Partnerships with friends???
Discussion
Hi everyone,
Just wanted to ask peoples oppinions on partnerships, particularly with friends.
I have a friend who I am going to propose a business to. I'm only inviting him to join this business because he has experience of the industry but most importantly, he is a people person. I need his personality and his contacts to help the business grow.
However, he is also the fun loving type party person and has a very playful approach to life, but I'm hoping a business will ring a bell in his head and make him change his ways and start taking things (especially the business) more seriously.
If you were in my position would you risk going into business with him. The idea, the concept, the operation and potentially the future growth of the business, will, in my oppinion be based on my knowledge and research and experience, but it is his people and contactswhich will be needed to help me gain the contracts and manage the staff etc.
Are there any safe options for me to protect my interests or do I really need to use my judgement. Has anybody ever started a partnership but included a buy back clause or will this be a disincentive to partners. The situation I'm most worried about is if the buisness gathers momentum and grows but he plays little part in the business but I'm stuck with him pocketing half the profits. Then for me to need to buy him out for a stupid price.
Also, whats the safest option in terms of running the business as a ltd company, partnership, etc
Thanx for any help.
Just wanted to ask peoples oppinions on partnerships, particularly with friends.
I have a friend who I am going to propose a business to. I'm only inviting him to join this business because he has experience of the industry but most importantly, he is a people person. I need his personality and his contacts to help the business grow.
However, he is also the fun loving type party person and has a very playful approach to life, but I'm hoping a business will ring a bell in his head and make him change his ways and start taking things (especially the business) more seriously.
If you were in my position would you risk going into business with him. The idea, the concept, the operation and potentially the future growth of the business, will, in my oppinion be based on my knowledge and research and experience, but it is his people and contactswhich will be needed to help me gain the contracts and manage the staff etc.
Are there any safe options for me to protect my interests or do I really need to use my judgement. Has anybody ever started a partnership but included a buy back clause or will this be a disincentive to partners. The situation I'm most worried about is if the buisness gathers momentum and grows but he plays little part in the business but I'm stuck with him pocketing half the profits. Then for me to need to buy him out for a stupid price.
Also, whats the safest option in terms of running the business as a ltd company, partnership, etc
Thanx for any help.
A partnership is the business equivalent of marriage. Unless you are pretty confident in the other person, I would have my doubts as to whether the risk was worth it.
Wharever the situation, it is always advisable to have a partnership agreement drawn up.
In addition to traditional partnerships, Limited Liability Partnership arrangements are now possible which would, at least, protect your personal, non-business assets.
Wharever the situation, it is always advisable to have a partnership agreement drawn up.
In addition to traditional partnerships, Limited Liability Partnership arrangements are now possible which would, at least, protect your personal, non-business assets.
Edited by Eric Mc on Friday 9th February 23:55
If you drop me an e-mail through my profile I can send you a couple of short chapters from a current Legal Practice Course textbook which are concerned with the choice of business medium, i.e. parternship, Ltd company or LLP.
To a certain extent a partnership agreement will be able to regulate the standards expected of your fellow partner but if this is a serious venture it may well be best to be guided by a solicitor.
To a certain extent a partnership agreement will be able to regulate the standards expected of your fellow partner but if this is a serious venture it may well be best to be guided by a solicitor.
Would you be prepared to put your friendship on hold for the good of the business? How would you deal with your friend if they weren't pulling their weight? How would you handle falling out with him?
I once appointed a friend of mine as a director and shareholder in a business I had. We had to put our friendship on hold and when it got to difficult times it got very terse between us. As a result I will never go into business with, or involve a friend in a business again.
I once appointed a friend of mine as a director and shareholder in a business I had. We had to put our friendship on hold and when it got to difficult times it got very terse between us. As a result I will never go into business with, or involve a friend in a business again.
"Never do business with friends"
Good advice.
If the business can only flourish if he is on board, you pretty much must choose between trying and not-trying. If you try he may become a risk, and if you do not try then nothing will happen and then he is no risk. But as a new business your biggest risk is outright failure; your biggest dream is wealth to the level that you simply won't care. The middle ground is unknown.
I would not look for a legal "solution" at this stage, as I doubt there is one.
Starting a limited company with the same cash input is quick and cheap, and it does limit your risk to the money you put in. But it cannot make your business succeed...
Good advice.
If the business can only flourish if he is on board, you pretty much must choose between trying and not-trying. If you try he may become a risk, and if you do not try then nothing will happen and then he is no risk. But as a new business your biggest risk is outright failure; your biggest dream is wealth to the level that you simply won't care. The middle ground is unknown.
I would not look for a legal "solution" at this stage, as I doubt there is one.
