Going into business for yourself can initially feel like an overwhelming series of challenges. Who will manage your sales, marketing, strategy, fulfilment, logistics, IT and finances? Starting a new venture with a friend or family member can help overcome this barrier and make the experience fun and exciting. As the adage goes, “A problem shared is a problem halved”. In this article we will explain the implications of going into business with a friend or member of your family and how to succeed.
Advantages of Partnering with Loved Ones
One of the biggest benefits of going into business with a family member or friend is that you already know and feel comfortable with each other. If you were to work with a new business partner then this might not be the case. Because you already know the person with whom you are going into business you can be confident that they are trustworthy and that you share the same values and vision for your new enterprise.
Partnering with loved ones also eliminates the need to hire someone to fulfil the role that they will perform. Remember, employing new staff can be extremely time-consuming and stressful.
Potential Pitfalls of Mixing Business and Personal Ties
While there are considerable benefits of going into business with someone you know, there are some downsides of which to be aware. After all, there is a reason behind the sage advice to keep business and pleasure separate. One of the main pitfalls of running a business with a friend or loved one is that it can be difficult to resolve disputes that arise. Business disputes are inevitable, whether it is a disagreement on the future direction of your business, funding arrangements or whether to employ a particular person. Ultimately, “business is business”, but it can be difficult to prevent business matters from bleeding over into personal relationships and vice versa.
It is also important to bear in mind that, even if it is easier to work with someone whom you know, they may not have the skills and aptitude that you need to run a successful business. From an objective point of view, it may be better to hire someone from the outside who has the right blend of talents that you need.
Successful Business Ventures with Family and Friends
Thankfully, there are plenty of examples of successful business ventures founded by family or friends. One good example is, Asda, the UK’s third-largest supermarket, which is owned by brothers Zuber and Mohsin Issa.
The Issa brothers were born into an Indian Gujarati Muslim family living in Blackburn in Lancashire. Zuber started in business by running a news kiosk in his home town and Mohsin set up a successful plastic-bag firm. They first joined forces when Zuber became a shareholder of Moshin’s business in 1998. Just three years later, in 2001, the brothers co-founded the highly profitable business Euro Garages when they leased a garage in nearby Bury. This rapidly expanded across the UK, Europe, USA and Australia and now has over 5,500 sites.
In 2020 the Issa brothers purchased Asda from the US giant Walmart for £2.3bn. They are now the 40th wealthiest family in the UK, with a net worth of £5.05bn.
Of course, running a business with someone whom you know has no guarantee of success. So what can you do to swing the odds in your favour?
Agree on how you will keep your business and personal lives separate
It is important to sit down early in your business journey to establish a joint understanding that running a venture with friends and family requires a different approach. You will disagree and conflict may arise. Set aside time to focus solely on business matters and avoid bringing personal issues into the workplace. This separation will enhance objectivity and decision-making.
Another often overlooked aspect of successfully running a business with a friend or family member is keeping family and friendship emotions outside the business. Emotions such as jealousy and resentment may arise, causing harm to the business. Since such emotions will inevitably arise it is important to speak regularly to ensure these are managed and mitigated. Striking a healthy emotional balance will ensure that personal relationships thrive while also allowing the business to flourish.
Another common hazard of family and friends business partnerships is assuming that everyone has the same level of commitment to the business. You may be fully invested and work on the business full-time, but your friend or family member may want to keep their day job for now. By discussing early on the extent to which you will both invest your time in the business, together with how this will change over time, you can avoid such disagreements.
Define clear roles and responsibilities
From the very outset, it is imperative that you agree upon clear roles and responsibilities. This includes setting out in detail exactly who will be responsible for which tasks and ensuring that everyone understands their specific role. Doing so will remove confusion and will prevent conflicts from arising due to overlapping responsibilities.
Clear and open communication
Although it may seem obvious, without open and transparent communication your venture is unlikely to succeed. Arrange regular meetings to discuss progress, goals and any concerns. Encourage everyone to share their ideas and opinions and foster a collaborative and inclusive environment.
Conflict resolution process
It may be tempting to believe that should a conflict arise, you and your family member or friend know each other enough to work it out between yourselves. This approach should be avoided because, in the heat of the moment, your relationship may not be enough to resolve matters sensibly. For this reason we recommend establishing a robust conflict resolution process upfront. This may include having a neutral mediator who can help you resolve matters in a fair and balanced manner.
Financial concerns may also lead to conflict within friend and family businesses. Complete transparency, disclosure and honesty are the keys to avoiding such disputes. At the very least, we recommend drafting a financial plan that clearly sets out arrangements for shareholding, funding, profits, dividends and expenses. It is also advisable to regularly review financial statements and involve all partners in financial decisions to build trust and maintain accountability.
Legal Considerations: Protecting Your Interests in a Family Business
Before starting a business venture with a friend or family member, it is imperative that you both understand the legal considerations of doing so, including:
- Company Structure: Opt for the most suitable legal structure for your family business, e.g. private limited company (Ltd.), a partnership or a sole trader. Each business structure has its own legal implications for those involved, including legal liability, tax obligations and reporting requirements.
- Shareholder Agreements: A well-drafted shareholder agreement will set out your rights, responsibilities and decision-making processes – all of which will minimise the potential for business disputes.
- Articles of Association: Articles of association set out your business objectives and how the company will operate. This includes the distribution of profits, appointment of directors and transfer of shares.
- Employment Contracts and Policies: Even if you employ family members or friends, it is important to have comprehensive employment contracts and clear workplace policies in place to protect both the business and its workforce.
- Intellectual Property Protection: Just because you are in business with a friend or family member does not mean that you should overlook IP protection. Remember to secure any intellectual property assets, including trademarks, copyrights and patents. Doing so will safeguard your business’s branding and innovations from infringement.
- Succession Planning: A clear succession plan agreed with your friend or family should set out how ownership and management will transition over time. This will avoid future disputes and ensure the continuity of your business.
Conclusion: Is Going into Business with Family or Friends Right for You?
Running a business with a friend or loved one offers many benefits. The strong personal bond may foster loyalty and commitment to the new venture. Friends may also be more forgiving during times of disagreement, hence promoting business resilience. Furthermore, the enjoyable and collaborative atmosphere can create a positive work environment. It is crucial, however, to put in place clear roles, communication and conflict resolution strategies to ensure a successful and sustainable business.
On the other hand, going into business with family or friends is not right for everyone. Before you venture down this road, be really honest about whether such an arrangement will work in the long term. Is the risk of harm to your friendship or family relationship too high? Does your friend or family member really have the skills and drive to make your business a success? Will they harm your ambitions? Or do you have a strong relationship which will endure the many ups and downs that you will inevitably experience in business? If so, then go ahead!
Uniwide Formations is a leading specialist in UK company formation. We are experts in how to set up a UK limited company and will handle the complete process of company incorporation on your behalf.