What to Consider When Starting a Business With a Friend
9 minute read
Going into business with a friend could be a good idea as you’re both already familiar with each other. You’re aware of what your strengths and weaknesses are and how to navigate around one another in tough situations. And, if you have a shared goal of what you want your business to achieve and work hard together towards it, it could be a winning combination.
However, not every pairing works out well. For example, it could be hard to separate the business from your friendship and you could be faced with a minefield of tricky situations. In the end, it won’t just be your business that could suffer – you could also lose a treasured friend.
Starting a business in Hong Kong – or anywhere – comes with its own twists and turns. Bringing an established friendship into the mix could complicate things. Deciding whether to include your friend in your business venture is a decision that shouldn’t be taken lightly. This article maps out what you have to pay most attention to if you’re thinking of starting a business with a friend.
- The dos and don’ts of starting a business with a friend
- Do communicate well
- Do have certainly about your roles
- Do be honest and open about your business goals and aspirations
- Do make sure your skills are complementary
- Do accept each other’s lifestyle habits
- Don’t just have a friendship in common
- Don’t confuse business conversations with personal ones
- Don’t ignore money troubles
- Are you ready for this challenge?
The dos and don’ts of starting a business with a friend
You have come up with an excellent business idea and shared it with your friend. They love it too and have contributed suggestions to make it even better. You’re both looking for a new challenge, so why shouldn’t you work on this business venture together?
It might sound like an ideal arrangement – working with someone you get along well with who shares your business ambitions. But keep in mind that emotions could run high in such situations and your cozy friendship could change.
But this doesn’t mean it’s a futile situation. Here are some ways to make your friends-turned-business-partners project work.
1. Do communicate well
As in any relationship, business partners need to communicate with one another to achieve the best outcome – and a long-lasting one too. It’s true that the fact you already communicate well with each other is an asset to your organization. However, you can’t take it for granted and need to establish communication on a business level.
You need to be transparent with each other with how the business venture will work. Include aspects like the hierarchy of the company and how any disagreements will be resolved. In short, you both need to be on the same page with how the business runs and what your roles and goals are. Transparency is crucial in this situation.
It’s also important to speak up if there’s ever anything you’re unsure about. For example, if they made a business decision without consulting you or said something in a client meeting that wasn’t meant to be revealed.
Also remember that talking in person is a better way to communicate the important issues as things could get lost in their meaning or be misunderstood through emails or text messages.
2. Do have certainly about your roles
Starting a new business can be chaotic and you don’t need the additional stress of arguments with your co-founder. Be very clear from the start what each of you is responsible for in the business. This is an extension of the communication aspect but is one that is essential so you won’t have confusion of your roles or – worse still – any power struggles. Don’t let any frustrations build as it will lead to tension that will make your working life very unpleasant.
Having such clear roles also defines who is responsible for what in the company. So, in the event that anything goes wrong, it’s easy to find out who is the one who should fix it.
Make sure you agree on what level of autonomy each of you has so that business decisions are easier to make. For example, can you sign off on some documents without consulting your business partner and vice versa? Come to an agreement on what aspects of the business needs consultation, even in areas that only one of you is responsible for.
3. Do be honest and open about your business goals and aspirations
Discuss at length about what you want to achieve with the business. You might both love the business idea but perhaps only one of you is willing to go to certain lengths to make your company a success. This can only be ascertained if you have several frank and open conversations about it. And it avoids the situation in the future where one of you is unhappy when the other harbors a secret desire that the other doesn’t agree with further down the road, which will weaken prospects for success.
Also ensure that you’re both aligned on the commitment you’re making to the company. Is the business as much a priority for them as it is for you? Or do they look at it as just a part-time venture where they can come and go as they please and just sign the checks? Taking on a business together is a huge commitment and both parties should be as dedicated as each other. And this shouldn’t just be until the business is up and running – be clear on your long-term goals too.
Clearly set out in a business plan what your venture is about, who it’s for and what it aims to achieve. Map this out not just for the first year but perhaps make a five-year plan too. If you think it will be awkward to have this discussion, consult a business lawyer to do it for you. You could go a step further and add separation and buyout clauses so that both parties are protected if you’re faced with such a situation.
4. Do make sure your skills are complementary
You might be excellent friends but can you actually work together? Or are your skills from the same industry and therefore not exactly complementary to make a business a success? For example, you might both be outstanding at sales but not able to lead a team.
A similar work ethic is essential. Speak to their ex-colleagues or ex-bosses to get a picture of them in a work environment. Encourage them to do the same with your work contacts then have a chat with each other to see if this arrangement could be productive.
Honestly assess your friend before going into business together. And this shouldn’t just be based on their work skills. For example, are they perpetually late every time you meet? You’d definitely want a business partner to show up to client meetings on time. Or are they hot-headed and get into arguments often? They might have huge career ambitions but decide if you want to be working with someone who’s going to lose their temper often. Don’t let loyalty to your friend cloud your judgment of them as a business partner.
5. Do accept each other’s lifestyle habits
Before you launch a business together, be clear about how much time you’re both going to put into it. Are both of you willing to work 24/7 if needed or will one of you only be able to commit to a 9-5 five-day week. Take into consideration what other life commitments each of you has. Let’s say your friend has four children who need help with their homework every night and have to be shuttled to and from school from Monday to Friday. Are you okay with this arrangement if you don’t have such family commitments?
You could both be as driven as each other but respect that each of you has other things they need to take care of. Accept the amount of time and effort each of you is able to bring to the business before you start it so you won’t clash over it later.
6. Don’t just have a friendship in common
Be honest with yourself – are you starting a business together just because it sounds fun and you love spending a lot of time with each other? Your choice of a business partner should be based on sound business sense, not just because you like the person.
You’re putting your friendship at stake here so make sure the reason you’re going into business together is one based on the pursuit of a common business goal and not on emotion. Go over the lists of ‘Dos’ and be certain that there are deeper reasons for your joint venture than shared friendship.
7. Don’t confuse business conversations with personal ones
It is critical to separate your business and personal lives and, once again, clear communication is key here. Understand that the business you run is something separate from and outside of your friendship, so treat it that way.
Keep friendly chats when you’re not at the office and talk about business when you’re at the office or via your work email. It will be tough to separate your two different lives but if you don’t follow this rule, it could lead to sourness later on.
Don’t make your business personal. This doesn’t mean you have to lose your friend when you gain a business partner. Carry on with your catch-ups out of the office but stick to personal conversations then. If you’re both good with the idea, come up with an exit plan if the business fails so that your friendship will still stay intact.
8. Don’t ignore money troubles
Money issues can cause trouble in any relationship and a business partnership is no exception. However, there are several ways you can lower the risk of money coming between your friendship. It’s best if both of you invest some capital into the business, instead of only one person making a financial commitment, to avoid any money-related arguments later on (whether the business fails or succeeds).
Also, don’t mix business and personal finances. Open a business account that both of you are able to access. And get it in writing that no partner can remove money from this account without the other’s consent. Both partners should agree to these rules and stick to them.
Are you ready for this challenge?
Now that you’ve assessed the situation, you might be ready to go into business with your friend. Make this transition even easier with help from Sleek. Let Sleek take on your company registration process and your back-office needs such as auditing and company secretary duties. Contact us now to find out more.