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How to Protect Yourself When Going into Business with a Friend

Going into business with a partner can be a great way to alleviate some of the stress that comes with forming a new business from scratch. You’ll have someone by your side to help you come up with ideas, as well as someone who can go along with you as you search for investors and make marketing decisions about your business. You’ll also have someone working with you day after day, dealing with the long hours and hard work that can come with entrepreneurship.

What better person to share your journey than a close friend? In fact, as you’re bouncing business ideas off of people you know, you’re likely to happen upon someone who wants to go into business with you. This makes a business partnership with a friend highly likely. But whether you’ve known this person for decades or you’ve only been friends for a few months, going into a business with a friend is just as risky as partnering with a stranger. In some ways, it may come with even bigger risks. Here are a few ways you can protect yourself when you’re going into business with a friend.

Know Your Business Partner

One of the biggest problems with partnering with a friend is that you simply don’t know anyone as well as you think you do. You could have been college roommates, taken multiple vacations together, and even helped raise each other’s children. But do you really know a person’s work style until you’re working together day after day?

Before you go any further with your discussion about working together, take an objective look at your friend’s work ethics. Building a business will require long days of work, so you’ll need to know your friend will be willing to put in 12- or 16-hour days, especially at the beginning of your working relationship. If you’ve chosen someone who takes two-hour lunches and rolls into the office at ten a.m. every day, you’ll only be frustrated when you find you’re carrying most of the workload.

Be Professional

The only way to enter a business partnership with a friend is if it makes sense purely for professional reasons. Remove your friendship from the equation and take an objective look at your friend’s resume and background. Is this someone you would choose to work with if you were reviewing a stack of resumes? This is especially important because your investors and clients will likely look at these same credentials when deciding whether to work with your startup.

Even after you’ve decided you can objectively work with your friend, continue to approach everything from a professional perspective. It will likely be impossible to completely disregard the friendship you have with the person, but as you’re approaching issues related to your business, ask yourself how you would handle the situation if you were working with a business partner who wasn’t a friend.

Agree on Roles Up Front

As with any partnership, your friend will likely have a separate set of strengths than you do. You should agree up front on which roles you’ll each take within your new business, making sure you play to your strengths with the choices you make. If one of you is more comfortable with sales and public speaking, that person will probably take the lead during your pitch meetings. One of you may be better with accounting tasks and therefore should handle the bookkeeping part of your business.

You should also agree on how you’ll handle things when one of you is away for an extended time. You may feel the need to send one partner on a business trip while the other stays behind to run things. You’ll also want to outline how vacations will be handled, since one of you will need to cover for the other from time to time.

Imagine the Worst-Case Scenarios

Before you decide to go into business with one of your friends, imagine everything that can go wrong with such a partnership. What happens if your partner doesn’t pull his weight? What if you learn your friend is offensive in business meetings or stealing money from the company? All of these things may be unimaginable at the start of your work experience, but you can bet that many friendship-based partnerships have gone south for similar reasons over the years.

If it helps, make a list of all of the things that could possibly go wrong with any business partnerships. Pretend you’re advising a friend or family member about going into partnership and think of all the ways such a venture can go wrong. Once you’ve crafted your list, go through it and find ways to address each one individually, whether through a contract, business insurance, or through a frank discussion between yourself and your potential business partner where you each address how you’ll handle different scenarios while working together.

Put Everything in Writing

The best way to protect yourself when entering any business partnership is to put everything in writing. Have an attorney draft a detailed contract that gives the specifics of your working relationship. If you’ll each pull a salary from the business, this will need to be put in writing, and you’ll also need to list out all the assets you each bring to the business at the outset.

Your contract should also detail what will happen to the business if one of you should decide to leave. While it may seem negative, you should also mention how the business will be distributed in the event of your or your partner’s untimely death. You’ll probably want everything to revert to the remaining partner if one of you should leave for any reason. Additionally, you should include a clause that specifies the circumstances in which the partnership can be dissolved, whether this means dividing everything in half or shifting everything to one person.

If you’re thinking about going into business with a friend, take a step back and ask yourself if this is the right working relationship for you. Don’t be afraid to ask trusted business owners in your own circle what they think of the potential business partnership and take their advice. They’ll be able to use their own years of experience to help you see the potential pitfalls.

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CMO at CRS Group
Entrepreneur and Venture Advisor for the Network of Things Fund a Draper Nexus Fund. Newlands received a Bachelor of Laws and he is qualified as a Lawyer. He gained his Green Card by being recognized by the US government as an “alien of extraordinary ability.” Newlands is the author of “Online Marketing: A User’s Manual” published by John Wiley. He is former President of He has been the CEO and Founder of multiple companies

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