A Friend As A Business Partner? Here’s What You Should And Shouldn’t Do

There’s a right way and a not-so-right way to start a business with a friend. The worst is to lose a friendship built over years over a business that may be just a few months old. So, here’s some basics on how to transition a close friendship into a successful business partnership without straining the bonds of friendship
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Remember those random conversations with your best friend where you both wanted to open a food truck, a gaming application, or some ethnic cloth store, or anything else for that matter which interested you both alike.

Well, starting a business with a friend is an “exciting venture” and there is a “huge potential and promise of mutual success”, says Ayushi G, founder at Provoqe Media who once started a business with her friend.

However, such an enterprise also comes with its own unique challenges that can strain both the business and the friendship if not carefully managed.

Says Ayushi: “The discord in our working relationship began to seep into our friendship. The stress of managing these conflicts affected our overall morale and productivity. As the business struggled for a short span, so did our friendship, which had always been a source of support and joy. The strain of trying to reconcile our professional differences took a toll on our bond, highlighting the delicate balance required when mixing business with friendship.”

But given the right amount of time and patience, there is also a greater chance of reconciliation and things turning back to normal given that both of you have known each other for long.

“It becomes a bit of a challenge initially, but over a while streamlines, as two people who might be friends, learn how to work together, professionally,” says Srishty Chawla, co-CEO and co-founder of One Source, an integrated marketing consultancy.

She adds: “One of the ups is the fact that when you start a business with somebody who you already happen to know, it becomes much easier to handle crises together whether those be financial or economic.”

The Best Recipe To Start A Business With A Friend

As with any venture, there’s always a right way to start a business with a friend.

Says Murali Krishna, principal at Spyre VC who has successfully set up a business with his friend, “First and foremost, it is important to set boundaries, keeping personal and professional relationships separate to maintain a healthy working environment.

Next, you need to see “how your chemistry works. Trust is super important. Even more important are complementary skills,” adds Akhil Gupta, co-founder of POD Nutrition based on his personal experience.

Gupta says: “You can only divide responsibilities if your skills complement each other. Clearly defining roles and responsibilities from the start helps avoid confusion and ensures each partner knows what is expected of them.”

Chawla shares how it is better to have a bifurcation of roles, “At One Source, for instance, my co-founder and co-CEO Sandeep takes care of the human resources and the new business, while I oversee finance as well as business administration. Strategy is something that both of us straddle together.”

Documentation Is The Key!

They say money ruins friendships, but it isn’t an escape option to not talk about money matters with a friend who is also your business partner.

Says Krishna: “Draft formal agreements covering all aspects of the business, including roles, finances, and dispute-resolution mechanisms. Avoid assumptions and document everything.”

How To Manage Money Matters?

A business, even with friends, should have a strong foundations to survive in the long run.

Gupta suggests a few basics to keep the operations smooth. These are:

  • Using accounting software to track expenses, income, and profits. This would ensure transparency and accuracy in financial matters.

  • Keeping separate bank accounts for personal and business finances to help avoid mixing personal expenses with business expenditures.

  • Establishing a monthly financial review process, where financial statements are reviewed together, keeping both partners informed and in agreement on the business's financial status.

  • Avoid borrowing or lending money between personal accounts and the business unless properly documented for and mutually agreed upon.

  • Seeking professional financial advice or hiring an accountant to help manage the business finances

  • Ensuring compliance with tax and other business regulations!

The Investor Vs The executioner

There is still a debate on whether it is right to have one friend solely as the investor and the other as the executioner or the operating partner, though many entrepreneurs believe it’s best to have clear cut roles defined.

Says Anjali. N, advisor at Provoqe Media: “There is no one size fits all kind of thing here. But I feel it's better to keep the two separate – one the investor and the other the executor of the business. The investor’s job is to invest money and guide monetary growth. The other person has the ideas and the skill set to run the business. So it’s best to work to people’s strengths. Most importantly, roles and expectations and/or deliverables need to be clearly defined,” she adds.

As a business advisor, Anjali lists the following dos and don’ts to navigate friendship and work:

  • Have an honest and clear discussion on the rules of engagement. What does each person bring to the table, including roles and responsibilities, and what each person is accountable for?

  • Business and personal life/friendship have to be separate. The 8-9 hours that are spent together must be focussed on work.

  • At times, friendship tends to make the business environment casual, but that should be avoided. Keep it professional.

  • Maintain open and clear communication is key – discuss all matters. This removes the stress from the expectations. Silence is a killer when working together.

  • Don’t take friendship for granted. Running a business with a friend is a balancing act.

  • Maintain commonality in value. It will help in avoiding a strain on the relationship and conflict of interests

The most important thing to remember is to know when it is not working out.

Based on her personal experience, Ayushi says: “Losing a friendship over business, especially one built over many years, is never worth it. It’s crucial to recognise when the business relationship is no longer serving its purpose and part ways professionally, while striving to maintain the personal bond. A friend will and should always be a friend, even if they are no longer a business partner.”

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