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Thread started 07 Sep 2011 (Wednesday) 09:35
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Can friends be business partners

 
Rocky ­ Rhode
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Sep 07, 2011 09:35 |  #1

First off my apologies as this is likely to be a fairly lengthy post.

A bit of background; I have no intention of trying to replace my current income as that would require that either we get usually lucky, or win the lottery. What I would like to eventually work towards is a source of income that will allow me to pursue my hobby without compromising our current financial status. My wife and I have two teenage children whom will both need substantial parental support as they enter college in the next 3-7 years. As to my good friend, she will likely look to photography to augment her and her husband’s financial situation as he does not have a very good job; in fact is currently working (2) jobs while she does her best to raise six children with numerous side jobs as she can. We both share a love of Photography and have been very good friends for the past 7-years; her husband and I are both heavily involved in the Boy Scouts as adult leaders and we share most holidays together as families camping, backpacking, and other outdoor activities throughout Northern California.

Here are my thoughts regarding a business relationship; I would appreciate your input as to the pros and cons since I have mixed feelings due to the many complications that can arise from partnerships that have a friendship basis.

First and foremost we agree to split everything 50/50 regardless of the source; currently we will be targeting the HS senior market, and family photography in outdoor settings. She does not currently own a reliable DSLR; her XT is on its last leg. We will be utilizing my very humble gear to start with; she will focus on her strong attributes that include: sales, marketing, and through her older teenage children building a base of potential clients.
My strengths lean toward the more technical aspects of running a business; time management, financial backing to some extent, third garage to build a studio, photo editing, ect. I have drawn up a business plan that we will sit down this weekend to discuss at length; I would like some feedback to help vet out anything that I have not thought of, since protection of our friendship must take the highest priority.

Thanks in advance for any advice, comments, and/or questions that you can provide me with to help.


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FeXL
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Sep 07, 2011 09:43 |  #2

Business partnerships with friends usually end up in shambles. There are some that survive, but very few.

A business seminar I attended years ago specifically recommended against it.




  
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Curtis ­ N
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Sep 07, 2011 10:08 |  #3

Many years ago, I entered into a business partnership with a friend. After a few years, the friend decided to end the partnership and go into business on his own. There were some disagreements but after that experience, we're still friends. I also worked at a company that was started by two friends who became partners. There are success stories out there.

But FeXL correctly points out that such arrangements usually fail, for a variety of reasons. There are right and wrong ways to go about it, and even if you go about it the right way, there are significant risks.

1) Does the partnership really create synergy? Do you each bring valuable assets to the business that make it stronger than each of you operating separately? Do your skills, talents and capital really combine in such a way that you will both be valuable to the partnership?

2) Do you both have the ability to work through disagreements, reach compromise and move on? Pent up resentment from past decisions can destroy the relationship and the business.

3) Do you both have similar opinions about how much time and investment will be expected? If one of you wants to work 40 hours a week and the other wants to work 60, the arrangement will eventually fail.

4) I strongly advise using the services of an attorney to draw up a partnership agreement. The attorney will ask you questions you never thought to ask yourself. The most important part of such agreement is provision for dissolving the partnership. An accountant to handle the books and taxes is pretty important, too.

5) Get an independent appraisal of all assets brought into the business from each of you. When you dissolve the partnership, get everything appraised again to split things up equitably.

This is like a marriage. It will end in divorce, eventually. And there's really no way to guarantee that the divorce won't be an ugly one.


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Nightstalker
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Sep 07, 2011 10:08 |  #4

Sounds great in principle but can prove more difficult than you may imagine.

The big problem is that you now have to split the income 50:50 with someone else. Now this is great as long as in joining together you expect to more than double what you are making yourself at the moment - if you do not then you will be working as hard, if not harder, for less.

I was in a partnership that lasted just under 2 years and thus I speak from some experience.

Here are a couple of issues for you to consider...

Issue 1 - inequity of effort :

Being blunt, as your strengths differ the amount of work that you each put into the partnership will not be equal. For your partner it may take 20 minutes to set up 3 shoots and it may take you 6 hours to shoot and process the images - in this case would you be happy handing over 50% of the income?

