Going Into Business With Friends

As forensic accountants, we often see the results of poor partnerships, ones that aren’t planned properly and that end in tears and litigation.

Many people will say “don’t go into business with friends, it will just end in tears” but partnerships have a four times greater chance of success than a sole proprietor.

A sole proprietor will often find that the workload required to operate, administer and earn a living from the business there just isn’t enough time to do the other things that need to be done to grow that business.

Partnerships have the advantage whereby the necessary roles of a business owner can be allocated so that the workload can be shared.  This relieves the stress and pressure that would be felt by a sole proprietor.

Three things you want to avoid:

  1. Going into the right business with the wrong partner.
  2. Going into the wrong business with the right partner,
  3. and of course, going into business with the wrong partner and the wrong business.

There are seven steps that you need undertake before going into business with a friend.

  1. Is your friend the right business partner? Deciding for yourself whether your potential partner is the perfect start.  Choosing the right partner in the very beginning will be the most important decision influencing the result of the business. If your business is going to succeed you are going to have to work closely with each other.
  2. Why do I want to go into business? Successful business partnerships have a shared vision and roadmap.  It is important that you share the same dreams, goals and aspirations as your partner.  If your partner wants a chain of business or retail stores and your partner wants a living from only one of them then your partnership is not likely to last very long. Alternatively, you may want to work seven days a week but your partner can only allocate four days because of family commitments.
  3. Listening to your Friend. Aligning and communicating your dreams, goals and aspirations with your partner is about ensuring that you are on the same playing field and understanding how your partner thinks.
  4. Anticipating Common Business Partnership Issues. This is the time to have the difficult discussions.  What happens if we run out of money? What happens if someone is unable to work?
  5. Deciding on Roles.  Your skills audit.  What are you good at?  What do you want to do?  What is your partner good at?  What do they want to do?
  6. Checklist for the Right Business.  Matching the business to the partnership – the right partnership to the right business.  Your original business idea – by this stage we have determined – you have a good understanding whether your potential business partner is the person you want to go into business with.
  7. Does the business match what you want and need. The next question is if you’ve already chosen or thought of a business is it going to satisfy the dreams, goals and aspirations of each partner.

Important: I cannot stress this enough. Get a partnership or shareholders agreement drawn up by a lawyer.

It will be the most important document you have if it all goes sour. We have seen many litigation cases between partners that could have been avoided if a partnership agreement was in place.

What are you thoughts and experiences of going into business with friends. I would love to hear, leave your comments below.

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