The modern world offers all kinds of opportunities for people to put their new ideas into business action. Having the correct company structure can save the small business considerable time and money. If you do not have the financial resources to go it alone as a sole trader, the logical answer tends to be a partnership. Partnerships are relatively inexpensive to set up and pool the partner’s cash investments. Profits are shared between the partners but so are responsibilities. Each partner is personally liable for the tax debts of the partnership. If you have the initial idea for a new small business, where do you find others to invest? This is often where friends come in – but what are the pitfalls are there to having friends as investors, partners or staff?
Working together can put friendships under intense strain. Remember that good friends are hard to come by and pay careful consideration to how a new joint venture will affect your relationship. Good communication, honesty, trust and mutual respect are all vital to both your friendship and your small business together.
Before creating a partnership with a friend, it is essential to talk through as many concerns as possible. Make a list of contingencies. Create a legal written contract describing who does what and what proportion of the company each partner owns. Look at this signed small business agreement as a kind of pre-nuptial contract – it may save your friendship if things go badly for your business.
There is a fine balance between maintaining friendship and growing your small business. Arguments will happen, so before forming a partnership ensure that you are all good at managing personal conflicts. Healthy arguments can be good ways of driving a business in the right direction. Greed, ego and conflicting ideas can all prove to be tough challenges and might make it necessary to involve a strictly neutral third party to resolve disputes without breaking up friendships. You need to be sure that the benefits of having a friend to share your costs and workload offset the pressure of having others tell you how you should operate.
Lots of work goes into the initial start up of a small business partnership. Ensure you know how much time each of you can devote. Talk through your expectations. Are your strengths and weaknesses compatible to cover all necessary areas of the new business? Do you have similar definitions of success? It is essential to set ground rules and produce written job definitions. Know your roles and commit to them one hundred percent.
Going into business with friends can be fun and profitable. Partners can offer skills, connections and money you may not have. But the stress of working together can wreak havoc on your friendship if you become consumed by industry and forget to be friends. To establish a boundary between work and socializing is imperative. Designate time for “no business allowed” “friends only” time. Make sure that all parties know when they are talking as business partners and when as friends to allow your relationships and business to flourish.