Going into business with somebody you get on with today

Aug 29
3 min read

Updated: 2 days ago

Introduction

Two people who work well together decide to start something. They trust each other, they are enthusiastic, and raising questions about what happens if it goes wrong feels like an insult to a relationship that is the whole reason for doing it.

So nothing is agreed. Three years later one of them wants to sell, or one has been working sixty hours while the other works twenty, or one wants to reinvest and the other needs income. There is no mechanism for resolving any of it, and the friendship that made the business possible is now what makes it impossible to fix. Neither of them will raise it, because raising it means admitting the friendship is at stake.

1. Going into business with somebody requires the awkward conversations first

While it is hypothetical.

Every difficult question is easy to discuss before there is any money or resentment attached to it. The same question in year three is a negotiation between people who both feel wronged.

2. Establish what each person is actually contributing

Rarely as symmetrical as it appears.

Money, time, customers, skills, equipment, reputation, and who is giving up other income. These differ, and an equal split agreed without examining them is a decision nobody has actually made.

3. Agree what each person will do

Roles rather than enthusiasm.

Who is responsible for what, who works how many hours, and what happens if somebody's availability changes. Most partnership conflict is about effort, and effort is only measurable against something agreed.

4. Decide how money comes out

Before there is any.

Salaries, drawings, profit distribution and how much is retained in the business. Two founders with different personal circumstances will want different things from the same profit, and that surfaces in the first good year.

5. Choose the right structure

A decision with lasting consequences.

Partnership, company or something else, with different implications for liability, tax and how ownership is transferred. Take advice on this in your jurisdiction rather than defaulting to whatever is easiest to register.

6. Write down how decisions are made

Especially with two owners.

What either can decide alone, what requires agreement, and what happens when you cannot agree. A fifty-fifty split with no tie-break mechanism means a single disagreement can stop everything.

7. Agree how somebody leaves

The clause you will actually use.

How a share is valued, who can buy it, over what period it is paid, and what happens to any personal guarantees. Almost every partnership eventually needs this and almost none has it.

8. Deal with death, illness and divorce

Uncomfortable and genuinely important.

A share passing to somebody's estate can leave you in business with a family member. Cross-option arrangements, usually funded by insurance, resolve this and are straightforward to put in place at the outset.

9. Put it in a written agreement

The whole point of the exercise.

A partnership or shareholders agreement covering the above. It costs a modest amount, it is negotiated in an afternoon while everybody is well disposed, and it is the only thing that will help when they are not.

Talk about what each of you actually wants from the business, personally, over the next five years. One person building something to sell and another building a job they enjoy are not in conflict today and will be, and that is far better discovered at the start than in year four.

Conclusion

Have the difficult conversations while they are still hypothetical.

Establish precisely what each person is contributing beyond money, agree roles and expected hours, decide how profit is taken out before there is any, choose the structure with advice rather than by default, write down how decisions are made and what breaks a deadlock, agree a mechanism for somebody leaving and how their share is valued, address death, illness and relationship breakdown, record all of it in a written agreement, and discuss what each of you personally wants from the business.