Knowledge about doing business with friends
Starting a business with friends is a great way to become a business owner. Working with friends can bring rewards and fun, but you may also encounter some obstacles in the process.
Just like working with other people, you and your friends sometimes have different opinions. The success of your company may depend on how you respond to and adjust for these differences.
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Is it a bad idea to do business with friends?
Starting a business is not easy, but it helps when you have a good friend around you to deal with challenges. The climax of a good friend becoming a successful business owner is even higher, and the trough does not seem so bad.
However, it may be a bad idea to start a business with anyone whose goals and values ??are different from yours. Unfortunately, some good friends have become not so good business partners.
What is the main reason for the failure of a business run by a friend?
In some cases, doing business with friends can destroy friendships and companies. Before starting any venture capital, you and your friends need to agree on the basic aspects of the company. Here are some red flags that cooperation between friends is doomed to fail.
Trust issues——If you are good friends, you want to trust each other. But when a friend finally uses or even steals the business, your problem is very serious. You should believe that every friend will contribute their share and only accept their share.
Unstable personal life-In some cases, a friend may be more confident in personal finances and relationships. When the friend is not only responsible for his own finances, personal debts or recklessness towards money may become a problem. Unfortunately, going through a divorce while trying to run a business can put friends in an awkward situation—especially if you don’t plan properly.
Lack of skills or knowledge——You should only do business with friends who can contribute professional knowledge. Maybe they have skills you don’t have, or they have resources you can’t get on your own. Starting a business together because it is fun is not a good foundation for long-term business. Friends who do business together should complement each other’s skills or knowledge so that they can contribute to the relationship.
How to protect yourself when doing business with friends?
If you do business with friends, you should take the same steps as you do with other people.
Consolidate your business——Even if you are doing business alone, it might be a good idea Consolidate your business. By forming your company as a corporation or limited liability company, you can isolate your personal assets from the liabilities that your business may incur.
Create a business cooperation agreement or operating agreement— An agreement that stipulates how the business will operate, whether it is a merger or operating as a partnership, is indispensable.A kind Cooperation agreement or Operating Agreement (If you are registered as a limited liability company) will decide how to make decisions, resolve conflicts, and allocate profits and losses. It will also address the factors that may trigger the end of the business and how assets will be split if the business needs to be dissolved.
Create a business contract for the relationship—Whether you are working with independent contractors or suppliers, Written contract It’s a good idea. These contracts stipulate the rights and responsibilities of everyone and provide clear remedies when problems arise.
Share bookkeeping and recording responsibilities-It is tempting to have someone “manage books”, especially if they seem to be good at it. However, everyone involved in the business should be able to access and monitor financial and other company records. Keeping up with the way the business operates can prevent many problems in the future.
What do I need to discuss when doing business with friends?
Discussing some potentially difficult issues with your friends in advance can save a lot of time and headaches. These more sensitive topics include:
- How will income and loss be distributed?
- What happens if the company has to be dissolved?
- How will the joint venture be financed?
- Who will make daily decisions for the company?
- Who has the authority to write checks?
- What is the time and obligation of participation?
When you discuss these projects, you may realize that business partnerships may not be suitable for you and your friends. It is better to figure it out early than to study on the road.
If you want to discuss your business with a lawyer, regardless of whether you have started or are considering your options, please contact Rocket Lawyer On Call® Get affordable legal advice.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm, nor is it a substitute for a lawyer or a law firm. The law is complex and changes frequently.For legal advice, please Ask a lawyer.