Starting a limited company with the same cash input is quick and cheap, and it does limit your risk to the money you put in. But it cannot make your business succeed...
If your main motive is that he's a "people person" I would have thought that there are many people out there who could do the role. If he's a "party animal", "friend" and "partner" I'd probably give it a 50-50 chance of success. Don't think, like marriage, he's gonna change because he's got another job - humans don't work like that. I'd never employ someone who, if interviewed, said "I don't take life too seriously but if you give me the job I will". In the main people don't change personality.
I see businesses everyday that have been started up after a few pints and a good idea.
DON'T DO IT!
Statistics show that 80% of businesses started, fail in the first 3-5 years. This is usually because of a few things - Cashflow, burn out or familiarity.
Familiarity breeds contempt - Yes it's true.
Case study 1: Local directory company, 3 directors, all good mates. Not any more. None of them would take responsability for the important things, they all went into a state of denial and then went bump!. You should get on with your team and have fun but always keep them a arms length.
Case study 2: Family business (entertainers). Employed lots of friends as they enjoyed being together. Made loads of initial effort to build business, excitment wore off, collusion set in and everyday was spent sat chatting as no one wanted to upset anyone else?? (solution - fire the lot and start again)
Case study 3: Two mates, start company selling MRP systems. One is a salesman the other a techy. Techy relies on saleman totally for guidance and support and trust salemans to take the business forward, leaving him to get on with the technical stuff. One year in and still no sales - Salemans is on the golf course spendng techy's retirement fund when he should be working. Techy hasn't got the balls to stand up to salesman and loses everything.
Now I'm not saying yours would be like this, but a word of warning, to start with they never are. It all happens when you least expect it.
My advice; be bloody careful if that's your only option but try to avoid if possible.
Rob
DON'T DO IT!
Statistics show that 80% of businesses started, fail in the first 3-5 years. This is usually because of a few things - Cashflow, burn out or familiarity.
Familiarity breeds contempt - Yes it's true.
Case study 1: Local directory company, 3 directors, all good mates. Not any more. None of them would take responsability for the important things, they all went into a state of denial and then went bump!. You should get on with your team and have fun but always keep them a arms length.
Case study 2: Family business (entertainers). Employed lots of friends as they enjoyed being together. Made loads of initial effort to build business, excitment wore off, collusion set in and everyday was spent sat chatting as no one wanted to upset anyone else?? (solution - fire the lot and start again)
Case study 3: Two mates, start company selling MRP systems. One is a salesman the other a techy. Techy relies on saleman totally for guidance and support and trust salemans to take the business forward, leaving him to get on with the technical stuff. One year in and still no sales - Salemans is on the golf course spendng techy's retirement fund when he should be working. Techy hasn't got the balls to stand up to salesman and loses everything.
Now I'm not saying yours would be like this, but a word of warning, to start with they never are. It all happens when you least expect it.
My advice; be bloody careful if that's your only option but try to avoid if possible.
Rob
Doing things with friends and relations DOES make a difference to the dynamics of the interactions bewteen the group. Sometimes this can be a positive thing. At other times it can be negative.
If you don't try, you won't find out. However, as I said earlier, when starting up a business partnership with ANYONE, it is highly advisable to draw up a formal partnership agreement.
If you don't try, you won't find out. However, as I said earlier, when starting up a business partnership with ANYONE, it is highly advisable to draw up a formal partnership agreement.
jamesuk28 said:
Jesus all doom and gloom. I am in partnership with family members and it works great. There is no reason going into partnership with friends should not work. You are hardly likely to go into pship with your enemies or a total stranger are you?
James, that's great. I sit with between 20-30 business owners a week and my comments are based on what they have told me and what I see. However it's my role to identify and rectify these challenges as most people who I meet are not aware of their colleagues feelings until I get them talking!
I'm working with a training company at the moment who have been in business for 16 years. There are three directors, 1 couple and one single. They've been pulling apart for years but just didn't know how to approach the subject even though it was destroying the business and their relationships. I've managed to get them communicating an the couple have decided to sell their 2/3's of the business to Lesley and move to France. She's happy to keep on going with the business on her own. I'd hate to think what would of happened if they continued as they were.
Probably 50% of the business owners I meet are in denial but until they realise this, can't do anything to change it.
However, I AM NOT saying that this is the case in all businesses and completely agree that friends and family can have great businesses as long as they keep up high levels of honest communication and have lots of fun! One of my clients setup is dad, mum, son and two daughters. It works great, NOW they talk every morning and every night.
Congratulations on great business.
CoachRob said:
jamesuk28 said:
Jesus all doom and gloom. I am in partnership with family members and it works great. There is no reason going into partnership with friends should not work. You are hardly likely to go into pship with your enemies or a total stranger are you?
