From Friends To Partners: Pros And Cons To Building A Business With Friends

3 min read By eCompareMo on October 27, 2017

It’s difficult to be professional when your relationship with a business partner is personal. Business can come between friendships and the other way around—which often causes regret and resentment

According to a study conducted by the Harvard Business School, technology startups founded by friends were the most unstable. Even Jack Ma has advised against inviting friends to form a company.

One typical problem with forming a company with friends is, it’s hard-to-say-no to an extra time off request. It can also be difficult to talk about performance issues and budget utilization.

But for some, the possibility of spending busy days building a seven-figure corporation with a friend then having regular chill nights enjoying the fruits of your success is too tempting a dream to put aside.

Planning to build an income-generating empire with your best friend? Here are the key things to consider when thinking about conquering the market with the buddy system.

Free-flow brainstorming sessions vs. Imbalance of work and play

Brainstorming is easier when among friends. It isn’t as difficult to just put ideas out there when you don’t fear judgment. From this type of free-flowing and friendly exchanges of thoughts, better ideas can spring out. However, time tracking can also be an issue when boundaries are crossed. It’s vital that you establish the right time to have serious talks about business and the right time to share good times as friends.

Shared burdens vs. Compartmentalizing relationship issues

Having a mate to share the workload is a significant relief. On the flipside, disagreements happen when one is accomplishing more than the other.

Accepted strengths and weaknesses vs. Awkwardness addressing performance issues

Knowing your partner well eliminates the tedious need to familiarize yourself with their strengths and weaknesses and how you can both work more efficiently around each other. Having a person who knows you at your greatest and at your worst gives you a built-in fortified support system.

On the other hand, it is challenging to bring up productivity concerns as the last thing you want to do is to make your partner feel further inadequate.

Now that you know the pros and cons. Here are ways you can tackle and turn around fuzzy situations.

• Put the fundamentals in writing.

Though you fully trust your friend, it is the protocol in a business for partners to have a signed document in place indicating roles, targets, ownership breakdown, and investment amounts. The fine print should also include conflict compromise procedures, succession plans, and compensation amounts.

• Determine contributions.

Both parties should be crystal clear on what they will be bringing to the table. Roles and contributions from each such as working hours and commitment, capital shares, as well as networks which can translate to potential sale should be laid on the table.

• Define the split explicitly.

Unless you are working in a charity, partners should be clear on the individual revenues. Will you be paid per commission? Will you get client-based pay? Will the earnings be split 50:50 or depending on work rendered? Money is a problematic matter to talk about but should be dealt with upfront.

• Ensure motivations are aligned.

Aside from sharing the same company vision, partners should also have the same or similar motivations for going into business.

• Discuss an exit plan, just in case.

A startup offers numerous opportunities and potentials, which can be challenging to bring to fruition. There are also numerous ways that a startup could fail. It’s best to have a formal discussion of possible exits in cases of business failure before you actually reach that point.

• Have separate business and personal bank accounts.

Doing so is a prerequisite to accurate bookkeeping. Though your business is rooted in friendship, it is important not to mix your personal finances together. Also, this will encourage appropriate financial management and avoidance of abusing company funds.

Sources: Entrepreneur, Forbes, Inc.com, Businessknowhow, Globe and Mail, Ryan Robinson, Freshbooks