Starting A Business With A Friend

Starting a business with a friend can be a great idea, since starting a business can be a difficult and lonely journey. You are both full of enthusiasm and can support each other through the initial difficulties of launching and running a business. However, there may be many pitfalls to setting up a business with your friends. Many statistics demonstrate the pitfalls of working with friends, but many of the world’s most successful entrepreneurs have started successful businesses with their friends.

All to often, little thought is given to all the things that could go wrong, choosing only to think of the positives. Then, when things do go wrong, it is too late and disputes may occur on how to resolve them. Some important start-up questions should be:

  • How will profits be distributed?
  • Who is responsible for regulatory matters? e.g. filing accounts and tax returns
  • How will efforts be rewarded?
  • What happens if someone wants time off?
  • How will it be valued if someone wants to exit?
  • What if the partner does something wrong? e.g. incurs debt on behalf of the business

Whatever the size of the intended business, it is important to sit down before and set out in writing a partnership or shareholder agreement detailing intentions. This doesn’t have to cost a fortune, but simple help from an accountant, may help you to go through checklists and agreements to find what will work for you. This will set out how the business relationship will operate, the rights & responsibilities of each party, what happens in case of dispute etc. The accountant can help advise you in the agreement for a smooth running of agreement, which should then be signed with a lawyer.

On the other hand, working with a friend provides genuine companionship, comfort, affirmation and support, whilst working with someone you truly know and trust, sharing the same beliefs as you and you may communicate more emphatically. Working with friends will allow for great brainstorming sessions, since you are comfortable around your friends, removing inhibitions and expectations, your brainstorming sessions can be easier. Ideas can come and go, building on one another and developing into better ideas. It may become a struggle to distinguish work from ‘play’ and although brainstorming can be great, you may also get distracted with chatting. But this works in the same direction that in your off time, a random chat may lead to a great brainstorm. Therefore, boundaries should be formed.

Working with a friend means they are accepting of your strengths and weaknesses. They know personal things about you and when you struggle, but also when you excel. Therefore, your friend can help to fill in your weaknesses, but also encouraging your growth. It is essential that you can still sit down together and discuss productivity – reviewing what has been achieved and what needs to be done going forward. With a friend you may be more empathetic, therefore, it is important to understand they’re the same as any other colleague and should still be done respectively.

The very same benefits that can be derived from friendship can also cause major problems, these may transfer into friendships and become less forgiving in the world of business. The strengths of familiarity may lead to contempt, where one may have to pick up the slack of another or costs to the business. Further, if roles aren’t fully defined, there may be cross over in the determination of roles – who is incharge of what aspects, who is the overall boss, etc.? The power struggle may affect the business from differing opinions on the company’s vision, strategy and daily operations.

Ultimately, you need to make the decision of whether it’s a right decision for you to work for a friend, or if you could have more success by working independently and then growing your team e.g. employing an accountant if you’re not good with numbers. Some questions you should be asking are: do you share the same business goals and the same values? Do your skill sets complement each other? Do you work habits align? Can you resolve conflicts? What specific roles and responsibilities will you each have? How stable are your personal lives and friendship?

Before launching a business with your friend and putting your financial resources on the line in hopes of success, you should take a moment to ponder these complexities and discuss them with each other and an accountant to ensure this is a good idea for both parties. Correctly allocating finances and resources will help to validate a business idea. We know how stressful this can be, especially in the early days, therefore, we offer a free callback service to help discuss your business accounts.