Is It Wise Going Into Business With A Relative Or Friend?

Any kind of relationship is going to be taken to a new level when financial matters (of any kind) are involved. Even lending money to a friend you’ve known for years can cause rifts if they don’t pay you back on time, or if it feels like they’re taking this favor for granted. Unfortunately, more than a few friendships, even family relationships, have ended over money matters.

However, it’s true that many loving families manage their household and financial affairs, and even run businesses together. The same goes for friends, as you have to be friends before trust in such measures begins to build.

These two opposing and truthful views can help you keep a nuanced view, but they also help you stay both realistic and hopeful. One question remains – is it wise going into business with that relative or friend? How can you tell, and how might you take that final jump?

In this post, we’ll discuss that and more:

Separate Personal & Professional Roles

You absolutely must define clear roles and responsibilities from the start, separating your friendship from the job, and remember that when you’re in the office or talking about work, they’re not your friend or family member but your business colleague.

We’d suggest that it’s necessary to have a formal document that details who handles what, and you should both stick to that. If you agree about this clearly from the jump, it stops resentment from building up if one person feels they are doing all the heavy lifting or stepping outside of their duties. Being able to hold each other accountable without taking it personally is something you have to agree to do from the start,as you’re trying to protect your personal relationship by putting the business first when you’re working.

Establish Clear Exit Strategies

Now, no one wants to think about the business failing or the friendship breaking down, but planning for it is a massive safeguard because ultimately, not everything goes perfectly in life. It’s easier to be optimistic when you know what to do if failure happens, and you also need to know what happens if one of you wants out.

As such, try to cover possible future scenarios like how a buyout would work, what happens to the intellectual property, and what role each person has after a split. If that’s agreed upon beforehand, it may stop a messy, painful fight later on that could ruin both the friendship and the company. Having this plan in place shows you’re both serious about the future of your business partnerships, which you can also manage with legal help.

Set Up Fair Compensation

Of course, you must make sure the financial arrangement is fair and clearly agreed upon by everyone involved. Don’t assume your friend or family member is happy with a casual handshake agreement, because money changes how people feel about anything, and no one should feel exploited just because they’re close to the person who runs the business.

At the very least you should formalize salaries, profit sharing, and expense accounts, making sure that they’re curated in line with the real time and value each person is bringing to the table. If one person invests more money and the other invests more time, the deal should still be balanced as is fair.

With this advice, we hope you can more easily go into business with a relative or a friend, and limit the risks that come with considering it.