You’re great friends, you’ve been through tough times together, you’re on “the same page”. You have the same goals and ambitions and most importantly, you trust this other person. You know this person well, so why not become business partners?
In short, I do not believe friends should go into business together as partners. In 30 years of helping Australian business owners, I have seen (excluding husband and wife partnerships) only one partnership that worked. In every other instance, it has ended badly for the business and the friendship is no more.
In the case of husband and wife (or defacto) relationships, the main reason I believe this can work is that both parties have a common benefit. They share their assets, children, home; so if the business succeeds, they both benefit together. There is no yours and mine. This is essentially why husband-wife partnerships I believe are more likely to succeed in business than good-friend partnerships.
However, if you are intent on proceeding, please consider the following guidelines to assist you in making sure your business and your friendship survives:
- Be sure you can both make hard decisions which are for the benefit of the business. If one partner is doing the bookkeeping and hopeless at it, would you have the courage to remove them from this task and replace them with someone who is competent?
- Focus on your prospective partner’s weaknesses. They may be great at sales, but are they a procrastinator? Perhaps they have great contacts and skills, but possibly just are not great with figures and details? Be realistic about your own weaknesses alsoyou’re your weaknesses are the same as your partner’s, it’s not going to work. Remove the emotion from the consideration and be logical about this. Are you really a great team that will achieve results and not develop the strong desire to kill each other?
- Have a partnership agreement, in writing and ideally vetted by a solicitor. It’s important that both (or all) parties know the rules in advance and beforehand. Many times disputes arise from one person working harder than another, so if one person contributes 80% of their time and the other contributes 20% of their time, are profits shared 50/50?
- Discuss what will happen if things get tough, the business struggles or you have to shut down. Alternatively what happens to the partnership down the track when it’s a huge success and one of the partners goes through something life-changing, such as divorce? Again, a good solicitor will cover the unexpected.
- Ensure you know the rules around partnerships. Many people don’t realise this is essentially an ‘agency’ and often one partner can incur costs on behalf of the other partner. How would you feel about your partner leasing a car (without consultation) that YOU are responsible for the lease payments on?
I strongly recommend that you consider other options.
Perhaps you can operate the business and employ your friend, or contract part of the services to them? If you control the business, then you can decide if they stay or go and how the business proceeds. Alternatively, if you are a contractor or employee, then you can easily walk away if it’s not working. Not being in partnership gives you more freedom and more choices.