James, that's great. I sit with between 20-30 business owners a week and my comments are based on what they have told me and what I see. However it's my role to identify and rectify these challenges as most people who I meet are not aware of their colleagues feelings until I get them talking!
I'm working with a training company at the moment who have been in business for 16 years. There are three directors, 1 couple and one single. They've been pulling apart for years but just didn't know how to approach the subject even though it was destroying the business and their relationships. I've managed to get them communicating an the couple have decided to sell their 2/3's of the business to Lesley and move to France. She's happy to keep on going with the business on her own. I'd hate to think what would of happened if they continued as they were.
Probably 50% of the business owners I meet are in denial but until they realise this, can't do anything to change it.
However, I AM NOT saying that this is the case in all businesses and completely agree that friends and family can have great businesses as long as they keep up high levels of honest communication and have lots of fun! One of my clients setup is dad, mum, son and two daughters. It works great, NOW they talk every morning and every night.
Congratulations on great business.
Now that is how to put your point of view across. Not patronising, not "I am right you are wrong".
Very eloquent I salute you sir!!!
I think a business partnership is much harder than a marriage.
You are pretty dependant on them, you spend a lot more time with the person, you have to make harder decisions together much more often, more is at stake financially and it is hard to leave without leaving everything behind.
You also need to be able to have the fullest, frankest and most honest conversation with your business partner. Much much more so than your wife.
Ask your self this question. Would you tell your business partner their breath stinks, their teeth are yellow and they have BO? If the answer is no (for whatever reason), then you will not properly confront the harder business issues and your business is not likely to succeed.
You are pretty dependant on them, you spend a lot more time with the person, you have to make harder decisions together much more often, more is at stake financially and it is hard to leave without leaving everything behind.
You also need to be able to have the fullest, frankest and most honest conversation with your business partner. Much much more so than your wife.
Ask your self this question. Would you tell your business partner their breath stinks, their teeth are yellow and they have BO? If the answer is no (for whatever reason), then you will not properly confront the harder business issues and your business is not likely to succeed.
itstony said:
Hi everyone,
Just wanted to ask peoples oppinions on partnerships, particularly with friends.
I have a friend who I am going to propose a business to. I'm only inviting him to join this business because he has experience of the industry but most importantly, he is a people person. I need his personality and his contacts to help the business grow.
However, he is also the fun loving type party person and has a very playful approach to life, but I'm hoping a business will ring a bell in his head and make him change his ways and start taking things (especially the business) more seriously.
If you were in my position would you risk going into business with him. The idea, the concept, the operation and potentially the future growth of the business, will, in my oppinion be based on my knowledge and research and experience, but it is his people and contactswhich will be needed to help me gain the contracts and manage the staff etc.
Are there any safe options for me to protect my interests or do I really need to use my judgement. Has anybody ever started a partnership but included a buy back clause or will this be a disincentive to partners. The situation I'm most worried about is if the buisness gathers momentum and grows but he plays little part in the business but I'm stuck with him pocketing half the profits. Then for me to need to buy him out for a stupid price.
Also, whats the safest option in terms of running the business as a ltd company, partnership, etc
Thanx for any help.
Just wanted to ask peoples oppinions on partnerships, particularly with friends.
I have a friend who I am going to propose a business to. I'm only inviting him to join this business because he has experience of the industry but most importantly, he is a people person. I need his personality and his contacts to help the business grow.
However, he is also the fun loving type party person and has a very playful approach to life, but I'm hoping a business will ring a bell in his head and make him change his ways and start taking things (especially the business) more seriously.
If you were in my position would you risk going into business with him. The idea, the concept, the operation and potentially the future growth of the business, will, in my oppinion be based on my knowledge and research and experience, but it is his people and contactswhich will be needed to help me gain the contracts and manage the staff etc.
Are there any safe options for me to protect my interests or do I really need to use my judgement. Has anybody ever started a partnership but included a buy back clause or will this be a disincentive to partners. The situation I'm most worried about is if the buisness gathers momentum and grows but he plays little part in the business but I'm stuck with him pocketing half the profits. Then for me to need to buy him out for a stupid price.
Also, whats the safest option in terms of running the business as a ltd company, partnership, etc
Thanx for any help.
Your friend is obviously vital to the start of the business and you know you are likely to outgrow your need for him, if he doesn't grow with the business along with you. Half of something is better than half of nothing, so going into this with your eyes open you need to plan an exit strategy and be open about the potential for problems to arise.
