One thing people often don't think about when going into business with a friend is the relationship itself. You’re going into business as friends. You want to remain friends.
Business is full of surprises. Discuss the possible surprises upfront, before you mix friendship and business, so you can keep your relationship strong while you’re in business.
You may think your friendship is really strong … and you’re probably right. But when you go into business together, your friendship will be tested more than it ever has been before. It’s wise to prepare for it beforehand, so you already have a lot of the answers when you’re in the middle of a tough situation.
Look at it this way – a business partnership is like a marriage. You need a pre-nuptial agreement! So find a good attorney to draw up an agreement for you.
8 “What if …” scenarios to discuss with your attorney
#1 – What if the business fails?
According to statistics, if the business fails, it’s most likely that no one will be owed any money. But what if that’s not the case – what if the business does owe money? How will you resolve that?
#2 – What if it succeeds wildly?
That may not sound like a problem, but you’d be surprised. Sometimes when a business succeeds at this level, greed enters in. Then comes the power struggles. Discuss the dream scenario upfront to avoid a nightmare.
#3 – What if one of you is incapacitated?
What if one partner is no longer able to do his or her part? How will the others handle this? Will this person get bought out? Is there formula for the price? There’s a lot to think about if this unfortunate situation happens.
#4 – What if one of you dies?
Obviously this is even more extreme than the last scenario. There’s the human side – your friend has passed and you’re grieving. But you also have business to attend to; work still needs to get done.
Many of the same questions from Scenario #3 apply here. But there’s more. For example, does the deceased partner’s family now have an ownership stake? Or do you buy them out?
#5 – What happens when one of you gets married?
Or you may already be married. What say does the spouse have in the business? Can the partner’s interest be jointly owned with a spouse or do you want to restrict ownership to your original group?
#6 – What if one of you gets divorced?
The business interest may be a significant asset. You probably don’t want a former spouse having a say in your business – even as a minority stakeholder. It can really muddy the waters, as the saying goes. What restrictions will you place on ownership?
#7 – What if one of you wants out?
How will you determine a price? What kind of notice will you require? What is the process?
#8 – What if one of isn’t pulling his or her weight?
How will you determine that this is case? What can, and will, you do about it?
These aren’t pleasant things to think about, let alone talk about. However, you’re more likely to find good solutions now when you’re thinking logically than to try to work them out in the heat of the moment.
We can’t stress this enough – get a good business attorney.
Then sit down with your partners and your attorney and work through these issues. Your attorney will probably have even more situations to discuss. Work through these issues before you start – for the sake of your friendship … and your business.
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