Are you thinking of starting a business with your friends? Do you think that with your combined skills you can transform an idea into a profit-generating business? Starting a business with friends is not an uncommon thing. Besides, wanting to do something successful with people close to you is natural. You want to succeed and bring your friends along. However, starting a business is not all sunshine and rainbows. Starting a business in itself is challenging enough but adding in emotionally charged relationships in the equation could spell disaster.
If you look around for expert advice on the topic of starting a business with loved ones and friends, you’ll find that the general slant of advice is toward discouragement. This doesn’t mean that it’s always absolutely a bad idea–it just means that you need to be conscientious and not skip steps.
In this article, you’ll find some tips that can help you jump-start the process of forming a business while avoiding the common pitfalls of starting one with friends.
Put it in writing
Whether you’ve come up with the idea of starting a business during a casual dinner or just another usual weekend hangout, don’t fall into the trap of just relying on verbal commitments and storing everything you talk about in your head. It’s essential to put everything in writing.
Taking notes during conversations about the business, making sure the reasoning behind decisions are jotted down, and just making a record of your meetings are crucial practices. This way you’re sure that you all are on the same page as to what’s been discussed and decided upon, leaving nothing to chance if you need to reference past conversations for subsequent decisions.
Beyond meeting minutes, another critical piece of writing that you need to get in order is your registration papers. The process of registering a business with a good business lawyer is actually a good way to force you to have difficult conversations in the beginning and get them out of the way early. Deciding what your business structure will be and what assets and resources each one is putting into the business are just some things that can get forgotten or left out, especially when you start getting busy with trying to get a business off the ground.
Define your roles well
An important step as you navigate starting your new endeavor with your buddies is defining your roles well. Lay down all the chips you’re willing to commit to the table, specifically your strengths and your weaknesses, as well as the resources you’re willing to put in. This helps your group set expectations from the get-go. It also helps you collectively decide roles from a business structure and operations perspective.
Some friends may only be willing to put in money but not their time. In that case, they’re better off being investors. This is important because not only does it set expectations clearly in terms of work each one is willing to put in, but it also lets you suss out how profits will be split when your business starts generating money.
Don’t forget the buyout clause
Not all business partnerships last–and this doesn’t mean that you will fail! Many businesses continue to thrive years after the original partnership that put the business up to have broken up. This can result from a partner wanting to focus on something else or, in more unfortunate situations, someone not pulling their weight negatively impacting the business as a whole. This is where buyout clauses come in.
In your contract, there must be a portion that spells out how someone can be bought out of the partnership based on different scenarios. In this portion, you should also include what the procedure will be if someone in the business cannot perform their role anymore–yes, including if someone passes. This might all sound negative and even morbid. Still, it’s just the smart way to do business that not only protects everyone involved but also allows you to avoid making missteps if high-stress or emotional events force you to have to execute a buy-out.
These are just some tips that can help you get off on the right foot when starting a business with friends. It is hard work, but it can be gratifying!