Do Friends Make Good Business Partners?

When it comes to picking partners, many see their friends as the obvious choice to share in making your dreams into reality. Business isn’t all sunny days, however, and the best way to weather the storms with your friendships intact is to start out with a good umbrella.

If necessity is the mother of invention, then assumption is the wicked stepmother of doom. The most sure-fire way for a group of friends to become bitter enemies is to go into a partnership under the assumption that friendship conquers all. Friends, and business partners, are only human, and when cash and control enters the equation, friendship can quickly fall by the wayside. What, then, can be done about it?

First and foremost, get it in writing. Slick salespeople, eyewitnesses, and business partners have one thing in common: their stories are prone to changing. Starting out with a comprehensive partnership agreement, drafted by an experienced business attorney, is key to keeping your startup together and your friendship out of the courts. While it may seem like you’re starting things off with a signed and sealed statement of distrust, having all the details in writing greatly reduces the opportunity for misunderstandings, hurt feelings, and loss of trust.

What exactly should a partnership agreement say? Only an attorney is qualified to offer specific advice tailored to your specific partnership, but all good agreements will cover a core set of principles. Among them, money and authority are paramount – a sound agreement will address financing, equity, and salaries, along with disbursements, withdrawals, and dividends. Setting out who will provide what, how their investment will be rewarded, who is entitled to what assets, and when they are entitled to them is key to ensuring the financial security of the business and a continued friendship among the partners.

The agreement should also address how the business will be be controlled. The partnership agreement is the foundation that establishes the relationship and governs the rights and responsibilities of the parties. The law places various obligations on partners, and in many cases, holds all the partners responsible for the individual actions of each. Deciding upfront who has what authority, and what stake they hold, can mean the difference between smooth operations and disaster.

Having reasonable expectations, both for the business and for the partners, is often overlooked in the excitement of chasing a dream. Success comes as the result of hard work, and expecting miracles overnight is an all-too-common occurrence. When unattainable goals aren’t met, blame and resentment will begin to chip away at even the strongest of friendships.

Finally, open communication is essential in any startup, but particularly so between friends. How the day-to-day operations will be handled, who will be responsible for what, how disagreements should be settled, and what to do should the business fail are all issues that should be discussed and agreed upon beforehand. Though they may be difficult subjects to broach, leaving them unconsidered is an invitation for problems later.

Bringing a business together between friends doesn’t have to be the beginning of the end. Proper planning, clear expectations, and clear communication are the foundation of maintaining both your friendship and a lasting partnership.



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