to compensation if the other decides to leave?
- Can either party sell their shares to a third party?
- What happens if one of you does something that harms the integrity of the company and results in its closure?
Get all of this stuff down on paper, sign it, and (if you can afford to do so) have it witnessed by a legal professional. That way, if things do ever become heated or communication breaks down, you’ll both have something official to refer to and know how to proceed.
6. Know that your salaries may differ
It’s a common misconception that people who go into business together take home identical salaries as a result.
Just because you’re business partners or have equal ownership of a company doesn’t necessarily mean that you have equal pay, however.
Ultimately, one of you usually ends up with more responsibility, has a greater workload, or contributes valuable skills that the other simply cannot. That needs to be reflected in your salaries — and both of you need to be OK with that.
7. Keep track of the money
On the subject of money, chances are that one of you will be taking sole responsibility for your business’ finances. While there’s nothing wrong with that, it’s advisable to maintain a high level of transparency at all times and for both parties to have immediate access to your accounts and files.
Disagreements over money can tear even the strongest friendships apart. If you’re the one in charge of your business’ finances, therefore, make a habit of providing your partner with regular reports so that they can see everything you’re doing.
If you’re not the one with the key to the coffers, meanwhile, then make it your business to check in periodically with your partner and ensure that you understand everything that they’re doing financially.
You’re going into business together, so it’s only natural that you trust your friend, but if your numbers ever don’t add up then it’ll be just as much your problem as it is theirs.
8. Spend time apart
It’s a sobering fact that many of us in full-time employment spend more time with our coworkers than we do with our friends and family outside work. When you work with the same person you ordinarily socialise with, then, it stands to reason that you’ll see them more than anyone else in your life.
You don’t have to stop seeing your friend outside work after going into business together (you’re still friends, after all!), but it’s a good idea to give yourselves a break from each other by spending some weekends apart.
Take a trip out of town; hang out with people from another of your social circles; join a sports club that your partner doesn’t belong to. It doesn’t matter what you do, just so long as you spend time with other people and prevent your and your partner’s thinking and behaviour becoming so attuned that you’re incapable of bringing anything original to the table.
9. Just be friends
Often when people go into business with their friends, they find themselves discussing work matters even when they’re socialising.
While there’s nothing wrong with talking about things like future goals or funny things that happened during the day, it’s a good idea to put a ban on serious talk outside the office so that you’re not tempted to finish off conversations about work matters when you should be relaxing.
Friendships require just as much maintenance as businesses — you need to make time to just be friends and just have fun, otherwise you risk losing the very bond that made you such a good team to begin with.
10. Have an independent mentor
This might not be your first time running a business, but it is the first time you’ve gone into business with a friend or family member. As such, it pays to have an independent party who you can bounce ideas off and turn to when you and your partner can’t reach a consensus.
Ideally, your mentor will have no involvement in the business whatsoever but should have experience of making business decisions and can offer advice.
This person shouldn’t end up playing ‘mother’ and settling arguments between you and your partner, but their input should help you come to an agreement on the action to take in the event that you disagree or need outside input.
Ordinarily, when you start at a new company, you spend weeks or months getting to know your coworkers and managers. By teaming up with a friend, however, you can immediately get to work, knowing that you can rely on them and what they’re capable of achieving.
Providing that you’re going into business with a person whose skills complement your own and that you can agree on your goals early on, then there’s no reason why your friendship shouldn’t provide an immediate boost to your business, and outlast it whether it’s successful or not.
Going into business with a friend isn’t the walk in the park that many of us would like to imagine, but done right it can be a hugely rewarding experience. Good luck!
Want more business growth tips? Look back through our blog archives to help you kickstart your new business.