Issue 2 - financial investment :
You also mention utilising a garage space as a studio - this is you making a contribution to the partnership for potentially no compensation. If you were to go ahead I'd recommend charging the partnership rent for the use of the space. This leads on to

Issue 3 - equipment replacement / purchase :
How will you fund replacing your or expanding you equipment - will this be an investment by the partnership or by each of you individually? By this I mean when your partner needs a new camera body will she pay for it 100% from her share of the profit or will the partnership buy the camera (hence you are contributing 50%). If the partnership buys it who get's ownership when the partnership dissolves.

Issue 4 - resolving problems :
You will come to a point where you are absolutely in dissagreement as to how to proceed - e.g. this could be that you feel the partnership needs to invest in marketing (or equipment it doesn't matter) and your partner is desperate to take their money out of the partnership - how will you resolve these issues.

Issue 5 - individual work :
Your partner is approached by one of her friends to do some work and you have no involvement in it whatsoever - would you still expect to get your 50%. If the roles were reversed would she expect her 50%?

These are all issues that I faced in my partnership and it was one of them that caused us to go our own ways (although we are still friends).


  
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5Dmaniac
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Sep 07, 2011 10:14 |  #5

In all likelihood you will lose a friend if you go down that route. I had my one business with 4 partners - we all used to be friends before we went into business together. Our company did extremely well (we went from 5 employees - us - to over 550 in 3 years and were profitable as of year 2). We ended up selling the business - one reason was that we could not stand each other anymore - I only have contact with one former business partner.

Now - imagine our business had struggled - the situation would have been even worse.

I think you need to decide - business or friendship - they are (almost) exclusive!




  
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lookn4u
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Sep 07, 2011 10:16 |  #6

in a word "no"


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Rocky ­ Rhode
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Sep 07, 2011 10:51 as a reply to  @ lookn4u's post |  #7

I thank each of you immensely for your thoughtful comments; this is exactly why I asked the question as I knew that many could bring individual experience to the table.

In response to several of your questions and/or thought provoking comments I will add a bit more information. Several years ago her husband, my best friend was struck by an automobile while riding his bicycle to work. He spent 3-months in a coma, and was given less than a 20% chance of survival let alone recovery. The CICU nurses call him their 1% patient as he did recover, albeit with some substantial long term brain injuries that will prevent him from ever holding a decent paying job.

My motives for the entering into a relationship lies along these lines; “give a man a fish, you will feed him for a day; teach a man to fish you will feed him for a lifetime”. Not only do I fully expect her to sever our partnership and make a go of it on her own; I am hopeful that we/she can become successful enough to do so to better their lives and the lives of their children.

At times over the last several years they have come to us in humility to ask for assistance in making their mortgage payment; my wife and I have been blessed enough to be able to help them without expecting reimbursement. This idea came to me several months ago but I have not had the time to fully look at every aspect of it to see if it would be a good idea; or be destructive to our friendship.

My desire is for the betterment of both parties; for me a way to finance my hobby, for them perhaps a chance at a better future.

I need to evaluate the pitfalls to this a bit more; seeking advice of an attorney is not a bad idea before we get into a formal relationship.


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PeaceFire
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Sep 07, 2011 10:56 |  #8

I started my business out in a partnership with my best friends. We are still best friends and still work together as often as I can. The only reason we are no longer in a partnership is because we both made the decision to move out of San Diego and wound up in different places.

I think what worked for us is that we both had our strengths and weaknesses and what I was weak, she was strong, and vice versa. And we were both aware of this. We could both shoot and we could both edit, but I was good with the business side of things. She was good with the marketing side of things. We also trusted each other and she trusted me to pay her a fair pay after each shoot. Since she didn't deal with the numbers she really didn't know what I was charging so I could have shorted her... but since I wanted this partnership to work I didn't.

I think if you want to make it work, it will work. If either of you let ego or money get in the way, it won't work.

ETA: Now, she gives me a ton of work. Another big contribution of mine was the gear- I had it, she really didn't. So now I still have it and she doesn't. But if a friend wants to hire her, she tells them that in order to hire her they need to hire me. This is part of the reason I go to Vegas so often! And she benefits because I give her referral bonuses and pay her to second shoot with me. It's not an equal partnership anymore, but it's an arrangement that works out great.

Also, my current business partner? My fiance.


