Friends in business, should be friends "in deed"...

Mark Bouris, executive chairman of a wealth-management company and small business adviser, but probably more recently widely known as the host of last year's TV’s Celebrity Apprentice Australia also writes articles in the small business section of the Sydney Morning Herald (well, I don’t really know if he actually writes it or whether he instructs another writer to do it for him, but that’s besides the point!).  Today he gives some advice to someone looking at starting a business together with a friend.

Mark gives sound advice about starting or running a business with a friend.  These include the need to (this list isn’t exhaustive):

• separate business from pleasure;
• create a plan and sticking to it;
• not letting personal relationships get in the way of professional goals.

He also makes another important point that I particularly emphasise when I’m advising friends who consult me when they’re starting a business venture: 

 

      put it in writing!

 

As Mark says, Contracts and agreements made between friends can be awkward but they are vital.  It may be awkward but the best time to negotiate and agree on the required documents, normally a deed, is right at the beginning while you’re still friends!  It could apply to partnership agreements, shareholder agreements, and  trust deeds.

People and friends don’t start business on the basis they expect to have a falling out.  If something should go wrong, even if the friendship is stretched or falters, at least there’s a roadmap, or a set of pre-agreed rules on how to best deal with the issue, or even end the business relationship.

A quick example.  If two people enter into a business partnership, if there’s no express agreement stating otherwise, in NSW that business relationship is governed by the Partnership Act.

Under that Act, in the absence of a prior agreement, a partner can dissolve the partnership by just giving formal Notice to the other partner(s) and the dissolution of the partnership is effective from the date that Notice is communicated. 

This is quite serious; think about it.  You’re in a partnership business, you’re handed a Notice and it’s over.  No lead in time, no time to work-out any buyout or secure finance, maybe no time to secure the firm’s bank accounts.  There’s great potential for arguments as who’s to get what plant and equipment, or who gets to “keep” which customers or clients.

I’ve seen this happen far too often.  It creates havoc, stress and ultimately costs that could’ve otherwise been avoided.

A typical formal partnership agreement, on the other hand provides a for minimum notice period, be it 3, 6 or even 12 months.  In other words, there’s a sound exit strategy already in place.

Of course friends can go into business together; they should however treat it as such and remember that business is business.