Strategy Surgeon – starting business with friends

Our strategy surgeon Bobby Lane, accountant and small business advisor,  answers your questions.

Q:  A very good friend of mine and I  are strongly considering going into  business together.  Other friends of mine say don’t mix business with pleasure – what’s your advice?

A: Strategy surgeon says

It’s great you are thinking about setting up your own business.  Try not to be put off by others around you and trust your instincts.  However going into business with a friend should not be taken lightly.  You may have travelled the world together  or spent many happy hours with them at the pub, but often this isn’t enough to make solid business partners.  Here are some things you may want to consider before you make your decision and pointers if you do go ahead.

Think of the worse-case scenario

It could be a business partnership made in heaven, but then again it may be one forged in hell! Decide if losing the friendship is worth the risk if things do not go according to plan.

Park the social chat outside the office

Make sure the chat about friends and family doesn’t overflow into work time too much. You might like to set a diary date, such as a weekly lunch to use it to catch up on non-work related matters.

Make sure friendship doesn’t cloud business judgement

I have known situations where good friends turned business partners have felt like they have had to tread on eggshells over a difference of opinion on an important business decision,  because they are frightened to upset them.  This could be a matter of tens or hundreds of thousands of pounds, so make sure you can  separate your social relationship from the professional one.

Make sure you have clearly defined roles in the business

It may seem obvious, but I have heard of cases where friends turned business partners have not been clear about who will do what in the business.  They thought they could go with the flow and all would be fine. Although at the outset it may seem unnecessary it is vital that you set out in writing up front the roles, responsibilities and how to deal with disagreements or if things go wrong.

Make sure both of you are pulling your weight.

Resentment can quickly build up, if one person in the business feels they are doing  more than the other and should be drawing more money from the business.  It goes back to the issue of clearly defined roles and agreeing from the start how money will be divided between you.

Beware if one friend is much richer than the other

It may seem tempting to go into business with a much richer friend, but there is often a trade-off.  If they have the ability to invest more in the business, they may as the company grows expect to get a bigger return despite similar levels of effort. A greater issue is the different requirements if one of the partners may need to earn more money out of the business than the other at an earlier stage and will drive their decisions which could cause friction