So in your plan you need to be open about what is to happen should the different scenarios you envisage take place. Having an open and above board plan makes it easier to part on good terms and stop any bitterness or recriminations happening and structuralise any buyout payment plans in a way that the business can afford. A "green socks agreement" or a “No fault expulsion” clause in the partnership agreement is probably what your looking for.
srebbe64 said:
If your main motive is that he's a "people person" I would have thought that there are many people out there who could do the role. If he's a "party animal", "friend" and "partner" I'd probably give it a 50-50 chance of success. Don't think, like marriage, he's gonna change because he's got another job - humans don't work like that. I'd never employ someone who, if interviewed, said "I don't take life too seriously but if you give me the job I will". In the main people don't change personality.
I'll try and explain the situation in more detail. I have been in a position to go into business for the past year. The things which have held me back are firstly the capital I have to invest into my chosen business and the fact that i couldn't find the right property. It is because of this that I am looking at alternative business's. The business which I'm looking at starting now is is in a line of work which my friend has more first hand experience. I'm hoping he will take more of a leading role in the practical side of the business and in management. He's also well connected with people who would be very useful to know and is the type of person who can talk to anybody and everybody and is very confident. In comparison, I think that I'm more business minded and am better at dealing with the planning, innovation and implementation. Ideally, we would work like two peices in a jigsaw but I have my other concerns. His background is that he's quite wealthy but his various bonds and investments won't mature until he is 24, although he still lives very comfortably without them. Whereas I'm more quiet and reserved, hes part of the in crowd, which is good in that it brings a lot of wealthy contacts and potential clients. However, my concerns with this are that he hasn't had a job for over a year and lives his life sleeping late and doing f'all, then if he goes out he is known to enjoy casual cocaine taking. For example, one sitaution which I won't want happenning is if he starts this business with me but still has the idea to put play before work, and drop the load on me. Basically, my other friends view of him is that he needs to sort his life out soon and I'm hoping this business can be a turning point in his life.
What are your oppinions on my friend. One more thing though. This friend who I've mentioned above. His brother is my best friend and has a mindframe similar to mine and who thinks his brother needs to sort his act out.
Not even with a barge pole.
People don't often make dramatic overnight changes without a serious incentive. What would his incentive be in this case? Business is difficult enough without these complications. It sounds like a serious clash of cultures and there's already a hint of resentment before you even begin - that's not going to get better. I've seen it many times before and even made the mistake myself. I'd advise against it. Strongly so in this particular case.
People don't often make dramatic overnight changes without a serious incentive. What would his incentive be in this case? Business is difficult enough without these complications. It sounds like a serious clash of cultures and there's already a hint of resentment before you even begin - that's not going to get better. I've seen it many times before and even made the mistake myself. I'd advise against it. Strongly so in this particular case.
Increasingly, when making business decisions which are not black & white, I find it helpful to put pen to paper and apply a value to the various issues. It takes the emotion out of it and I can look at the decision more objectively. In this case you could include:
Good connections X/10
Cash X/5
Knowledgeable X/7
Sales accumen X/5
Nice bloke X/10
against
Party animal Y/10
Not used to working Y/5
Doesn't need money Y/7
Could ruin a friendship Y/5
Doubtless there are many other factors as well and the 'importance weighting' which you apply will be different.
So then if you take the total of 'Y' from the total of 'X' you begin to decide whether the pros outweigh the cons. With complex, subjective, decisions I've even gone as far as putting the numbers into Excel and looking at the problem diagramatically. Otherwise I find that 'emotion' clouds my judgement.
Good connections X/10
Cash X/5
Knowledgeable X/7
Sales accumen X/5
Nice bloke X/10
against
Party animal Y/10
Not used to working Y/5
Doesn't need money Y/7
Could ruin a friendship Y/5
Doubtless there are many other factors as well and the 'importance weighting' which you apply will be different.
So then if you take the total of 'Y' from the total of 'X' you begin to decide whether the pros outweigh the cons. With complex, subjective, decisions I've even gone as far as putting the numbers into Excel and looking at the problem diagramatically. Otherwise I find that 'emotion' clouds my judgement.
Edited by srebbe64 on Sunday 11th February 23:17
Personally I wouldn't enter into a partnership with anyone. As Eric mentions the danger to your non-business assets is huge. You personally can be pursued for the entire business debts of the partnership including ones your partner incurred "on behalf of the partnership" but without your knowledge.
I think the fact that you are asking the question about your friend probably tells you what you need to know!
Read what Muncher is sending you that tells you about the liability situation and then have a chat to an accountant about how best to structure your business.
Good luck!!
I think the fact that you are asking the question about your friend probably tells you what you need to know!
Read what Muncher is sending you that tells you about the liability situation and then have a chat to an accountant about how best to structure your business.
Good luck!!
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