Are friends good business partners? 5 things to consider before you take the risk

Tradition holds that there are three things that ought to never be discussed at the dinner table: politics, religion and personal funds. Even if you’ve never personally experienced the emotional eruptions that these topics seem to choke like lava in an lively volcano, common sense dictates that it is best to avoid them unless you’re 100% sure about your audience.

As far as I know, going into business with a friend is not a concept that tradition warns against with the same memorable brevity.

As in the example above, common sense may whisper that the arrangement is potentially dangerous, but emotions reminiscent of shared excitement at the idea of ​​spending work hours with someone you care about can provide a compelling counterargument.

Experience, as all the time, is the best teacher to turn to when in doubt – and I have a lot of experience in starting firms with people with whom I also have some social ties. I can confidently say that while it is possible to successfully join forces financially and emotionally with someone you have feelings for, there is no guarantee that the relationship will remain the same no matter the final result.

With so much at stake, it is extremely necessary to fastidiously consider this feature from every angle before making any irrevocable decisions. Fortunately, the lack of proverbial wisdom on this topic does not mean that the pioneers didn’t provide a wealthy reservoir of practical knowledge for careful consideration:

1. Clarify roles, responsibilities and expectations

One of the most significant steps when starting a business with a friend is to define the roles and responsibilities of each partner. While this will likely seem unnecessary at first – especially if you have similar skills or interests – ambiguity in this area can lead to misunderstandings and resentment over time.

• Assess individual strengths and weaknesses: Determine what each partner brings to the table. For example, one person may excel at marketing and sales, while the other is higher at operations or financial management.
• Clearly define positions and responsibilities: assign specific tasks to each partner to avoid overlaps or misunderstandings. This ensures accountability and allows the company to operate effectively.
• Set performance expectations: Agree on working hours, deadlines and level of commitment. If one partner works full-time in the company and the other part-time, this disparity must be addressed immediately.

By clarifying these roles early on, you can prevent arguments about who is contributing more and who is falling wanting expectations.

2. Establish a shared vision and goals

A shared vision is the foundation of every successful business partnership. Before you take on a enterprise, sit down with a friend to discuss your long-term company goals.

• Align priorities: Make sure you each agree on the purpose of the company. Is it about making quick money, building a lasting legacy, or pursuing a passion? Misplaced priorities can lead to friction later.
• Define success: Success means different things to different people. For one partner this will likely mean rapid expansion, for one other it could mean maintaining a small but stable operation.
• Anticipate future challenges: Discuss potential obstacles and how you plan to address them. For example, what happens if one partner wants to leave the company or financial difficulties arise?

Conducting these conversations early ensures that each partners are aligned on the direction of business development.

3. Draft legal contracts

Even if you trust your friend implicitly, formal legal agreements are essential when starting a business together. These documents protect each parties and provide transparency when disputes arise.

• Partnership or operating agreements: These agreements specify ownership percentages, profit-sharing arrangements, decision-making powers, and dispute resolution procedures.
• Exit Strategies: Plan scenarios in which one partner wants to leave the company or sell his share. Determine how the transfer of ownership will work and whether the remaining partners will have the right of first refusal.
• Contingency plans: Address what’s going to occur in the event of unexpected events reminiscent of bankruptcy, illness or death. Implementing these measures can prevent emotional and financial turmoil.

A well-drafted legal agreement not only protects your interests, but also minimizes misunderstandings that would jeopardize your friendship.

4. Communicate openly and often

Good communication is essential in any partnership, but it is especially necessary when working with a friend. While you may already have strong personal communication habits, skilled relationships require additional layers of transparency and formality.

• Schedule regular check-ins: Hold weekly or monthly meetings to discuss progress, challenges, and goals. This ensures that each partners are aligned and be certain that issues are resolved quickly.
• Be honest about concerns: If something is not working – whether it’s workload distribution or decision-making processes – address it immediately somewhat than letting resentment build.
• Set boundaries between your personal and skilled life: Don’t let disagreements in the workplace spill over into your personal relationships. Similarly, don’t let personal problems interfere with business decisions.

Open communication fosters trust and makes each partners feel heard and valued.

5. Assess the strength of your friendship

Before you dive into business together, take an honest look at your friendship to determine if it’s strong enough to withstand the pressures of entrepreneurship.

• Test your skilled relationship: Consider collaborating on a smaller project before committing to a full-fledged business enterprise. This allows you to assess how well you work under pressure.
• Discuss conflict resolution styles: Everyone deals with disagreements otherwise. Talk about how you will approach conflicts – whether through mediation, voting systems or third-party arbitration.
• Assess your living situation: Before starting a business, make sure that each partners have a stable personal and financial situation. If one partner is struggling with significant life changes (e.g. divorce or debt), this will likely not be the right time for him or her to take on additional responsibilities.

I went through the technique of turning a friendship into a business partner and it is possible. But it will probably also go very incorrect. Remember that you will almost definitely never have the ability to completely separate your skilled and personal matters. As a seasoned entrepreneur, I firmly consider that there are artificial distinctions made between whether you’re working with a sibling or a college roommate. All things are personal, so before you risk something as priceless as friendship, make sure you’re ready to weather the storm.

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