Going Into Business With Friends
- Arnold Shields
- Dec 23, 2009
- 3 min read
Updated: Jun 23
As forensic accountants, we’ve seen our fair share of business partnerships that started with high hopes and ended in courtrooms. The common thread? A lack of proper planning.
You’ve probably heard people say, “Don’t go into business with friends – it’ll only end in tears.” But the data tells a different story. Partnerships have a four times greater chance of success than sole proprietors. The key? Choosing the right partner and setting things up correctly from the start.
Why Partnerships Often Outperform Solo Ventures
Running a business alone is tough. Sole proprietors often struggle with the sheer volume of responsibilities, marketing, admin, compliance, delivery, while still trying to make a living. There’s simply not enough time.
A partnership allows roles to be shared. Each partner can focus on their strengths. This division of labour can relieve stress, improve productivity, and drive growth, provided it’s done right.
Three Partnership Pitfalls to Avoid
Going into the right business with the wrong partner
Going into the wrong business with the right partner
Going into business with the wrong partner in the wrong business
Each of these combinations can spell disaster. So how do you get it right?
The 7 Steps to Take Before Going Into Business With a Friend
1. Is Your Friend the Right Business Partner?
Compatibility matters. You need more than shared interests, you need shared values, mutual respect, and the ability to work closely through tough times.
2. Why Do You Want to Go Into Business?
Get clear on your motives. Do both of you want the same thing from the venture? If one wants a national chain and the other just wants a lifestyle business, you’re heading for trouble.
3. Listen to Each Other
Talk honestly about your goals, your boundaries, and your non-negotiables. Good communication from the beginning builds a foundation of trust.
4. Discuss the Tough Stuff Now
What happens if you run out of money? Or if one of you gets sick or wants to exit? Having these conversations early helps avoid painful disputes later.
5. Define Roles and Responsibilities
Do a skills audit. Who’s good at what? Who wants to do what? Make sure each partner’s strengths are used and responsibilities are clear.
6. Match the Business to the Partnership
Your business idea should fit your personalities, skills, and ambitions. The right business for the right people is critical to long-term success.
7. Does the Business Suit Both Partners’ Dreams?
Even if the partnership is right, the business itself must align with what each of you wants out of life – both personally and professionally.
The Legal Bit You Can’t Afford to Skip
Get a partnership or shareholders agreement drawn up by a lawyer. We cannot stress this enough.
This single document can save thousands in legal fees and countless hours of stress. It sets out what happens if things go wrong – and trust us, we’ve seen how wrong things can go.
Without an agreement, disputes often escalate into litigation, ruining friendships and draining business assets. With an agreement, at least you have a clear path forward.
Final Thoughts
Partnerships can be a powerful way to grow a business, but only if done right. Don’t skip the hard conversations, and don’t rely on good intentions alone.
Have you gone into business with a friend? How did it go? What did you learn?
We’d love to hear your experience, leave a comment below.
Disclaimer:
The information provided in this article is general in nature and does not constitute personal financial, legal or tax advice. While every effort has been made to ensure the accuracy of this content at the time of publication, tax laws and regulations may change, and individual circumstances vary. Dolman Bateman accepts no responsibility or liability for any loss or damage incurred as a result of acting on or relying upon any of the information contained herein. You should seek professional advice tailored to your specific situation before making any financial or tax decision.
