First Step To Starting or Buying a Business With Family or Friends
What is the first step one must take when thinking aboutor going into business with family or friends? STOP – and allow yourself careful consideration. I think the concept of going into business with a life long friend, or a good buddy from college, or your brother, dad, sister is a fairly common thought process. Family run businesses are prevalent throughout the business communities. There are many successful family businesses, so they must be a good idea – right? My short answer is I’m not so sure. Businesses that have the ability to sustain over long periods of time – 10 years, 20 years or more to me are classified as successful businesses. But do the businesses sustain at the expense of breaking apart family values, feelings, or structure? Are holidays at the dinner table among the “family business associates” enjoyed as a family or another business meal, or worse?
I think there are many success stories of family businesses or buddies that go in together to. But, I also think the number of family / ”friend partnership” businesses that fail are large, and the number of businesses that are bought, started, or run by buddies or family members that adversely affect those important relationship may even be larger. Why is it so easy to come up with the idea of asking your buddy to go into xyz business with you? I think a big part is the feeling that you know your buddy or your brother / sister. But the missing link here may be that you know a certain part of that person real well, and the other part- the business part, – you may not get to know until it is too late.
I can speak of this matter from experience as I have been in business with both family and friends. For me it has worked out. I certainly experienced some bumpy roads along the way, but overall I have been happy with the end result of those business / personal relationships. But I have always felt that my experience may have been more the exception rather than the rule. Stories of friends that went into business together and it didnt work out surround me. I currently am evaluating a new venture that involves this same subject matter.
So what do you do when a friend offers you a very interesting?
I say STOP, and move beyond the idea, and analyze the business deal. Ive heard someone say STOP and get an MRI on your brain, but I prefer the non-medical approach. There are steps that can be taken to mitigate some of the pitfalls of such an arrangement and these may vary with the type of venture whetherwith family of friends or starting a business with family or friends. Below are a few step that can be taken and I will take when evaluating the opportunity of with a friend.
- Does the concept make sense? It must be a well thought out concept, and numbers must support the concept.
- The business plan needs to spell out everything, and then it must be followed. Moving forward without a plan is a bad plan.
- Draft the terms of the agreement between the parties involved. Expectations, Roles, compensations, exit strategy, are among the items to lay out in such an agreement.
- The agreement has to be a win/win for those involved . The more situations that can be addressed going in can only help to mitigate problems that may occur later on.
- Plan on X% more time and X% more money than you planned to open the doors.
- Have a long term plan. Success can be surprising sometimes, and possible success and benefits to those involved may be best addressed upfront
Part of me says I’ve had a fair amount of good long term business relationships which are valuable, but I value the long term friendships I have more. Good friends seem farther and fewer between than good business partners.
What do you do when your buddy approaches you with this idea to buy this great business?