Question on Friends as Business Partners: How to Maintain Friendship in a Partnership:
I sat with a friend of mine and brought up the idea of making accessories and selling them. We both began throwing out ideas and I threw out the name we chose. That same day we bought some inventory but since then I have been the only one buying and doing any of the work for the business. All she does is wear the product (advertisement) and talk about the future success of the business.
As far as money, I have put in 77.01% to her 22.99%. I have been thinking lately about offering her a limited partnership but I want all rights to the name because I want to use it with my future businesses. The only reason I am not buying her out is because I don’t want problems in our friendship. What kind of offers can I make to her before we go ahead with all the legal paperwork? — Shaylin
Advice by Tammy Harrison
First and foremost, your heart is in a great place – wanting to save a friendship that could otherwise be destroyed over mixing business with pleasure. There are few business people who will agree with your approach, but I for one agree with your thoughts on this. It’s a noble gesture.
Please note that I am not a legal or financial representative. I am offering my thoughts on your predicament, based on my business expertise – nothing more.
The first thing I’d do is to put your financial information down on paper. You need to show a money trail. You need to itemize every little thing that both of you have put into the business. After doing it with your funds, you should do it with your talents — how much time and what you did to grow the business and visa versa for your friend. This will help both of you see where you stand with regards to your business venture.
And please don’t discount your friend’s marketing — if she’s wearing the product, she’s working, too. Without marketing, there are no sales. Based on your comments, I don’t know if she’s doing as much as you are, but marketing is marketing and it’s always a good thing, to help grow a business.
Because you want to keep the friendship in-tact, I think you should approach your friend without assuming that everything is yours because you thought of the name and you are the one spending the most money. It sounds to me like both of you were involved in creating the ideas and business, no matter who actually did what. In fact, I have been in the situation you are with a business relationship before.
In my case, my partner and I set the business up and through some brainstorming sessions, she actually thought of our business name — except myself and my husband did all of the leg-work, we filed all of the necessary paperwork and we handled all of the immediate purchases for the business.
My partner and I created a goal list and a timeline for such, in the beginning of our business relationship. As time went on, it was quite clear that I was doing everything that I could to grow the business, and my partner was falling behind. After a few email communications where I was trying to motivate her into picking up her slack, she admitted that she’d bitten off more than she could chew, and she stepped away from the business. We are still friends … but, our partnership is now completely owned by myself and my husband and there are no negative effects of what we tried to do together.
Approach your friend with a short list of ways for her to join you as the business continues to grow. Be clear, though, on what each option entails for you and your friend. Growing a business is no different than growing a marriage – it takes two and it takes commitment from both parties to do their part to make it all work out. No matter if you share in a limited partnership, an LLC or even a corporation, the percentage owned by the participants of the business can make the difference in who has more of a piece of the pie than the other.
It is also advisable to consult and sit down with a lawyer to help formalize the partnership. It is always best to draw up a business partnership agreement. Some people may take offense and feel that it sounds “harsh,” but a formal agreement helps the both of you understand expectations and commitment in the business — and avoid conflicts later on that could affect not only the business but your friendship as well. The partnership agreement should also include a buy-sell clause to help come up with a plan when one of the partner leaves (or heaven forbid, dies). Starting a business with a friend can be like walking on a thin line, and you’d want to do everything to make sure that the business partnership and friendship will not fail (read the article 6 Signs Your Business Partnership Will Fail).
Wishing you entrepreneurial success!
Tammy Harrison is a successful home-based working mom for over five years. She holds a degree from Mizzou in Consumer Economics. Her business focuses on Marketing and Creativity for Small Businesses as well as numerous other small businesses.