What You Should Know Before Starting
a Business with Your Friend
Considering starting a business with a friend? Being business partners with a friend can be really tricky. We heard horror stories about friendships falling apart after they started a business. Although starting a business with your favorite person is doable, just look at Microsoft with Bill Gates and Paul Allen, and Google with Larry Page and Sergey Brin. There are just a few practices that you should bear in mind if you decide to start a business endeavor with a friend.
Starting a business with your friend has some advantages:
First, it is fun to work with the person you genuinely like. You know each other well; share a lot of inside jokes and funny moments. Both of you will find it less stressful when things get rough in your business because you know how you can motivate each other.
Second, you are co-founders with the person you know and trust. The trust you have built in each other is from your shared experiences over time. This is important in making your business successful, when your business is going through something, you need the people you trust to stick with you and have your back.
Third, you know each other’s strengths and weaknesses, thus, this makes assigning and assuming roles naturally.
On a different note, there are also some reasons why starting a business with your friend is not a good idea.
Since your business is a 50/50 partnership, there might be a leadership ambiguity because you don’t have a structured hierarchy or predetermined roles. There could be times where you will find that your roles are not balanced and one of you might take the more authoritative or leading role.
Your business goal may also be different from your friend. For example, your goal for your food cart business is to have its second cart by the end of the year. For you to accomplish that goal, both you and your friend need to allot extra hours of your day plotting business ideas and planning. However, your friend’s goal is just to earn extra cash to add to his existing income.
What you should do before you start doing business with your friend?
1. You can start with a smaller business venture with your friend. See how your partnership works and how both of you handle different situations and challenges. If you and your friend worked together and supported each other successfully, you may dive in investing to bigger business ventures.
2. Agree on the core values of your business. Core values help establish a business identity, culture, and vision. The core values will help you with the decision-making process, how your business should function, and how you are going to solve any problems. That is why, it is important that you and your friend agreed on the same strong core values before you start running your business.
3. Assign your roles and responsibilities in your business. Since you already have an idea of each other’s strengths and weaknesses, this will help you with the assigning of your roles and responsibilities in your business. It is essential that you split duties equally and make each other accountable in your role, not unless the business is originally your idea and you have more expertise, and planning to work full-time. If this is the case, your role of ownership will be a bit higher.
4. Put all the agreements on paper before you start operating your business. This will set a defined parameter between your business and your personal relationship with your friend. By outlining you and your friend’s expectations, rights, and responsibilities in a contract, you will avoid future damages in your friendship. People’s views and opinions change, and you don’t want those changes to affect your business.
5. Establish a different bank account for you and your friend’s business. Do not mix your personal finances when you are starting a business partnership with your friend. Even if you are a sole-proprietor, you should not mix your personal bank account with your business. This is to ensure that there will be no mismanagement of your business funds, and to have a clean record when you need to deal with your income tax.