Thinking About Starting a Business With a Friend? Be Sure to Ask These Questions First

Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.

KEY POINTS

  • Starting a business with a friend can have a major impact on your relationship.
  • You'll need to ask a few key questions to set yourself up for success.
  • Be sure to discuss how you'll share responsibilities and resolve disputes.

Starting a small business with a friend can be a wonderful way to improve your working life. You can become your own boss while working with someone you like and sharing the risks and responsibilities. You can also grow your bank account balance if your company is a success.

Unfortunately, around 20% of new businesses fail during their first two years, so success is not guaranteed. And you don't want to ruin your friendship while you're undertaking this major move that will affect your finances and your lifestyle going forward.

To help ensure you're making the right choice, be sure to ask these questions before starting a business with a friend.

What are your goals for the company?

You and your friend need to be on the same page about what you hope to achieve when you start a business together. Otherwise, you could find yourself facing ongoing conflict as you make decisions about the company's future.

Take the time to discuss why you're starting the business, what the company's mission statement will be, and where you see the business in a year, three years, five years, and 20 years. This will help you get clarity on whether you want to follow the same path to success.

How will you share responsibilities?

There's a lot involved with running a successful business. You need to make sure you have clarity on who is going to take on which tasks. Otherwise, you could find you're both planning to fill the same role, which could lead to conflict and leave many other important jobs undone.

Be sure to know how involved you will each be with the day-to-day operations, and who will be in charge of different aspects of business and project management.

What is your financial situation?

Starting a business can be hard on your financial life. It takes money to get a company off the ground, and the business may not be profitable right away. You'll want to be sure that together you can bring in enough money to get the business off on the right foot. You'll also want to be confident that you and your friend both have a plan for supporting yourself until the business starts earning enough to fund both of your lifestyles.

How will profits and losses be distributed?

Once your business starts making money, you will need to know how profits will be distributed between you. And until then, you'll need to know who gets to declare losses from the business on their tax returns.

Some partners agree on a 50/50 split, but you may have another arrangement in mind -- such as if one of you plans to put in more money and the other plans to put in more time. Since money can be a major source of conflict, it's better to iron out these issues before opening your doors.

What will you do if a dispute arises?

Finally, have a plan for what you'll do if you can't agree on something relating to the company. You should make a dispute settlement plan in advance of any conflicts actually arising so you don't get stuck in a stalemate when a disagreement eventually happens.

By asking these questions early on, you can make sure you're making a good financial and professional move by starting a company with a friend.

Our Research Expert

Related Articles

View All Articles Learn More Link Arrow