start a business with friends

 How to start a business with friends or family

This article covers the organizational, personal, and financial management of a business when you have family or friends as co-owners, employees, or both. First, we will look at the role-sharing methods that separate your family responsibilities from the needs of your business. We will also discuss the financial benefits of doing business together.

Next, we will give you guidance on running your family, business, including business control and decision making, and setting and managing the pay you provide to your family or friends. We'll also give you tips on how to keep your business running smoothly by managing working relationships with family and friends, which includes effective communication, conflict management, and celebrating success in your business.

Organization of a joint business

A common problem in a collaborative business is that everyone tries to do better, but only in the way that he himself seems, but in general, this is not effective for the business. Therefore, it is very important to establish the right organizational structure in advance and find out who will be primarily responsible for the activities in your business.

A well-designed organizational structure will allow everyone to do a certain part of the work and not step on each other's toes. When everyone works on specific tasks, rather than trying to cover the whole process, this option is much better for business.

Sharing roles and responsibilities will help maintain a good relationship by allowing your friend to do things his or her way while you go about your work your way. But do not forget that business with friends and family can have its pitfalls. Here are some of them:

• Lots of bosses. The organizational chart should clearly state who is in charge, especially when decisions are required where not everyone agrees.
• Reassessment of opportunities. Everyone should take a role based on their qualities, and here it is important not to overestimate yourself. We suggest using a personal strengths assessment for everyone in your business to help you assign roles objectively.
• Separation of work and personal time. When you start a business, you devote almost all of your time to it. While it may bring you pleasure, this lifestyle can be dangerous for you.
• The difference is between expectations and reality. You can expect friends or family members to do the same in business and with the same enthusiasm as they do in life. But it is not always the case. If someone bakes wonderful bread at home, it does not mean that in business he or she wants to be a baker. Therefore, before starting the enterprise, it is important to discuss who likes what and other details.
• No list of rules. Many people who start a business with friends and family don't believe they need organizational norms because they know each other so well. Even people who have known each other for a long time can come across new business experiences. Therefore, it is important to discuss the following rules:

- discuss how you will act if you disagree with each other;

- Identify steps by which each of you can share your views and come to a common denominator, or bring in another business partner to help overcome the impasse.

• Appreciate each other's skills. Share openly what skills you value in each other and use them. This will have a positive effect on the joint business.

Now here are a few rules for better consistency in your work:

1. Physical space. You may love each other deeply, but working closely together can change that for the worse. Things like tapping on a keyboard, tapping your foot, or playing music while you work can piss other people off, so keep that in mind.
2. Using strengths. Make a concerted effort to use strengths and opportunities to meet specific challenges.
3. Engaging an assistant. If you have a process that no one on your team likes to do, or you lack the confidence to do it right, hire someone to fix the problem.

Although these rules will help in your work, it is likely that there will be people in your team who will not be able to work together in harmony. Some styles and approaches just don't work together. Therefore, we will give the following recommendations to eliminate such a situation:

• Don't pretend there aren't conflicts and don't ignore them. Failure to take action can lead to serious problems. The first and easiest approach is to separate the participants in the process, if possible.
• Don't try to change your friends or family members. They have their own style of work to which they are accustomed. If there is a problem with this, then it is easier to ask them to explain this approach to work, i.e. Why do they do it the way they do it.
• If two people are in conflict, then act as a mediator. This is not very effective, but much better than conflict in your family or among your close friends.

If you plan to work in business with family and friends, then the joy of the upcoming event can soon be replaced by disappointment if you do not openly discuss the sharp corners in doing business together. Here are three tips to help you keep family and friends together, both in business and in your personal life:

• You must understand what will make each participant leave the business or, conversely, stay in it. Share this information with each other and operate your business within these restrictions. Examples might be flexibility in dealing with family matters, a certain level of income, or the ability to work in or avoid certain areas of the business.
• You must determine the financial implications if someone leaves the business. When one of your friends and family members is also the owner of your business, not only relationships are at stake, but also money. Unfortunately, money has ruined many relationships. They can exit when the business has debts or, conversely, at the peak of success. In any case, you need to regularly evaluate the business and distribute its shares between the owners and their liability in case of exit from it.
• Know how you will make up for the loss if someone goes out of business. Who will take a share of the responsibility? How and under what circumstances will you seek a replacement? This is a concern for any business, but with family and friends, there is another factor to consider - the emotional factor of personal care, which can have a significant impact on productivity.

