Do Best Friends Make Best Business Partners?
Going into business with a friend can work – sometimes
Childhood buddies Ben Cohen and Jerry Greenfield came from humble beginnings. They invested in a $5 correspondence course in ice cream making from Penn State University and $12,000 in cash and opened their first ice cream shop in a renovated gas station in Burlington, Vermont in 1978.
Twenty-two years later they sold their company, Ben and Jerry’s Homemade, to multinational food giant Unilever for $326 million.
Ben and Jerry proved that friends can be successful business partners and build a wildly successful business that boasts a worldwide brand.
But for every Ben and Jerry success story about friends going into business together, there are stories where the opposite occurred with the business going belly-up.
As John D. Rockefeller opined, “A friendship founded on business is a good deal better than a business founded on friendship.”
Here are several questions to consider before entering in to a new venture with a friend as business partners.
- What will my friend bring to the business? Does he or she have strengths that will clearly enhance the business—abilities, knowledge or resources you lack or aren’t willing to acquire elsewhere? Say, for example, you’re a topnotch salesman but dislike finances and record keeping. If your friend loves details and thrives on spreadsheets, the partnership may work. If, on the other hand, your pal can’t offer something that would round out the company or make it more profitable, consider partnering with someone else.
- Are we in agreement? To make any business succeed, you and your friend will be working together day after day. Such relationships bring out the best—and worst—in people. Resentment can fester when partners feel that workloads and rewards aren’t fairly distributed. So it’s crucial to discuss expected work hours, contributions, roles and responsibilities. Be sure to document your mutual understanding in a well-crafted business plan and partnership contract. Specify ownership breakdown, investment amounts, conflict resolution protocols, and succession plans.
- Can we communicate effectively? Like a good marriage, a long-term business partnership requires honest communication to succeed. Ask yourself whether you can handle constructive criticism from your friend/business partner. Even the closest business partners don’t see eye to eye on every issue. Take a straightforward look at how you both handle disagreements. Will you work through difficulties for the firm’s sake, or bury your head in the sand and hope for the best?
- What’s most important, our friendship or the business? Developing a profitable business is hard and often unrewarding work. Going into business together may strengthen your connection, but don’t overlook the possibility that your friendship may be damaged in the inevitable struggles of running a company. Remove blinders. Assess risks. Agree on priorities from the start.
As always, we hope you find our tips and news for businesses valuable, and look forward to receiving your feedback. Companies focused on growth have sought the help of Insero & Co. for more than 40 years. During that time they have consistently experienced the peace of mind that comes from knowing their CPA firm takes the concept of integrity seriously. Should you have any questions, please contact us directly.