For friends with entrepreneurial dreams, starting a business together can be a great idea; however, the path to success isn’t always easy when working with someone close to you. Here’s what you should know before running a business with a friend along with tips for those who are ready to start.
What to know before running a business with a friend
While running a business with a friend may sound like a recipe for success, certain considerations are worth thinking about before taking the leap.
The pros and cons of running a business with a friend
Diving into a business venture with a friend, instead of going it alone, has many advantages for entrepreneurs, including the following:
- You already understand how your business partner operates. Understanding your business partner allows you to efficiently tackle responsibilities by delegating based on strengths and weaknesses. By knowing how your business partner operates, there’s less guesswork in determining roles and responsibilities, allowing for a quicker adjustment period.
- You can communicate comfortably. The ability to communicate comfortably and honestly is vital in any business, and working with a friend allows you to explore difficult topics with ease rather than spending time getting used to talking openly with a new partner.
You have a built-in support system. Having a friend by your side as you start your entrepreneurial journey provides you with someone to go through all the ups and downs with, easing stress and providing support from somebody who understands.
While running a company with a friend provides many advantages, entrepreneurs should consider the downsides as well, including the following:
- Your dynamic may change. Having a friend become a business partner is bound to change your dynamic, as financial and personal risks are on the line that did not previously exist in your friendship. The focus of your friendship is no longer simply fun, it’s about business and success as well.
- Emotions can run high. When friends work together, personal conflicts can get in the way of professional matters if emotions aren’t put aside. When personal issues bleed into the workplace, business partners can run into trouble.
- Your friendship and business can become intertwined. Working so closely together can alter the way you interact with one another and make it harder to separate professional time from personal time, even after “working hours” are over. As free time is spent planning business ventures or discussing new ideas, hanging out can become less frequent.
Questions to consider before starting a business with a friend
Before you decide to make your partnership official, ask yourself the following questions to ensure you’re each ready:
- Are your values similar? Understanding each other’s values is critical to success, as they are the motivators used to drive your business. Determine what your partner is looking for from the business, and ensure it's in line with your values — or at least close enough that you can work through it together.
- How do your skills complement each other? Identify where your skills differ to determine responsibilities and address potential shortcomings in your business. For example, if one partner is better at communicating, while the other is better at logistics and organization, use those strengths to guide your role assignments.
- Do you have the same goal for your business? It’s important to confirm that your business goals are in line with one another, otherwise, you could wind up damaging your friendship or negatively impacting your business. Share your goals, projecting at least five years out, to see whether they’re focused on growth, financial milestones, or something else.
- Will your career and personal habits clash? Ensure that both parties are on the same page by observing lifestyles, habits, and work ethics. Consider factors such as preferences for a professional versus relaxed environment, working hours, communication habits, and how much of a work-life balance you want to achieve.
Miscommunications are plentiful in business, but they can have a lasting negative impact — especially when they occur between co-owners.
How to run a business with a friend
Running a business with a friend can yield great rewards for both your friendship and your business’s success, just as it has for many organizations in the past. Follow these six tips if you’re considering starting a business with your friend.
Get everything in writing
Before starting a business with your friend, draw up paperwork to put your partnership in place. Consider meeting with a lawyer with experience in partnerships to draft a business plan and ensure you’re covering all your bases. There are many contingencies you might miss from the get-go, and having it all in writing will protect you and your business partner/friend from potential issues down the line. For instance, if one of you wants to leave the business, you will have a contract in place that outlines how you will value the business.
You should also put into writing any and all business promises, like compensation rates, profit shares, investment contributions, and business accounts.
[Read more: How to Write a Startup Business Plan]
Establish a shared vision
Before diving into a business with your friend, talk to each other about the business idea and how it might pan out, including any obstacles that might arise. How will you address these potential issues, and do you agree with the proposed solutions?
Ensuring you share a similar vision for your business and its future is crucial to your success. It isn’t enough to agree on a business idea or industry; you must anticipate the entire future of the business, including any sacrifices and pivots you each may have to make.
Clearly define each of your roles
Don’t jump into entrepreneurship aiming to be jacks-of-all-trades. Instead, evaluate each of your strengths and weaknesses to determine the appropriate roles. Make sure you both understand your unique responsibilities and how they differ from each other so you can properly delegate work and operate in a collaborative manner.
Create a realistic budget together
Creating a budget for your business can be a challenging task, as it involves multiple factors. When determining the right budget with your friend, ask yourselves the following questions: How will you pay yourselves? How much will you invest directly into your business? How much will you need to set aside for things like taxes, employees, supplies, and other expenses? This will help ensure both parties are on the same page and comfortable with the budget.
Every budget should include:
- Estimated revenue. As the first line on your budget, this figure encompasses the money you make from sales.
- Fixed costs. Fixed costs are any regular expenses, including rent, utilities, and equipment leasing, whose prices remain unchanged regardless of sales.
- Variable costs. Variable costs are anything whose prices change based on sales, such as shipping costs, credit card fees, or inventory.
- One-off costs. One-off costs are irregular purchases made to benefit your business including furniture, moving services, and equipment upgrades.
- Cash flow. Cash flow encapsulates all the money that comes into or out of your business.
- Profits. Profits are the amount of money you made after all expenses are deducted from your revenue.
[Read more: How to Create a Budget for Your Business]
Communicate openly and often
Miscommunications are plentiful in business, but they can have a lasting negative impact — especially when they occur between co-owners. Communicate with your business partner/friend often to ensure you’re both staying on top of your respective tasks. If either of you runs into issues or has questions, you should feel comfortable communicating with each other and asking for help.
When working with a friend, you might hesitate to admit you’re struggling or raise a concern. However, keeping to yourself can harm the business’s bottom line. For instance, if one of you feels the other isn’t including them in important business decisions but fears speaking up, this can breed resentment and turn into a larger problem down the line. Host monthly check-ins where you both share what you feel is and isn’t working and how you can better work together.
[Read more: How to Create a Successful Internal Communications Strategy]
Separate work from play
As friends, you and your business partner are likely to continue spending time with each other outside of work. Whether you’re grabbing dinner on a Friday night or attending a cycling class at your local gym after work, don’t cloud your personal time by talking about your business.
The same goes for work. During the business day, don’t waste time venting about a problem at home or allowing personal arguments to get in the way of your business partnership. Keeping the two separate is crucial to protecting both your personal and professional relationships — as well as the business itself.
This story was originally written by Sammi Caramela.
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