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Friends and Business Partners? Is it worth the Risk?

Going into business with a friends as a partner can be a risky undertaking.  If something goes radically wrong, you stand to lose not only your business, but a friend as well.  There are plenty of horror stories online about a couple of friends who have started a business together as partners, only for the business to fail and the friendship to be ruined beyond salvation. 

Having a business partner can seem like an attractive option – it’s somebody to share decision making with and between you both, you’ll probably have a good range of professional skills which could reduce the level of early financial commitment, making it easier to launch a business than if you’re flying solo.  However, for many people, the advantages may not be enough to sustain a successful business partnership and it’s vital to recognise the advantages of being solely in charge of your own business.

So many would-be entrepreneurs and potential business owners will fall in love with the idea of starting up a business with a friend, only to exercise pretty poor judgement on their suitability as a business partner.  You need to be totally focussed on the realities of your business which can prove difficult when dealing with personal relationships.  It’s been said by experts that when it comes to choosing a business partner, you need to take just as much care as when choosing a spouse!

To begin with, it’s recommended that you obtain enhanced disclosure, with a credit check and a police report.  Talk to your prospective business partner’s previous employers or clients.  Ask for the requisite documentation to support all of their claims and take a good look at their accounts.  If they haven’t been totally truthful with their history, they may not be truthful about future business dealings either. 

Whether a potential partner is going to be involved with the financial side of the  business or not, a poor credit rating or evidence of financial mismanagement  should be enough to raise a red flat and get you thinking more deeply about whether or not you should go into business with this person.  When carrying out the checks, take the initiative and declare your own background checks so that you’re on an equal footing with this. 

Question your prospective business partner closely on what they expect to get out of a business partnership.  People change, as do their ambitions and their situations and this means that the most promising partnerships can come unravelled which will lead to unpleasantness at the very least, debt and bankruptcy at worst.  Performing due diligence on prospective business partners is an essential part of going into business. 

If you do decide to go ahead, make sure that you put it all on a formal basis.  Make an appointment for you and your prospective partner with a legal expert to discuss the business venture and have a bespoke agreement drafted for the business’ objectives, including an exit strategy should it become necessary.  Planning an exit for your business should be done right at the very beginning.  The excitement of launching a new business means that the founders often focus on generating revenue and making profits, rather than thinking about what would happen if a partner wishes to leave or sell their share of the business in future.  Forward planning really is a must.