Forming Partnerships - What to Consider when Going into Business with Friends

Entering into a business partnership with a friend is not something to be taken lightly. When you decide to join forces and open a business together, there are many factors to consider.

Here are some tips to determine whether or not partnership is for you.

Conduct an Honest Self Assessment

The number one item on your list before you start is to determine whether or not your friendship can withstand sharing a business. Dividing a business in half can be complicated if you have not both communicated all possibilities, responsibilities and expectations. Are you willing to share 50 percent of your profits and clients? Are you willing to split all decisions made and responsibilities regarding the business?

Develop an Agreement

If you have decided to pursue a business with a friend, it is important to develop a partnership agreement. The following "What If" questions are important when developing your agreement:

1. What if the business fails?

Many entrepreneurs may not wish to enter into business with thoughts of it failing; however, it's a fact that many small businesses will not celebrate a two year anniversary. If your business happens to fail, how will you split any debts owed?

2. What if the business succeeds?

If the business is a success, congratulations! However, success can at times breed greed. If your business is successful, be clear about division of funds, withdrawals, and overall decisions including marketing strategies, client communication and additional expenses. Be sure to keep communication open so there are no surprises.

3. What if one of you no longer wishes to continue?

Be clear about what happens with the business if one of you is unable or unwilling to continue as partner. Will the business fold? Will the business continue with one sole owner? Or will there be a separation fee?

4. What role will spouses play in the business?

If one of you or both of you are married, how much say will the spouses have? Will they play any role in the business? What happens if one of you divorces? How will you ensure the business will not be affected?

5. What if one of you wants out?

What notice will you need to provide if you wish to leave the business? Will you have the option to buyout your partner's portion?

6. What if one of you isn't pulling your weight?

How will you communicate with one another if one of you is not completing projects, arriving late to work and allowing the business to suffer? Will you have the option to ‘fire' your partner in this case?

Going into business with friends does have many benefits. Having someone there to motivate you through the tough times and someone to bounce ideas off of can be very helpful; however, if you are not careful to communicate all possibilities and responsibilities, you may end up losing your friendship and quite possibly your business as a result.

By doing your research and keeping yourself informed and realistic, opening a business with a friend is possible and it can prove to be very enjoyable as well.