Follow these guidelines to make sure you do business with friends and family. In this case, you will get more joy and pleasure from the process, you will have fewer reasons for dissatisfaction, and personal relationships will remain at the same level.

Types of ownership of a family business or business with friends

In this chapter, we will discuss four ownership models for small businesses: one owner, married couples, a group of owners, and a joint stock company.

With a single owner, there is no doubt about who is responsible for making decisions in the business, and the vision of the business does not require discussion. Here everything is very clear in the direction of business and goals, and the result depends on the enthusiasm and productivity of the owner.

On the other hand, there are certain disadvantages. A single focus also means that your business is limited to the vision and capabilities of one person. Without a broad skill set, the prospects for a business can be limited unless one owner can convince others to become part of a new non-share business.

Now let's discuss the ownership model, when a husband and wife couple act as business owners. They know each other well and enter a new business with their roles separated. Employability often doubles compared to one owner. If the marriage is strong, each other's support helps to establish a business. This ownership model also helps in hiring other people for the business, as the business vision is usually well defined.

The disadvantage of married couples as owners is that both business and family issues affect both owners. Sometimes it is impossible to discuss business matters, as the spouses may be at this time in a quarrel. Any rational thinking is leveled by resentment or moral disorder. 

If you decide to open a business with your spouse, then carefully evaluate your willingness and ability to spend your personal time developing the business. Starting a new business comes with many challenges and often involves deadlines in customer service, which puts additional pressure on your relationship. For most new business owners, the 40-hour work week will be a thing of the past until they succeed and can hire help to support the business.

Now consider models when the owners are a group of individuals and shareholders of the company. In general, both of these models have very clear advantages and disadvantages. When multiple people are involved as owners or shareholders, you can usually draw on a wider range of skills and experience.

The main disadvantage in running a business with multiple owners or shareholders lies in the management decision making. They are accepted very slowly, as they must be agreed with all owners. The best way to solve this problem is to eliminate it.

Here are some ideas to help you with this:

• Choose owners carefully. While the prospects of working with family and friends can be very exciting, there are also many pitfalls. They may arise from different ideas about the purpose and direction of the business, or about how it should be run. So ask questions often and don't hide any differences before entering into a business partnership.
• Discuss salary expectations. It is necessary to clearly record the full understanding and agreement with the salary of each owner. In many small family businesses, you may decide that you won't get paid until you have enough income to pay it. However, you must answer the following questions: What will be the salary for each owner? What income will be enough to start paying it? How long can you support yourself without wages? What will you do if you exceed your income goals and can pay more?
• Make sure your roles are clear. Make sure everyone is happy with their role in the business and understands how they will be involved in decision making. If there are shareholders, you must understand their desired level of participation.

Managing partner roles in business with friends or family

You can't completely control every aspect of your business, so having the right people in the right roles with the right approach will help you stay on top of everything. We will look at several key positions that will give you collective control of your business.

Financial Director. When it comes to controlling finances, you want to strike a balance between spending money wisely and empowering your team to be able to spend money without having to agree with everyone involved.

Choose a financially savvy person who has good attention to detail. Establish effective communication between the CFO and key roles in the business so that each participant knows the circumstances under which financial conditions may change and how they can help the business exercise sound financial control.

Commercial director . Every business strives for effective customer service and tries to improve this direction when there are changes in the market. The commercial director is obliged to come up with new ideas and directions for developing the business , not taking into account the limitations in people or processes that exist in your enterprise at the moment.

Operations Director . This role is aimed at ensuring the fulfillment of any obligations to customers. He accepts the ideas put forward by the commercial director and develops the necessary plans and projects for their implementation in the commercial activities of the enterprise.

