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20 Replies Latest reply: Feb 6, 2008 4:13 PM by Uncle Leon RSS

Going into business with friends?

Mozart Newbie
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My friends and I would like to go into business together. I think it would be an exciting opportunity, but am reluctant because of potential conflicts that may ruin our relationship. Does anyone have any words of advice for going into business with friends? I'd also like advice on how we should structure the business partnership and equity, given that all of us will be making a different cash investment and can contribute in different ways (e.g. the deepest pocket wants to be a silent partner vs. one partner has the brain power vs. one would be providing the man-power).

  • Re: Going into business with friends?
    LUCKIEST Master
    Currently Being Moderated
    Yes, Going into business with a friend or friends can be tricky.
    However it is the american dream to go into business and succeed.
    SCORE suggests you and your partners write a BUSINESS PLAN.
    A Bus Plan serves as an assessment tool. As you GROW, the Plan will help keep track of the details
    and make sure the business is progressing as you intended.
    The next step is to see a Lawyer.
    Please do not hesitate to write again if you need additional info.
    Good luck, LUCKIEST
  • Re: Going into business with friends?
    DustinSteller Newbie
    Currently Being Moderated
    While I have seen many successful startups with friends and family, I have seen more heartache and failures. The friendships won't last if their is a fallout and the family angle becmes estranged. I've always been told, "Never go into business with friends or family"... I think it rings true. The relationships in this life are too precious to place a dollar on, and the dollar that you do end up placing on it is too fleeting and tempting to make the relationship last.

    If you do decide to go that route, though...Make sure the proper legal documentation is put into place so you are ALL protected.

    That's just my two cents...good luck!
  • Re: Going into business with friends?
    SCORE17 Newbie
    Currently Being Moderated
    Mozart,
    While doing business with friends will undoubtedly test your relationship, I also believe that working with people that you trust often breeds success. You will want to set up a partnership agreement so that if disputes arise, you will have clauses addressing these. A sample operating agreement can be found at officedepot.com-->Free Business Forms-->Sample Operating Agreeement for a Deleware LLC. This should help you think through the various issues. You certainly can develop different partnership interests based on what is contributed through time and money (for example, manager may receive 10% interest for running the day to day affairs but no need to contribute funds, limited partner/investor may invest 50% of funds but only receive 40% equity since they are not an active participant etc.) Good luck!
  • Re: Going into business with friends?
    score81 Novice
    Currently Being Moderated
    Hello Mozart:

    Going into business with friends is easy and very difficult too. Here are my suggestions to reduce the risk of breaking friendship:
    Completely seprate the Business Management with Operation of the business
    1. Business Management:
    a. Form LLC or S Corporation and divide the share of the company as per investment.
    b. Setup clear rules how the company will be managed and how all investor will work togather to manage each role.
    c. Management meetings and each individual role and responsibility update.( Monthly Quaterly)
    d. Define the operation of the business and how it will be operated, what financing required and how much each employee will be paid and complete business plan be prepared. How it will be financed.
    e. Every quater/six monthly report on profit or loss.
    f. Profit will be distributed as per share invested.
    g.All monitor the progress and has access to all accounts info any time of the day.
    e. Owner who are employee will not vote on their performance.
    f. An attorney should be hired to write all contract so every body interest is protected.

    2. Operation:
    a. Operation manager will be hired as per Business Plan( it can be founder of the company)
    b. Pay will paid according to hour work and all other benefit will be provided as employee.
    c. He will work as w2 employee of the company( although he is owner) but treated exactly as employee
    d. All other jobs will be filled as per business plan and agreeemnt of the owners.
    e. Owners can be employee and treated and paid as so.
    f. Their performance has to be monitored same way as other employee.

    If all followed properly there should never a conflict of interest will happen.
  • Re: Going into business with friends?
    Mozart Newbie
    Currently Being Moderated
    Thanks for the Community's different perspectives. This gives me lots to think about.
  • Re: Going into business with friends?
    Woodstock Newbie
    Currently Being Moderated
    Something else to think about: Bring in others from outside the circle and give them real responsibility. If the strain (of cash flow, conflicting goals, etc.) gets too great, that will give you more of a buffer. Try to be well-capitalized so that a partner can go his/her own way later without jeopardizing the business, and so that the business doesn't become your life. And keep things in perspective, so that the friendship stays first.
  • Re: Going into business with friends?
    Score133 Novice
    Currently Being Moderated
    Going into business with friends is always fun and frustrating! Even though they are friends, treat this venture as you would when dealing with strangers...get everything in writing. I'd strongly advise you to have each potential partner (and their spouses) define on paper what they expect from their participation in the business. Ask them to delineate duties, rewards, input, equity, and especially exit strategies. Nothing is worse than having a cherished friend die, only to have a not-so-cherished spouse take over the partnership responsibilities of the deceased. The best way to do this is get everyone's expectations in writing, then build a very comprehensive business plan based in part on these expectations. Also, have an attorney review all contractual agreements..."Oh, we're such good friends we don't need an attorney" will never hold up in a court of law...only a contract holds up! Good luck!
  • Re: Going into business with friends?
    misterc Newbie
    Currently Being Moderated
    Ask yourself if you need a partner first. Partnerships of any kind can be tricky, whether it's with friends or not. Especially if you will be investing different amounts. Before you do go in to busiess make sure that you do have a business plan, you may find the answer you are looking for before you get into business.
    • Re: Going into business with friends?
      ScubaDive Newbie
      Currently Being Moderated
      That's great advice misterc. I had a partnership once with a friend, not a close friend, but the younger brother of a close friend. There were a couple of gray areas in our partnership contract and it turns out that those gray areas caused a lot of problems. I agree that it is best to get everything in writing and to think through every possibility and to have each one appear in the contract.

