Starting a business with friends can be exciting. However, that excitement can sometimes turn into frustration if the business partnerships fail. It has been reported that up to 70% of all established business partnerships ultimately fail.
Starting a business with a friend might sound like a great idea, but it rarely ends up going according to plan. Even if your friend makes an excellent business partner, you should always be prepared for the unexpected. In this article, you’ll learn some ways you can protect yourself when going into business with a friend.
Starting a Business with Friends
The modern world of business can be cutthroat and difficult to navigate, especially when you go it alone. Many entrepreneurs, struggling to meet the demands of the market single-handedly, decide to hire friends for help. Although this can sometimes create a dream team, often things get messy.
Even if you feel confident that you and your friend can succeed, it’s always a good idea to be prepared and wary of potential issues. If you fail to create a backup plan and protect yourself—especially legally—you might end up at the mercy of the economic climate, which may not be a good thing. Instead, stay on top of the ball and in control of your company’s success by making a plan.
Protecting Yourself When Going into Business With Friends
There are many different things that can go wrong when starting a business with a friend, but there’s also research that shows friendships have certain unique advantages in business. For example, Noam T. Wasserman, author of The Founder’s Dilemmas, discovered that businesses founded by friends are more resilient through tough times.
To reap the full benefits that come with starting a business with a friend, you first have to set up a solid foundation of trust and open communication. This way, you can prevent disaster before it strikes rather than wait for things to go wrong.
Use a Business Partnership Agreement or Operating Agreement
Put your expectations and business plans in writing as soon as possible. This will protect you in case of a legal issue in the future. Openly discuss what will happen if things go wrong and the business fails. It’s always a good idea to create a legally binding contract stating these things in black and white and to have all parties sign it in agreement. You may want to consult with a lawyer to make sure the agreements are done correctly.
A Business Partnership Agreement or an operating agreement are documents that explain how the business will operate. Both documents will outline how things like how decisions are made and how profits and losses are handled. The agreement will also help resolve conflicts as it will also dictate how conflicts are resolved.
In case of an unfortunate event such as ending the business partnership with your friend, having these agreements signed will help with the transition.
We all know how crucial communication can be in our interpersonal relationships, but it’s even more important in business. 86% of employees and executives identify poor communication as the leading cause of most workplace mistakes. You can save yourself—and your company— from experiencing those errors by implementing consistent, clear communication.
Communication doesn’t always have to mean face-to-face meetings and get-togethers over coffee, either. There are several ways you can communicate effectively with your business partner(s). Here are some additional methods you can use:
- Email updates
- Text messages
- Communication apps
- Social media
- Phone calls and video meetings
You can also communicate business needs and strategies using online tools such as Google Drive, where you can instantly share, update, and view files together. If you don’t want to get your business messages tangled up with your personal life, you can also download WhatsApp for free. WhatsApp is great for entrepreneurs. You can send messages, start audio and video calls, share files, locations, and more, right from your cell phone.
Make Everything Transparent
A big part of good communication is transparency. In a business partnership with a friend, transparency means that all parties have access to all financial accounts, bookkeeping records, and other records. Making all accounts and records accessible to all partners will build trust.
Assigning roles is a natural part of running a business that ensures all processes go as smoothly as possible. While all parties should have a role to play in the business, some responsibilities should be shared. Perhaps alternating bookkeeping responsibilities will allow for everyone to do their part. It will also ensure that everyone has the opportunity to review the work of everyone else.
When you and your friend are discussing who will be responsible for which aspects of the company, make sure that the titles and roles associated are clear, concise, and realistic. But you should also allow for some overlap so that one person does not have absolute control of any one part of the business.
Discuss the Worst-Case Scenario
Many business owners worry that discussing potential problems leads to them actually happening. Not only is this untrue, but by avoiding those conversations, you can create even more problems further down the road.
Even if the conversation is uncomfortable at first, you need to feel comfortable discussing worst-case scenarios with your business partner. It’s important to keep your eyes open for potential risks for your idea to succeed.
If you don’t feel comfortable talking about failures and flaws with your friend, then you should probably reevaluate your decision to go into business with them.
Know Your Partner
You may have been friends with your business partner for years, but how well do you really know them? Even if you’re close on a personal level, that doesn’t mean you’ll necessarily always work well together. Your expectations for your partner might be aligned with their personal self, not their professional self.
One way to protect yourself when going into business with a friend is to make sure you can properly work with your partner’s communication style, habits, and reliability. You might even want to consider a trial period of being business partners before you fully commit, just to make sure that their work style is compatible with yours.
Create a Safety Net
It’s important to protect yourself and your own interests, even when entering a business partnership with friends. Remember that just because you have a backup plan doesn’t mean you have any less faith in your business’s potential. It just means you’re looking out for your future.
Even when it’s smooth sailing for you and your friend, make sure to protect yourself and have a backup plan. This can protect you from legal, financial, or even emotional backlash if the unexpected becomes reality. As they say, it’s better to be safe than sorry.