“Friends friends. Business apart”. The phrase is famous, but is it always valid? Is opening a company or a company with friends always dangerous, or can it have advantages? In this article, we show you options on how to do business with friends.
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The Risks of Doing Business With Friends
Forming a partnership and creating strategic agreements is an important decision, but basing a partnership solely on having a good relationship with another person is not good business.
Good personal chemistry, such as when two partners are friends before doing business, can cause blindness. Benjamin Gomes-Casseres, a professor at the International Business School at Brandeis University, shows how the “good chemistry” question can be a trap.
“An excellent personal relationship can help you see opportunities to work together and start a complex business. For long-term partnerships, you have to think about unavoidable unforeseen circumstances. Do not rely only on chemistry, especially to decide and manage a large company, “suggests the academic. Trust is uncertain when broader organizational interests do not support it, says Gomes-Casseres.
When doing business with a friend, trust is essential between partners, but it is not enough in certain circumstances.
How To Do Business With Friends
Some tips will help you reduce the risks of a potential partnership with friends:
Document Everything
It establishes in writing, from the first moment, the attributions of each partner. This task of defining boundaries helps friends themselves better understand how each one is going to contribute. It won’t necessarily be an equal division, just because you’re friends.
Hire Different Lawyers
What will happen when the company begins to profit, and you and your partner friend cannot agree on what to do with the money? Hire different attorneys to analyze the partnership agreement and describe the specific responsibilities of each.
Be Clear
You and your partner should be as straightforward as possible about what you will do in the company. Define every detail of the partnership:
- [How] long each will stay in the company.
- [How] They will form the team.
- [How] they will work together.
It is crucial so that there are no conflicts in the future.
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Is it a good idea to do business with friends?
Friends who get along, complement, and trust each other, can they do business together? That is the question that many friends must ask themselves before embarking on the adventure of starting a business project in partnership.
While trust is a fundamental ingredient in business, the dynamics that friends develop personally are not constantly repeating in the business realm. It happens that they can hurt the feelings of the other when the points of view do not coincide when making decisions, says Ann Marie Clarke, who founded Bang Swimwear with her friend, in an interview for BBC Mundo. In these cases, according to Ann Marie, there is only one option: “be brutally honest when discussing business to create the best possible product line.”
Here I list the pros and cons of combining friendship and business:
Pros
- The most stable entrepreneurial teams are complete of former co-workers, according to Wasserman’s research.
- Doing business with friends allows us to share ideas that might not have occurred to us and gives us the quota of value we need to undertake.
- We add professional experiences, although it remains always recommended that the partners complement each other in capacities and resources.
- The same moral and business values are shared. They have the same goal and the same degree of effort and sacrifice required to run a business.
Cons
- It can be a bit complex and uncomfortable when assigning responsibilities and remuneration between friends since both will want the same prerogatives and decision-making power.
- Conflicts can lead to this relationship’s natural wear and tear, so limits must remain established so that business discussions are not extrapolating to the personal sphere.
- An additional fee of seriousness is necessary since the relaxed atmosphere between friends can remain extrapolated to the office’s rest. Respect and professionalism must prevail in these organizations.
- The trust between two good friends can lead them to make severe mistakes in the constitution of a company, such as not creating limited partnerships, where it remains established that one partner is not responsible for the actions and obligations of the other. It could protect you in case your partner has financial or legal problems.
- The friendship also makes the partners forget to establish the terms of exit if one of the partners leaves the company and the options one of the parties to buy the rest of the business.
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