You can start and run a successful business with friends. Many successful businesses you see and admire today are the end product of two or more friends coming together to form a business idea and establish it.
Now, deciding to start a business with friends can be a lot of fun.
It allows you to share a wonderful experience with your friend while learning new skills.
Also, it allows you to explore each other’s passions while enjoying the process of starting a business.
As fun as this experience may sound, it is still a business venture.
Therefore, there are procedures to follow to ensure a smooth process.
That’s what this blog post is all about.
Here, we explore what starting a business with friends entails and how to ensure a smooth business establishment and management with friends.
Without further ado, let’s get right to it.
Starting A Business With Friends; Things to do Before You Start
Starting a business with friends is a step that requires you to be patient, enduring, and accepting.
You should be ready to listen to your friends’ opinions and understand things from their point of view.
Now let’s take a look at some of the things you should know before starting a business with friends:
1. Identify Each Other’s Passion – Starting a Business with Friends
The first step to take before starting a business with friends is to identify each other’s passions.
To know if you can work together, you need to be sure that your thoughts are aligned.
Starting a business with friends who have similar interests and passion is essential.
This helps to ensure that your goals are aligned and prevent misunderstandings.
2. Be Open to Suggestions
As much as you have a similar passion, you do not share the same approach or methods.
Sometimes you might want to approach things a certain way, while your friends may have different opinions.
Hence, you should leave room for suggestions.
You should try your best to give your friends the chance to express their opinions.
When they express their opinions, you keep an open mind and understand their perspectives.
Starting a business with friends involves a lot of decision-making, and everyone should get a chance to state their opinions.
3. Establish Trust
Trust is a major factor when it comes to starting a business with friends.
When we talk about trust, it goes beyond having each other’s back but entrusting responsibilities into each other’s hands.
This is a business, after all, and before embarking on this journey, you need to be sure that your friends can handle whatever task they are faced with.
And for you to be sure of this, you need to trust your friends and vice versa.
4. Honesty – Starting a Business with Friends
Sometimes, a lot of friends keep secrets from each other.
But when you want to start a business with your friends, you need to be honest and open about your thoughts and action.
At this point, you are no longer just friends but also business partners.
At no point should you assume the thoughts of your business partner?
There should always be room for open conversation.
5. Set a Common Goal
It is important to make sure that you and your business partner are on the same page, that is, having common goals.
Likewise, you and your business partner need to have aligned expectations in relation to how you want to establish the business and keep it running.
This is important to avoid conflict amongst yourselves.
6. Be Ready to Take Risks
Starting a business already involves a certain level of risk, but starting a business with friends can be even riskier.
There are times where you will be faced with tough choices.
In cases like this, you and your business partners need to be ready to take risks.
Sometimes you need to defy all odds and take bold steps that can lead to success or otherwise.
7. Avoid Attaching Sentiments
This is a very important detail to be cautious of when starting any business with friends.
Don’t dabble into a business with your friends based solely on friendship.
There should be a line between friendship and business.
Make sure you establish ground rules concerning the business.
8. Administer Specifically Defined/Clear Roles – Starting a Business with Friends
Once you can get past the listed procedures, then it is time to administer roles.
One of the advantages of starting up a business with friends is that the responsibility is shared.
It is more like starting a business and putting together a team.
But in this case, they are not just teammates but business partners, and they are obligated to the business.
To administer roles amongst yourselves, you need to identify each other’s strengths and weaknesses.
You and your business partner should all have defined roles based on special abilities or knowledge and individual strengths.
9. Have a Written Agreement
Before embarking on a business journey with friends, it is important to have a written agreement outlining each other’s roles.
Your written agreement should contain a detailed explanation of the terms of the agreement before embarking on a business journey with friends.
At some point, when starting a business with friends, you have to legalize your roles as business partners.
There are different types of partnerships, and before going any further into starting a business, it is best to define your roles on a legal level.
Now there are different types of legal proceedings to choose from when starting a business.
Let’s take a look at some:
Limited Liability Partnership (LLP)
This type of business partnership involves having a limited partner and a general partner.
These two partners play different roles in the business.
A limited partner has no operational control and cannot be actively involved with running the business.
A general partner, on the other hand, actively controls and manages the business operations.
Both partners can pay debt and invest in the business, but it is the duty of the limited partner to pay the debt.
In paying debt, a general partner is obliged to assist a limited partner in paying debt the partner cannot pay.
In a limited liability partnership, the partners co-own the business.
However, they only pay tax based on their portion of the profit.
Public Limited Company (PLC)
A public limited company involves having shareholders.
You and your friends can become shareholders in the business.
But in this case, the shares will also be available to the general public.
Private Limited Company (LTD)
A private limited company is amongst the common types of legal proceedings for a partnership business.
In this kind of organization, you and your business partners can become shareholders of the business.
If you ever decide to expand the business, a private limited company is limited to a maximum of fifty shareholders.
A guarantee company is for non-profit businesses.
In a guaranteed company, there are no shareholders; instead, there are guarantors.
You and your friends will act as guarantors for the business.
This is usually the legal proceeding used for charitable businesses.
Overall, the structure of your business plays a major role in choosing what legal steps to take concerning your business.
However, as long as you are starting a business with friends, it is best to have legal status to define your roles in the business.
Once all this is put in place, it is time to embark on your business journey with your friends.
Procedures to Starting a Business with Friends – Starting a Business with Friends
Starting a business with friends can prove to be just as strenuous as starting a business by yourself.