      Partnerships can be tricky and I like the idea of having my own business now without partners.
  • Re: Going into business with friends?
    DustinSteller Newbie
    Currently Being Moderated
    This is a lively topic! I think, perhaps, it might be a good idea for an article about the benefits and pitfalls of partnerships. :-)
  • Re: Going into business with friends?
    Mozart Newbie
    Currently Being Moderated
    Just wanted to let everyone know that I am still contemplating this tough decision to go into business with my friends. Thanks to the community's feedback and advice I'm now able to make my decision more objectively.
  • Re: Going into business with friends?
    ParadiseOasis Newbie
    Currently Being Moderated
    I agree with all the replies, it is tricky as is going into business with friends or family. The first thing you should do before anything is complete a business plan and get into the details.During the construction of the plan your business partners will show you if they are really commited to making it work. It's not easy to complete a buiness plan which is why it should be the very first milestone in your venture.
  • Re: Going into business with friends?
    Hardcourt Newbie
    Currently Being Moderated
    I have done this on two occasions and both have gone south. We had all the best intentions each time and also took many of the steps here to prevent conflicts and personal issues. Just be warned it is very difficult, even when you think you have all your bases covered and you put appropriate checks in place.
  • Re: Going into business with friends?
    WEBillions Novice
    Currently Being Moderated
    Deciding whether or not to partner with a friend or family
    member is a tricky question. Businesses are tough. Your business may not turn
    out to be successful. You don't want to mess up your relationship. Consider if
    you think a serious dispute with your partner would affect your ability to be
    friends with them, both from your perspective and theirs. If they tend to get
    pretty emotional in a disagreement, you are probably better off choosing
    someone else. That doesn't mean you can't ask them for advice in the future.

    On the plus side, it's always nice to have some companionship
    when starting a business. There are going to be many days where you question
    whether you are doing the right thing and it's always nice to have a friendly
    ear around when that happens.
  • Re: Going into business with friends?
    DomainDiva Master
    Currently Being Moderated
    I have friends that are on the board of my company. There must to be an atmosphere of accountability between the members.

    We have an understanding: Love is love but business is business.

    When doing business with friends or family everyone has to understand this and be able to accept the consequences.
  • Re: Going into business with friends?
    marcuela2 Newbie
    Currently Being Moderated
    Dear Mozart: It is really nice to see that you want to do something with you friend, Even more, you want to put more money than him. Well, too bad. for my personal experiences that it doesn't work. Sorry, no even the good planing or the best contract that the lawyer can draft for you is going to work. You know why? Simple, because there is not equally in the business. This is like a marriage two persons ready and willing to put to work your adventure for good or bad and wishing the best to have a happy finale but, when only one is devoting more than 50% in the business and then expecting 100% of profit? make your own math. It is more easy to deal with stangers because you can tell exactly what are you expectations and what everybody has to do. Not hard feeling and friendship is respected. Probably, you need to start you own business. Simple a solepropertorship. unless, you need to save assest,is easy, more advantage on taxes, less legal matter to resolve and the oportunity in the future to expand your business.Only, my advice is make sure is what you want to do , a means to be your own boss, and your have to be prepared to no collect salary for at least 3 months sounds GOOD? Pay bills and make your own decisions for the business. GOOD LUCK. PS> IF you do not hope to win, you lost already.
  • Re: Going into business with friends?
    phloyd Newbie
    Currently Being Moderated
    Don't do it!!! Save yourself alot of ulcer material. Work twice as hard and do it yourself, but if you don't listen to this. Make sure you get $$$$ as its harder to leave you hanging. Get everything in writing, even when you can take a dump. You can have them as investors and hire people to do what you think they will do or do it yourself. You will save alot trouble. Expecting others, even friends to see things like you do is not going to happen. Trust me on that. But if you do try the most important of all the things to get in writing is an exit.
    Good luck on your endeavor.
  • Re: Going into business with friends?
    Uncle Leon Apprentice
    Currently Being Moderated
    << Does anyone have any words of advice for going into business with friends?>>

    IMHO it may sound like fun but it's not a good idea.

     

    A good basis for selecting a business partner (I use the term partner, loosely) is if you both have different skills that are required by the business, and that these skills compliment each other.

     


    Also, the partners personalities should "fit" each other comfortably. You must be able to get along under pressure.

     


    You should both have the same vision and priorities for the business direction.

     


    Another good reason to have a partner is if you NEED his skills continually, and his departure from the business would be very negative. In other words, a greater assurance that he willl be committed, and that it will be unlikely that he will quit, as an employee or contractor might.

     


    I strongly recommend against a "partnership" form of business. A limited liability partnership or an "S" Corp is better. IMHO an "S" Corp is "cleaner" for many reasons. That way, one person can own "controlling" stock, and can therefore make the FINAL decision if there is a conflict. However, be sure that your by-laws are set up to define that a simple majority will carry any motion.

    What if partners work different amounts of time and/or expend different effort.

    Regardeless of the amount of investment, each job should be defined, and a fair salary basis set for that particular job. Then each person gets paid porportionally to their effort and contribution.

    When business profits are dispersed, they can then be dispersed on a "pe share" basis. That way, the ones with the most investment will yield the greatest rewards.

    If a partnership type of business entity should be selected (instead of a corp.) a very good "break-up" or "Buy-out" agreement should be written into the partnership agreement when initially formed.

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