General Roles . These may include sales, quality management, etc. It often happens that all family members partially fulfill these roles. That is, sales provide a steady income, and quality management ensures that only proven products leave the walls of the enterprise.  

Now that the main roles are distributed, it is necessary to agree on the wages of the members of the joint business. It is often the most controversial part of any business. Unfortunately, we cannot provide you with a general formula for determining a fair and reasonable salary. But we can recommend you several approaches that will help you develop the right mechanism for accruing it.

• Check online salaries for various jobs in your industry. Be sure to check the salaries of not only employees, but also managers.
• Determine the income that is needed to pay salaries. Also take into account the income that will allow you to pay 25%, 50% and 75% of the full salary in the early stages of establishing a business.
• Determine the premium structure. It is best to create a bonus plan in the form of a percentage of salary. But here are some options:
• Tie the percentage of bonuses to the overall percentage of revenue goals achieved. For example, if you reach 120% of your income goal, you pay out 20% of your salary bonus.
• You can evenly divide the income received over a certain figure. For example, if your goal is $750,000 and you end up with $850,000, then your employees will be equally rewarded with a $100,000 surplus.
• In sales, a system of allowances for exceeding the plan by an employee is often used. It may be a rule that if an employee sells more than 150,00$ per month, he receives a bonus of 40% of sales above this limit. For example, your sister sells goods for 180,00$, then her bonus will be 40% of the difference between 180,000 and 150,000 or 40% of 30,000, i.e. 12,00$.
• It is important to remember that when allocating bonuses to employees, you must keep in mind the business development budget and reserve fund.
• Make sure that information about salaries and bonuses is understandable to everyone. Make sure your salaries and bonuses are shared publicly with your family and friends to avoid problems.

Tips for smoothing out business with friends or family

You can assume that your business communication will be perceived as easily as your communication in an informal setting. However, different situations, different pressures and approaches to business issues can lead to a change in our behavior, tone and style of communication.

Consider common approaches to communication in a business setting:

1) Straightforward interlocutor. Usually expresses his opinion directly, and also lists step by step the expectations that he expects from others. On the one hand, it is clear to everyone what is expected of them, but often such a message can be perceived as humiliating or seen as a waste of time when family members or friends already know what to do.

2) Abstract interlocutor . Share information or ideas without too much detail. This allows the team to understand the very essence and execute everything on their own. On the other hand, abstract communication can lead to misunderstandings, as different interpretations of ideas can emerge.

3) Dividing interlocutor. Frequently and openly conveys virtually every thought, action, and discussion that took place that day. On the one hand, this allows the team to keep everything on the agenda, but on the other hand, such a person is very tiring, as it conveys an excess of information.

4) Dosing interlocutor. Strive to provide communication when it seems appropriate. He rarely wastes time on unnecessary information. He shares information with his friends and family members who need it and when they need it. Despite seeming effectiveness, this style of communication runs the risk of misperceiving such a person as omniscient, who has power and can hide information that may be useful to others.

Based on the communication styles we've covered, here are three important aspects to understanding how best to communicate with family and friends in your business.

• First, self-consciousness, i.e. Listen to yourself. Be mindful of the communication style you usually use and what you do in a stressful situation.
• Second, ask for feedback. It is extremely important to ask your family and colleagues how they are doing and if they feel comfortable when you communicate with them.
• Third, adapt. Do your best to get feedback and adjust your communication style accordingly. Also, focus on being consistent in your communication approach.

In any family business or business with friends, there are all sorts of dramas, often involving conflicting ideas and expectations. And here it is necessary to share with you some ideas that will help you deal with conflicts with family and friends while maintaining productivity and peace in your personal life.

Above all, remember that only communication resolves conflict. You can have one-on-one conversations or schedule meetings with the entire team, but properly organizing your meetings to resolve conflict is paramount to your success.

