Going into business with family and friends​

Let's assume you already have a strong idea of who you want to go into business with. Now it's time to look into the main practicalities you'll need to tackle. Even small businesses have a lot of moving parts, which means a range of different responsibilities, job roles and levels of authority to divide up. Getting those decisions right from the very start will give you a big boost when it actually comes to running things day-to-day. The clearer it is who's supposed to be doing what, the smoother your new company's ride will be.

While we're on the subject of dividing things up between you and your partners, let's have a quick word about ownership. This is where business gets really serious—and again, you'll want this to be crystal clear to everyone it affects from day one. Business ownership isn't something you can settle with a basic nod-and-handshake arrangement. You'll need to draw up contracts, and make sure everyone's happy with what they say. While you're at it, you'll want to set a few goalposts for your business. Give some thought to what you're hoping to achieve, and what you're planning to get out of it. Keep your targets as realistic as possible, given your available resources and experience—but don't be afraid to dream a little bigger. There's nothing wrong with shooting for the moon as long as you understand that a step-ladder won't get you all the way there on its own.

This is where you'll really want to get talking with your partners. Make sure everyone's on the same page in terms of realistic expectations and achievable targets—or even your "exit strategy" if your circumstances change or things don't quite work out the way you wanted. You've got to be open and up-front with your business partners, even though it can be tough to keep your home and work lives completely separate when you share a dining table with your company’s MD. If the time ever comes for you to step back from your end of the business, leaving your "succession planning" too late can mean you don’t have time to get it done properly. That can seriously mess with your business and force you to make key decisions in a rush. Suppose the person you’ve picked out to take up the reins has other plans, for instance, or simply isn’t up to the job. Do you have a back-up plan? If so, how do they feel about being your second choice?

For another thing, people's personal situations can change unexpectedly. It needn’t even be as dramatic as a divorce or death in the family, either – although those can certainly happen. If you’re considering passing on your business to relatives once you step away from it, you’ve actually got more considerations than other kinds of company. On the one hand, it’s important to do what’s best for the business itself, passing control to the people with the most interest and aptitude for it. On the other, you’ve got to weigh up the more personal consequences of your choice. In some cases, you might even find yourself with no good moves to make at all – at which point it could be worth looking into other candidates outside the family, or even selling the business outright.

So, with a heaving pile of circumstances, obstacles and egos to contend with, how do you go about keeping order in your business? There's never going to be a one-size-fits-all solution for every situation or firm, but the strongest place to start is with a well made shareholders' agreement. Not only will this protect your business, your partners and you, it'll also cut down on a lot of the general awkwardness that can come when friends and families work together. It's like a business-themed take on the pre-nuptial agreement, spelling out what everyone's agreed to in advance to avoid uncertainty and unpleasantness later. If you and your firm's partners decide to break up somewhere down the line, everyone's clear on what the rules are. For example:

• The rights and obligations of every partner are clearly listed out.
• Any rules about selling company shares are explained and agreed.
• The procedures for running the business and making key decisions are set out.
• The rights and investments of minor shareholders are protected

With all the fiddly legalities neatly ironed out, you can move ahead with the exciting part—actually setting up your business. You're in good company, too. As of 2020, the UK boasted over 2 million limited companies (a business set-up that protects your personal cash and property if the sky falls in) actively trading, with about half of those being one-person operations.

When you need to kick off a business partnership, your main port of call will be the government's own website. That's where you'll be asked about the kind of set-up you're aiming for. One option is a limited partnership, which means you've got at least one general partner and one limited partner. With a limited liability partnership, on the other hand, there aren't any general partners. Confused yet? A general partner is someone who owns and controls a business, but also stand to lose some personal cash if the business goes bad. Limited partners tend to have fewer responsibilities and less overall authority, but their personal money's more protected. By the time you hit the set-up page on the government website, you and your partners need to have already agreed these key details so everyone knows exactly where they stand.

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