Financial Tips: Starting A Business With Friends

What every person should consider before starting businesses partnership with a friend. Information on the separation between work and pleasure, partner and friendship.

As thousands of people consider the possibilities of starting a small business, many of these businesses will be sole proprietorships. However, a large number of them will be partnerships, businesses created and run by two or more people. There are several advantages to forming a partnership when starting a small business including the combination of skills, expertise, and financial capital of two or more people. If the partners are also friends, though, problems can arise which might drastically effect the friendship itself.

Therefore, before starting a business with a friend, it is important to examine all of the advantages and disadvantages of such a move. Begin by asking the following questions:

How well do I know this person? Does she/he have a good head for business? What is his/her work ethic? Would he/she be willing to make sacrifices and work especially hard to get the business off the ground? How strong is our friendship? Can it withstand the stresses of operating a business? How well do we communicate together? Are there other people we can turn to for support, guidance, and possible mediation should we encounter difficulties (especially important if you and the friend tend to be one another's only confidants)?

The answers to these questions can provide you with valuable information as to whether or not this friend would be appropriate to start a business with. For example, if your friend's work ethic isn't as strong as yours, problems are likely to develop down the road. You might find yourself putting in more time and energy on projects than your friend. As a result, this is bound to cause resentment on your part.

On the other hand, when thinking about starting a business with a partner, it can be very beneficial to examine the possibilities of working with a friend precisely because you know this person's work habits and history. If she has a solid history, holds jobs for long periods of time, works hard, has been promoted, receives raises due to exemplary work, then it is fairly certain that she will make a good business partner. If, however, she isn't a self-starter or changes jobs often, you might want to reconsider her as a potential partner.

Another important point to consider is how objective you can be about this person. For example, a partnership was formed between two men, one of whom almost worshipped the other as a hero whom could do no wrong. Due to this elevated view of his partner, he got himself into a business venture based on misconceptions of his partner's abilities. Unfortunately, the small business was a horrible failure that also destroyed the friendship. If you believe that you aren't able to view your friend objectively, ask someone else who knows you both to provide an honest opinion if he/she is able to.

Finally, if you decide to start a business with a friend, your first step should be to consult an attorney and have a written, legal agreement drawn up. It should contain information such as investment amounts by each partner; the division of duties and salaries; what happens if one partner wants out or passes away. All of the details in the agreement should address the equal protection of each partner's interests.

While three out of four small businesses are sole proprietorships, thousands of partnerships are formed every year in the United States alone with many of these created and run by friends. With the proper planning and careful examination of all of the details listed here, there is no reason why your friendship can't survive the rigors of being in business together.

© High Speed Ventures 2011