1. Start by identifying the actual conflict so everyone knows exactly what it is about. This may seem simple, but often it is not. Many conflicts are long and protracted because different people have different views on what the problem really is.
2. Ask each member of the group what would help them solve this problem? The key word is "for them". Listen to the responses and try to identify the general statements in them.
3. Start with these general judgments and see if they can form the basis for a decision on their own. If not, provide other facts and thoughts, and ask your colleagues to do the same.
4. Try to develop a solution based on the data received. When you are leading a discussion, try to remain neutral, so that you can manage conflict more effectively and avoid getting emotional from your family and friends.
5. Focus on the actions needed to resolve the conflict. Strive for consensus and have each of your family members vote for a specific solution to the conflict. You can use a point system: 1 - disagree, 2 - neutral, 3 - completely agree.
6. Strive for all threes, but if you can't come to any form of consensus, then there must be someone tasked with making the final decision.

Once a decision has been made, be especially sensitive to those who don't like the decision. Make sure they continue to be valued and help them resolve the issues they have with their decision to protect your family and business relationships.

Here are some general tips for dealing with conflicts with family and friends:

• Avoid delaying such discussions. Pretending that conflict does not exist can lead to a number of unproductive outcomes, including more conflict.
• Avoid trying to find the culprit. This approach is unproductive and does not solve the main problem. You all succeed or fail together.
• Before trying to resolve a conflict, ask yourself, is it a fight or is it a conflict? This is more about the family business, as disputes in the family are not uncommon.
• Draw conclusions after the conflict. Conflict can be rewarding if you learn something. Be sure to find out what you learned after each conflict.
• If you're doing business with family and friends, you need to focus on the value you give them in the business. You need to learn to sincerely thank each other and celebrate even the smallest victories in your team together.

Our main recommendation is that you should look for reasons to celebrate rather than focusing on things that diminish your victories and delay the holiday event. Even more than in a regular business, a business run by family and friends requires an investment of heart and soul, and this should be recognized regularly.

Here are some tips for celebrating your work victories with friends or family:

• First, celebrate on time and often. Every step that advances part of your business, every new customer, or every positive step taken to launch a new product is cause for celebration.
• Second, use a variety of ways to celebrate, from simply ordering pizza or sushi to going to a restaurant.
• Celebrate birthdays, anniversaries and other life events. A piece of cake or a cookie, or maybe a couple of drinks, can play an important role in the team's work.
• Try watching a movie during your lunch break. Especially if you can find one that is relevant to your business. This is another way to get together and strengthen your teamwork. With this approach to celebrating, you may even get some ideas that you can apply to improve your business.

The main meaning of the holidays is to spend time together in recognition of what you do. You must be aware of team and individual accomplishments, but do so in the context of how the outcome affects everyone in your business together.

Working with family and friends

Maintaining a healthy marriage is hard enough for many couples, and managing the relationship also adds to the challenge. If you have a strong marriage and have learned a lot about sharing and working together, then doing business together can be quite rewarding.

Here it is important to adhere to the following rules:

1) Know and appreciate each other's skills. Running a successful business as a husband and wife requires you to work as a team. To do this, you must notice and appreciate how each of you contributes.

2) Always avoid jealousy. There will be times when one of you will get a great compliment from a co-worker or client, while the other will struggle in his direction. Each of you should support each other in times of ups and downs, even if at the moment, you are not in the same position.

3) Don't change your way of working. Each of you must work in your own style and do your own work. If needed, you can split up the office so everyone can work naturally.

4) Both of you are bosses. In the office, you can act like you have different roles and one of you is the decision maker. However, when both of you are behind closed doors or at home, you both need to share your thoughts and agree with the decisions that are made in the business. This is true because as a married couple, your business decisions are part of your life decisions.

5) Avoid inconsistent decisions. Be careful and consistent in how you make decisions and demonstrate the unity of your team from the very beginning.

