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6 things I wish I knew before going into business with my best friend

The biggest fear of going into business with a friend is ruining your friendship.
WIWIK BUSINESS WITH FRIEND
No amount of money is worth risking a valued friendship.TODAY illustration / Diane Deaton Street and JD Stewart
/ Source: TMRW

“Should you go into business with your friend?”

That's what I Googled on repeat before jumping into a real estate venture with my best friend, Michael, and deciding to fix up a derelict Victorian. Mixing business (or, let’s be real, mixing money at all) with friendship is scary. No amount of money is worth risking a valued friendship.

But when you obsess over the same things — renovations, home design and real estate in our case — eventually it seems silly that you’re not building a business.

Running a business was nothing new to me, but a partnership? That was another matter altogether.

I’d like to think we did our due diligence though, hiring lawyers to draft an operating agreement and pinky swearing to always put our friendship first. But you can never really know what to expect until you’re in the thick of it, and about three months into our fledgling enterprise, I’ve learned a few things. To put these learnings in perspective I reached out to Shannah Compton Game, certified financial planner and host of "Millennial Money Podcast," and Christy Pennison, a licensed professional counselor and owner of Be Inspired Counseling & Consulting.

1. You have to get "financially naked"

Michael and I are a bit of an odd case because we already talked about money in a culture where friends often avoid the topic. But there’s sharing how much my house payment or his commission check was, and then there’s working on a joint loan application where you pore over every detail and every penny.

Running a business was nothing new to me, but a partnership? That was another matter altogether.Dana McMahan

“I think of going in business with a friend (as) you have to get financially naked with that person,” Game said.

In other words, there are zero secrets. Does it feel weird to see my friend’s credit report and let him see just how little my freelance writing earns? Yes, kind of.

It's critical to put a potential partner’s finances under a microscope before you go into business together. “If you have a great business idea but the person's personal finances are all over the place, well, those lines tend to bleed eventually,” Game said.

2. A lot of trust is required

Beyond sharing everything from your social security number to your bank statements, you’re taking an enormous leap of faith by going into business with someone.

I literally have my house on the line as collateral for a loan, and that’s not a decision I take lightly. “There's a trust walk that you take with any partner,” Game said, “but particularly when it comes to friends because you have that established relationship.”

She added that you’re also trusting that you can navigate the business minefield together while keeping your friendship intact.

3. Expectations are everything

Clear expectations can make or break the business and/or the relationship, both experts say.

I have to admit that we don't get A+ here because beyond our friendship-first pact, we haven’t specified what other expectations look like. But we can give ourselves some grace, Pennison says, because there is a lot of figuring out that happens along the way. “But I do think the more you have those clear conversations about expectations and goals and, ‘How are we going to handle this conflict?’ then when you’re in the heat of it if something goes down, you're able to know ‘OK, well this is how we said we were gonna do this.’”

Adding a money component to a friendship is “extraordinarily tricky,” Game said. “Having clearly defined roles and tasks, like who's doing what on the money side, is also really important.” It’s also critical to know and play to your strengths, she says, and to identify where you need help. We both hate logging expenses, for instance, so hiring a bookkeeper may be worthwhile.

It’s also critical to know and play to your strengths, Game says, and to identify where you need help. For us, that means hiring a bookkeeper.Diane Deaton Street

4. It takes more than two to make a thing go right

We’re both fans of bringing in people who know more than we do — a color theorist to help choose a palette for the house, for example. But doing the same for the business overall can be money well spent, Game says.

“I know a lot of people who've gone into business with friends who have hired a business strategy person for a session or two and really talked out, ‘What is our strategy, what is the revenue model?’” she said. “It also helps you really clarify what the vision is (because) it's really easy to be in your head about it.”

5. The worst case scenarios have to be discussed

Even in 2020, we manage to avoid talking about the reality that loss can strike at anytime. But our attorneys forced us to talk — exhaustively! — about what would happen if one of us bailed or even died. Deep in conversation one day about how to handle the business and finances if something happened to one of us, Michael blurted out, “I don’t want to think about you dying.” No one wants to imagine losing someone they care about. But we also don’t want to leave our partners stranded to pick up the business pieces in an emergency so we had to have the hard conversation and make plans.

To maintain the friendship, don't be afraid to take “business breaks,” she said, where you agree to skip the business talk for a bit.Diane Deaton Street

6. You’ve got to prioritize the friendship

My biggest worry was making sure we stay friends through it all. It’s easy to put the friendship on a back burner while you’re building a business, Pennison said, but “just like any relationship, you’ve got to be intentional about finding ways to continue to nurture and develop that friendship.”

That might mean taking “business breaks,” she said, where you agree “we're just going to take time to do what we used to do” and skip the business talk.

It also means keeping the lines of communication open. A benefit to working with a friend is that you can probably tell when something is bothering them. But something that might have been a minor qualm with the friendship can turn into a bigger issue if it affects the business. If you don’t communicate these things, she says, “it causes conflict down the road.” Being clear early on is critical. So I’ve made myself speak up when something bothers me (and trust Michael will do the same!), and each time it’s led to great conversation and strengthened the friendship.

After all, that’s a perk of teaming up. “It can be a lot of fun,” Pennison said, “because you're working every day with your best friend.” That can definitely grow a friendship, she continued. “When you're growing there has to be some challenge. It takes some work and it takes some experience and time and challenges. You can start to have a deeper appreciation for your friend as you scale up and do business together.”