Friends are an essential part of our lives and that’s why when looking for a partner for a new business, they come to mind first. This is because a friend can be the best partner or support system. You think of your friend because you know each other, understand each other’s points of view and have shared a lot about your fears and aspirations. While mixing friendship with business has its own unique set of challenges, it can be either a good move for your business or a bad decision for your friendship. If you want to successfully start a business with a friend, here are some of the important facts to keep in mind.

Set clear and practical expectations

Don’t get into business with emotions or vague expectations. “It’s really being very deliberate when coming up with your goals, and ensuring that there’s proper accountability on the business side in terms of reporting,” says Eric Musau, Head of Research at Standard Investment Bank.

Have documented goals in terms of financial expectations and personal achievements that will be brought about by the business, both in the short-term and long-term, from each of the partners. Discuss how much money you are looking to make in a year or two, number of employees to start with, how big you want your company to be and so on.   

Define your roles and do this early    

When dealing with friends, taking a more collaborative approach towards everything feels natural. This is especially if you have been friends for a long time. That may work to a point, but it’s better when everyone on the founding team can own a different portion of the business.

“There can only be one CEO, one head of product, one head of sales, and so on,” Musau says. This will ensure that everyone’s role is clearly defined to avoid unnecessary conflict that may affect the operations of the business and eventually, the friendship.  

Be clear on the value each friend is bringing into the business

Value could be in terms of the capital each friend is bringing into the business, expertise, business premises, initial starting expenses and others. It should therefore be clear how each of the business partners will be earning from what they brought into the business.

According to Musau, there have been cases where one brings in capital and the other expertise. But when it comes to getting the returns, the friend who did not put in monetary capital, tends to earn less. “It may well be that, based on just the job splits, you end up finding natural positions about what every person plays in the business,” he says.

Determine how you will be paying yourselves

Seek clarity on how much each person will be earning, with respect to their job description as well as how to divide other benefits not included in the salary package. You should also identify when the ideal time will be for you to start paying yourselves, whether weekly or monthly.

Lay all the risks on the table     

Partners should know how they will mitigate any future risks. “If it is fraud, let it be called a fraud situation and seek clarity on how it will be dealt with. If it’s a business loss, it depends on the type of loss. If you’re a shareholder and you lose money out of the business process, you’re the one bearing the risk.

If you acquire debt and maybe it was secured against a partner’s asset, you can then probably go after the asset. That presents all sorts of problems, especially if you intend to maintain a friendship thereafter,” Musau explains.

Scrutinize your friend

You might have a lot in common as friends from similar backgrounds, personalities and life experiences, but all these often make solid foundations for friendships, just not business. If your friend cannot be trusted with financial matters from a business point of view or lacks commitment is serious projects, then just remain friends.