At the end of it all, the outcome will be worth every time, creativity, and stress invested.
However, to ensure a successful business startup, there are certain steps you need to take.
Some of these steps include:
1. Figure out Your Reason for Starting a Business with Friends
Firstly, you need to identify why you want to start a business with friends.
Is it to ease the stress of starting a business alone?
Are you starting a business with friends based on the fact that you share common goals?
It is easier to administer each other’s roles when you have a reason for starting the business with friends in the first place.
Also, having a reason to start a business with friends gives everyone involved a clear direction and purpose, which could also serve as a source of motivation when it becomes challenging.
It also makes deciding on a business idea easier.
2. Do Adequate Research
It is important to start a business with friends based on a shared passion.
However, this is not the only important factor to consider when starting a business with friends.
Adequate research is necessary to ensure that your business partners are fully aware of what it entails to start that particular business.
In your research, you need to identify your potential customers.
After identifying your potential customers, you need to understand how to communicate and relate with the customer.
You also need to know the level of demand for whatever products/services you and your friends want to offer.
Your research also needs to cover finding a good location for your business.
3. Devise a Business and Marketing Strategy
A marketing and business plan is an essential part of starting a business.
All hands need to be on deck to devise a strategic plan for the business.
The business plan should be developed based on the discoveries from the research conducted.
At this point, you and your friends can put together a business plan based on individual opinions and knowledge gathered.
In addition to that, a good marketing plan is also essential to promote the business, make sales, and accumulate profits.
Hence, come up with an effective marketing plan/strategy.
Once again, you need to include your friends in the process.
4. Raise Funds for the Business – Starting a Business with Friends
Starting a business with friends will most likely require a certain level of funding to startup.
You and your friends need to do the necessary research and determine the total amount required to start your business idea.
This is important to avoid a situation where you run out of capital which may cause a delay in the business startup.
Once you have determined the level of capital the business requires, it is time to raise it.
Raising capital for the business would be easier because you are starting a business with friends.
You can all decide to save together and raise the required capital or go through other means.
In a situation where you and your friends can’t raise the capital alone, you can opt for a bank loan, a business grant, or decide to get investors.
Whichever step you decide to take should be a collective decision by you and your friends.
5. Choose a Location
Choosing a location for a business is the next step to take when starting a business with friends.
Whatever location you pick, it should be one that will profit the business idea.
You and your friends should have a variety of choices for a location.
You can narrow down the list by testing your marketing plan on each location.
Also, you can carry out research to determine the level of potential customers in each location before deciding.
Depending on how long the business is established to last, the location for the business should be an area where development is constant.
Challenges Involved when Starting a Business with Friends
Even though you are starting a business with friends, certain challenges arise from time to time.
These challenges can be easily tackled, but you can’t tackle what you don’t know.
Hence, here are some of the challenges you may face when starting a business with friends;
- Attaching sentiments to the decision-making process
- Misunderstanding due to keeping secrets amongst your friends
- Making important decisions without involving the whole team
- Underestimating the required capital
- Taking the wrong legal step
- Unresolved dispute between you and your friends
Let’s take a look at these challenges in detail…
1. Attaching Sentiments to the Decision-Making Process
This is a challenge often faced by many when starting a business with friends.
When starting a business with friends, you need to be ready to avoid making sentimental decisions.
There should be a fine line between friendship and business.
2. Misunderstanding Due to Keeping Secrets amongst Your Friends
It is possible to leave out a few details of information from your friends.
Occasionally, some information doesn’t even seem relevant enough to share.
However, when it comes to starting a business with friends, it is important to share all information concerning the business with each other.
Many mistakes and issues can be avoided if there is clear communication between you and your friends.
3. Making Important Decisions without Involving the Whole Team – Starting a Business with Friends
Another challenge you may face when starting a business with friends is the decision-making process.
Everybody has their point of view/perspective.
Hence, you and your friends may have different opinions on how to go about certain business processes.
However, don’t let this be a reason to start making decisions without involving your friends, in this case, business partners.
Doing this can easily create a bad division between you and your friends, which will affect the business.
More so, situations like this are why administering roles is important in a business partnership.
When everyone knows their place in the business, there will be fewer contradicting ideas.
Likewise, whatever decision is to be made concerning anyone’s administered role, the team will only give opinions to aid the decision-making and not contradict each other.
4. Underestimating the Required Capital
This happens to be a much-underrated challenge when starting a business.
And it can be a bigger challenge when starting a business with friends.
You need to make sure you and your friends raise enough capital to start up the business properly.
This way, you and your friends can avoid having to stop the startup process halfway through.
5. Taking the Wrong Legal Step
As stated earlier, legalizing your roles as business partners is an important part of starting a business with friends.
You should avoid taking the wrong legal step to avoid any form of issues along the line.
It is advisable to get a lawyer involved in this process to ensure a proper legal proceeding.
6. Unresolved Dispute between You and Your Friends
Now, starting a business with friends can get a little bit tricky when there is any dispute.
In most cases, a dispute can cause damage to not just the friendship but also the business.
It is important to avoid having any form of issues with your friends when starting a business together.
And if at any point there happens to be a dispute, make sure to resolve it immediately to prevent a prolonged conflict that may damage the business relationship.
Conclusion on Starting a Business with Friends
Starting a business with friends can be a great step to creating a successful business.
As fun as the process might seem, you need to take appropriate measures to ensure the business succeeds.
Along the line, the process might get tedious or overwhelming.
However, when you establish a business with friends with similar interests, the business will survive challenging times and stand the test of time.