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Curtis ­ N
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Sep 07, 2011 11:34 |  #9

Rocky Rhode wrote in post #13064303 (external link)
My motives for the entering into a relationship lies along these lines; “give a man a fish, you will feed him for a day; teach a man to fish you will feed him for a lifetime”. Not only do I fully expect her to sever our partnership and make a go of it on her own; I am hopeful that we/she can become successful enough to do so to better their lives and the lives of their children.

I admire and applaud your noble intentions.

You could make her an employee and accomplish the same thing. And this makes more sense to me since you're supplying the initial capital anyway. Teach her, pay her, and when she is ready to strike out on her own, the employer/employee relationship is a whole lot less complicated and easier to sever.

Good luck!


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ssim
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Sep 07, 2011 12:10 as a reply to  @ Curtis N's post |  #10

Partnerships can work with friends but they are hard and you have to work on them. I think the split should 49/51, there has to be someone in control. I have had a couple of ventures over the years with friends and all but one ended amicably. The one that didn't was a 50/50 venture and my so called partner was spending way too much money without discussion. In the end I just bowed out gracefully and took a loss. He wouldn't speak to me for almost 10 years and that hurt because we were really good buddies before that.

Put everything down in writing. Don't leave anything to chance. "Oh he's my friend, he won't try and screw me" is a phrase that you hear often in friendship business relationships. Business is business and friendship is friendship, if you are not adult enough to be able to separate the two then don't go into business together.


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Rocky ­ Rhode
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Sep 07, 2011 12:33 |  #11

I would love to be able to say, “It’s not about the money”; it’s always about the money, otherwise the relationship has no incentive to produce results, yet money has not fractured our relationship to date.

She will be purchasing a new camera at the end of the month to replace her worn out rebel, and has asked for advice on good options. ((another topic entirely)) We will be entering into the partnership at very similar playing grounds equipment wise. I don’t consider my current equipment a significant investment when compared with what we will need to be successful.

I have entertained the idea mentally of advising that any purchase be in pairs, or we use funds separately to make individual equipment acquisitions. That remains to be discussed in greater detail.

Our strengths do complement each other very well; I am making a copy of most of the ideas/opinions that have been expressed so that we can discuss each topic.

The individual work topic: excellent question; I know the correct response would be absolutely, it’s a business. If it became the norm rather than the exception, I can see a difficulty from either perspective.


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Nightstalker
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Sep 07, 2011 13:04 |  #12

Curtis N wrote in post #13064489 (external link)
I admire and applaud your noble intentions.

You could make her an employee and accomplish the same thing. And this makes more sense to me since you're supplying the initial capital anyway. Teach her, pay her, and when she is ready to strike out on her own, the employer/employee relationship is a whole lot less complicated and easier to sever.

Good luck!

Similarly I applaud the intentions but these only firm up my concerns that you are entering into this with vastly differing objectives and I see problems.

Money hasn't been an issue so far because you have been happy to give to a friend - but when you are deciding how to spend money that is held by the partnership you can bet that differing priorities will arise. You will, after all, be splitting the partnership profits and not it's total income.

Personally I would find some other way of helping them without entering a partnership but if you go ahead with it I really do wish you well and hope that your friendship survives.


  
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MJPhotos24
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Sep 07, 2011 13:37 |  #13

Looking at starting a new business with a friend (or two) here, but we're on the same page for everything so far and it's based entirely off the ideas and not the friendship. Seen it before where people want to go into business because they're such good friends instead of having the same ideas for the company, that can be a disaster as each tries to take it in opposite directions! It can be done but very tricky, who does what is usually a very big issue as one doing all the work can create issues, and if you're 50/50 best to try and agree on everything which is near impossible.


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jimbob85
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Sep 07, 2011 16:04 |  #14

Anything's possible...




  
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5Dmaniac
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Sep 07, 2011 16:21 |  #15

I hate to say this, but entering into a partnership because you want to help someone out is a huge mistake IMHO. There will be times when you are not happy with your partner (trust me, it si inevitable) and then you will curse yourself for being so stupid to get into this situation in the first place. I agree with the idea of hiring her as an employee - who knows down the road the situation might lend itself to making her a co-owner.

Friendship and pity are the worst business reasons.




  
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