Now let's talk about children as part of the family business. We recommend bringing your children into the business when they are of an age where they are ready to take on even a small amount of responsibility. When bringing children into the business, keep the following points in mind:

• First, think about long-term learning opportunities. Do they just help you or are they part of the business, spending their main time on this? What can you teach your children through participation in your business, and what can they learn on their own?
• Second, set development goals for them. Let the whole team know when you give your child some tasks for his development.
• Third, provide fair feedback to your child about his work in the company. He must clearly understand that his work will be fairly evaluated and the areas where his skills should be improved will be indicated.
• Fourth, have equal expectations from your child and the rest of the employees in the company. He must understand that his work must be done on time, he must participate in meetings on an equal basis with everyone else, and so on. He must work by the same rules as your friends and other members of your family.
• Fifth, don't expect your kids to be the next generation of business owners. They have their own life and their own sympathies. You can expect them to continue doing business, but don't insist that they should.

You can expect to have the same joys and challenges with your friends as you do with your family members. But, in fact, working with friends is much more difficult, as evidenced by multiple litigation between business partners.

When you choose among your friends who you are ready to do business with, you should approach this in the same way as you would look for a new employee for a position in a company. You should investigate his business ability, his skills and his style of work. If he suits you, you can "hire" him.

You must be very aware that in the workplace, your relationship may be significantly different from what you had before. And understand that it takes time to develop a meaningful working relationship, no matter how strong your friendship is. You need to create a basis for discussion in your business environment. Frank disagreement can be much better for a business relationship than icy calm.

Troubleshooting Options

Even tiny changes in a small business can be indicative of big problems. Experience shows that early signals from friends and family members in the business can also be indicators of general business and relationship problems.

Here are some warning signs that may let you know that problems may be brewing in your relationship:

1. The topics you talk about with your family and friends start to change. When you start a joint business, the sequence of personal and business topics in conversations is maintained. If at some point this scheme changes, i.e. They begin to communicate with you more formally and mainly on business topics, then this is an occasion to start studying what is happening and asking questions.
2. There are changes in how you spend your free time. Here is a similar change model as in the previous paragraph. This change will most likely be related to your personal relationships, but if left unchecked, it can also affect the business. If you notice this trend, talk to your friend or family member to make sure everything is okay.
3. In your communication with a friend or family member, you get less and less news about his work. This problem indicator is a bit harder to spot. The problem can be seen when you notice a discrepancy between the amount of news generated and the amount of messages received from your partner. If this happens, ask your friends or family members about the status of their work.
4. Your partner's passive attitude towards business. This is a clear signal that you are having relationship or business problems with one of your friends or family members. Maybe the problem is not you, but if the source is not eliminated in time, it will develop into problems in the business, and then in your relationship. In this case, we recommend having a heart to heart talk with your friend or family member.

There are many other indicators of problems in a joint business, and they differ from business to business. However, all of this can be avoided with frequent short discussions with all your friends and family members.

Running your own business and starting a family is quite a challenge. It often happens that these boundaries are erased and the habits developed in business are transferred to family relationships. Here are a few tips to help you properly separate your business and personal lives, and decide what and when should be a priority.

• When you are at home, remember that your family is not your staff. Even when family members work for you, you must remember that you must interact differently at home.
• Only one of you can panic. When problems arise both at home and at work at the same time, you are under serious pressure. Make it a personal rule to be calm when others are panicking.
• Family issues take precedence. Take care of your family first, and this will help you be more balanced in dealing with your business matters.
• Learn to delegate tasks. If family problems arise, delegate your responsibilities whenever possible. If you don't have staff to delegate, try asking a friend to help. He can look after the store from time to time when you need to take care of family matters.
• Learn to say "No" at work. You may be temporarily offended or you may lose another sale, but selling something at the price of family well-being is not reasonable.

Conclusion

Doing business with family and friends can be a very challenging process, but also an incredibly rewarding experience. Try to follow the recommendations in this article to maintain friendly relations, resolve problems in a timely manner, and maintain the right balance of work and personal life .

If you are just planning to start your own business, but you do not have enough experience for this, we recommend that you read our article “Business Basics. What a New Entrepreneur Needs to Know . We wish you success in your joint endeavors!