February 22, 2023
By: Katelyn J. Dougherty, Esq.
Starting a business with a friend can be an enjoyable and fulfilling venture, but it also carries significant risks if not approached with caution. Before entering into a business partnership with a friend, it’s important to consider several key factors, such as communication styles, skillsets, and financial expectations. In this blog, we will explore some of the advantages and potential pitfalls of going into business with a friend and offer tips for success.
Advantages of Going into Business with a Friend:
- Trust: Starting a business with a friend usually means that you have an established level of trust and a shared history. This can be a valuable asset in business, as you already know each other’s strengths and weaknesses. This can be particularly helpful in the early stages of a business, where partners may need to wear many different hats and take on multiple responsibilities. By understanding and trusting, each other’s strengths and weaknesses, partners can divide tasks and responsibilities more effectively, playing to each other’s strengths and minimizing the impact of weaknesses. Furthermore, having an established, trusting relationship can help facilitate a more relaxed and open communication style. This can create a more collaborative environment, where partners feel empowered to speak their minds and contribute to the success of the business.
- Shared Vision: Working with a friend can also mean that you share a common vision for your business, which can make decision-making and goal-setting easier. Having a shared vision means that partners have a clear understanding of what they want to achieve, and how they plan to get there. This can help guide the development of the business plan, as partners work together to identify key goals, objectives, and milestones. It can also help drive decision-making, as partners are able to evaluate potential opportunities or challenges in the context of their shared vision.
- Complementary Skillsets: Friends often have complementary skillsets, which can be advantageous in a business partnership. This can be a significant advantage, as partners can leverage each other’s strengths and fill in each other’s gaps to create a well-rounded team. For example, one friend may be strong in marketing while the other excels in operations. Additionally, having complementary skillsets can help partners divide tasks and responsibilities more effectively. Each partner can take on the areas where they excel, while delegating other tasks to their counterpart. This can help optimize efficiency and productivity, as each partner is focused on the areas where they can make the most impact.
- Motivation: Having a friend by your side as you build a business can be incredibly motivating. You can support each other through the highs and lows, and celebrate your successes together. Additionally, when you know that someone else is counting on you, staying motivated and on track with your work can be easier. You and your friend can hold each other accountable for meeting deadlines, completing tasks, and achieving milestones, helping to ensure that you make progress towards your shared vision for the business.
Risks of Starting a Business with a Friend:
- Communication Issues: Communication is key to any successful business, and it can be challenging when working with a friend. It’s essential to establish clear lines of communication from the start and have a plan in place for conflict resolution.
- Different Work Styles: Even close friends can have vastly different work styles, which can lead to tension and frustration. Discussing expectations and work habits before going into business together is crucial.
- Unequal Contributions: If one friend contributes more time or resources than the other, it can lead to resentment and conflict. Establishing a fair and equitable partnership agreement from the beginning is essential.
- Money Issues: Money is often a significant source of conflict in any business partnership, and it can be even more complex when working with a friend. It’s important to establish financial expectations and responsibilities upfront to avoid misunderstandings.
Tips for Success:
- Have a Clear Business Plan: Before going into business with a friend, make sure you have a clear business plan in place that outlines your goals, expectations, and responsibilities. A clear business plan should include the mission and vision of the business, as well as specific goals and objectives. It should also detail the market analysis, marketing strategy, and financial projections for the business. In addition, the plan should outline the roles and responsibilities of each partner, as well as any agreements or arrangements regarding ownership, financing, and profit-sharing. Having a business plan in place can help prevent misunderstandings and disagreements between partners, providing a clear decision-making framework. It can also help to identify potential challenges and risks, and provide a plan for addressing them.
- Establish Roles and Responsibilities: Establishing clear roles and responsibilities for each business partner is a critical step in building a successful and sustainable partnership or business venture. When each business partner knows what is expected of them and the others, it helps prevent misunderstandings, confusion, and potential conflicts down the road. By defining roles and responsibilities, each partner understands their own area of focus and can work towards achieving the shared goals of the partnership. This helps to ensure that all tasks and responsibilities are covered, and that each partner can contribute effectively to the success of the venture.
- Document Company Fundamentals: Creating a document that outlines the fundamentals of the company, such as the rights, duties, and responsibilities of everyone involved, the allocation of profits and losses, the decision-making process, and the overall management of the company from the outset can be incredibly valuable. This documentation can help reduce the likelihood of disputes and potential strain on friendships later on.
- Communication is Key: Establish clear lines of communication from the start and make sure you have a plan in place for conflict resolution. Clear and open communication channels help to establish trust, avoid misunderstandings, and promote collaboration among partners. In contrast, poor communication can lead to confusion, frustration, and even the breakdown of the partnership. To ensure effective communication, partners should establish clear lines of communication from the start. This can include regular check-ins, weekly meetings, or daily status updates, depending on the nature of the business. The frequency and mode of communication should be agreed upon by all partners, taking into consideration their schedules and availability. It is also essential to have a plan in place for conflict resolution. No matter how well partners get along, disagreements and conflicts are inevitable in any business. Having a plan for handling conflicts can help partners avoid misunderstandings and reach a resolution quickly and fairly.
- Set Realistic Expectations: Starting a business is challenging, and setting realistic expectations for your partnership is essential. Don’t expect overnight success, and be prepared for setbacks and challenges along the way.
- Be Prepared to Adapt: Starting a business is a learning process, and it’s essential to be flexible and adapt to changing circumstances. Be open to feedback and willing to make changes as needed.
In conclusion, going into business with a friend can be enjoyable and fulfilling if approached with care and caution. By establishing clear expectations, roles, and communication, you can build a successful partnership that can weather the ups and downs of entrepreneurship. Remember, the key to success is trust, communication, and a shared vision for your business.
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This Blog was written by Founding Attorney, Katelyn Dougherty.
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