Starting a business with a friend.

[StartLondon89]

Hi everyone,


I've been in my industry for 20 years and have a lot of experience. Now, I'm starting my own business in the same field. I invited a good friend to join me, but he has less experience, so I'll be handling most of the workload and shaping the initial ideas.


He’s suggested a 50/50 split. Since we're friends, I considered it - but am I being naive? What’s the best way to approach this? How do you work out a split?


I’d really appreciate any advice!


Thanks in advance, and have a great day!

 

[fisicx]

You set up the business as sole director and employ your friend. That way if it doesn’t work out you can fire them.

Better still, don’t let your friend get anywhere near the business.

 

[ctrlbrk]

I invited a good friend to join me,

This may not occur normally to people, but getting your friends or family to join in a business venture is the quickest path to ruining your relationship with them.

I am not saying it is always a bad idea, but chances are it will be. You are changing the terms of your relationship with them.

Unless extremely clear expectations are fully set in advance there is going to be regret and disappointment, at least at one end.

 

[Chris Ashdown]

Whats your friend bringing to the table that you cannot hire someone to do. Never going to work 50/50 absolute 51/49% but think hard about what they will do

 

[Mark T Jones]

There are lots of threads on this topic - mostly negative

My personal view is that it can work - many do very well

2 critical points are

1. LOTS of prior discussion, largely focusing on 'worst case'

2. Solid shareholders agreementalso consider @The Resolver Mr 1% dealockbreaker

 

[Porky]

Avoid this situation - it will cause you no end of grief further down the line should the business be successful.

As they say the problem is "You don't know what you don't know"

You see, let's assume you go 50/50 and you are working your nuts off, building the company and you start gaining traction. You want to reinvest for growth but partner wants to take it out. You keep working your nuts off but your partner isn't doing the work load. I can tell you resentment will build. Imagine it's a roaring success and he is drawing an eye watering income out the company but you realise you could pay someone 10% of what they take to do the job they do. I can tell you frustration will kick in, that's because from what you say it's not 50/50 from the start - one can often be a monkey on the others back and I fear this is a situation you could create.

Issue here is EVERYONE likes the thought of own business, dreams of making millions, "more than they think they will earn working for that nasty someone else" but the harsh truth is to make a small business a success you have to work harder than ever, wear multiple hats and not everyone can do that, or sustain working hard if/ when things get tough. Also, some people are happy to coast off others hard work.

My view is don't do it. Go for it yourself and if you start gaining traction employ support don't cede ownership because it's a mate - you are asking for trouble irrespective how nice "you think" it could be working with your bestie all day.

Good luck

 

[Newchodge]

Hi everyone,


I've been in my industry for 20 years and have a lot of experience. Now, I'm starting my own business in the same field. I invited a good friend to join me, but he has less experience, so I'll be handling most of the workload and shaping the initial ideas.


He’s suggested a 50/50 split. Since we're friends, I considered it - but am I being naive? What’s the best way to approach this? How do you work out a split?


I’d really appreciate any advice!


Thanks in advance, and have a great day!

Start with asking yourself WHY do you want your good friend to join you? If the answer is because they are a good friend and you would like to offer them something, think again. You are setting up a business. Every decision you make about the business should be based on "this would be a good thing to do for the business". Until you are running and settled, nothing else should ever colour your decision making. Even after the business is settled it should still be your primary question.

Your friend has less experience and you will be handling most of the workload and shaping the initial ideas. Yet your friend is expectring 50:50? Do you think that is appropriate? If they are 50:50 they have as much right to shape intitial ideas and make decision as you have. They have as much right as you have to the money generated by the business. You won't be able to make any d
ecisions without their agreement. You won't even be able to close the comppany.

I suggest you either take them on initially as an employee, with no promises or suggestions of what happens in the future. Or, if you don't need them as an employee, tell them you have been a bit previous and you need to get up and running on your own first.

 

[FreddyG]

Start with asking yourself WHY do you want your good friend to join you? If the answer is because they are a good friend and you would like to offer them something, think again.

Or as Warren Buffett put it "A friendship based on business is better than a business based on friendship."

 

[Mark T Jones]

Or as Warren Buffett put it "A friendship based on business is better than a business based on friendship."

You're not even trying now!

 

[FreddyG]

You're not even trying now!

It's a busy day - no time to be my usual acerbic self.

 

[WaveJumper]

I feel many go down this path as they set out on a new adventure and take a friend along as some sort of comfort blanket. As others have mentioned the forum is filled with threads on those who wished they never had a business partner. Buy in the help as and when you need it

 

[The Resolver]

Lets not knock this fully out of the park. There are lots of successful businesses strated in this way. Credit the fact that the OP has asked for advice.

Clearly 50/50 is wrong. 75/25 is more appropriate giving it enables the OP to have full control even with Special Resolutions (e.g. amending Articles of Association).

A fair and practical Shareholders Agreement is vital . It also will show , by the other person's reaction to the terms, how workable will be the arrangements between them.

That is step 1. The final decision will flow from that.

I can guide you and draw cup a suitable SHA Ring for an initial , no cost, chat

 

[Russ Michaels]

I can add from personal experience, that any time I have ever tried to help people out for free, go into business with a friend it has been a disaster and they have either screwed me over or caused major issues. The last one put my business into insolvency.

So I wouldn't recommend it.

As others have said, employ your friend or at the very least only make him a minority shareholder and make sure you have a contract in place that states the partnership is on a probationary period, and that if things do not work out after x months, his shares will be returned and his position in the business will be terminated without prejudice.
You can then review things after the probation period.

 

[Auto_work]

Hahaha I just asked my question regarding "friend" and saw your post. Funny enough this "friend" of mine also asked me to join in a business venture with her. ( me to cover the cost and do the work of course ). Glad I didn't go ahead with it after many discussions around funds and shares. Just like anyone else, I wouldn't recommend either.

 

[zomex]

Speaking from experience I would avoid at all costs. Not worth the agro going into business with a friend. There will always be one person who is brining more to the table and eventually as the business grows that will become a conflict.

 

[StartLondon89]

Amazing insights everyone. You've really helped me see things more clearly, I appreciate your wisdom. I'll start of on my own, hire my friend, then sack him in a month or so. Thanks again!

 

[Lkucher]

I agree with most of the opinions in this discussion. I'd not hire a friend. Moreover friendship to my experience is not a permanent status. Today you are firends and tomorrow something happens and you are not. So, let friends stay friends and not business partners.