Tips to ensure that working with friends does not end badly
Ed Browne, a partner at Madgwicks Lawyers in Melbourne, often advises friends who are starting a business together. He outlines the benefits and drawbacks.
"The good thing about doing business with friends is you understand the people you are working with and you don't have that learning curve of getting to know your colleagues.
"The downside is when things go wrong, you lose a friend. We deal with that regularly: friendships broken by business relationships that didn't work out."
Browne says the main cause of conflict is when someone decides to leave the business and there is a dispute about how to divide assets, intellectual property rights or profits.
"The other thing that causes trouble between friends is when the business is not making money and there is a perception that one of the friends is not doing what they should be doing to get the business going," Browne says.
He says the best way to avoid grief is to have a clear agreement that covers contingencies: such as what happens if someone wants to leave the business; if someone gets sick; if a family situation means one person needs to move interstate; if one party wants to bring in a new partner, or if one person dies.
"Sometimes these are not discussions that friends have because they don't want to offend or damage the friendship or they think, 'because we're friends, we'll work it out as we go', or 'she's my friend, she'd never do that'," Browne says.
"Our job as advisers is to say, 'we're going to ask you these questions because our experience tells us you will face these issues and may not have thought of them because you're starry-eyed about the great business you're going to launch."
For seven years architect Anna Dutton has enjoyed running Bower Architecture with two of her close friends from university, Jade Vidal and Chema Bould.
After university each of them gained experience in other firms before launching the business.
Dutton says the planning was a useful and surprising process. "There were things that came up that we'd never thought of."
One unexpected issue that came up was how they would treat parental leave.
"When you start the business you're not necessarily thinking about family leave immediately.
"We had to work out how we were going to be equal in the way we treat our time at work and time off work to be with family - looking at how the business can support that person, and how the business can continue to operate without one person being involved."
When all goes to plan, working with friends can be as good as the dream suggests.
"The best thing is coming to work every day and looking forward to hanging out with your mates. While we work hard, we have a good time together," Dutton says.
Frequently Asked Questions about this Article…
Working with friends can be great — you often know each other's strengths and skip the usual learning curve. But it can also risk the friendship if the business runs into trouble. The article highlights both the upside (closer working relationships, enjoying time together) and the downside (friendships broken when things go wrong).
According to the article, conflict often arises when someone wants to leave and there’s a dispute over dividing assets, intellectual property or profits. Other common flashpoints are when the business isn’t making money and there’s a perception that one partner isn’t contributing enough.
The article advises having a clear, written agreement that covers likely contingencies. It notes advisers (like a partner at Madgwicks Lawyers) commonly ask detailed questions to surface issues you might not have considered while you’re excited about the business.
An exit strategy should set out what happens if someone wants to leave — how assets, intellectual property and profits will be divided, and the process for valuing and transferring ownership. The article stresses that planning these scenarios up front reduces the risk of disputes later.
The article suggests making expectations explicit in your agreement and discussing roles and responsibilities early. Clear arrangements about who does what, and how the business will operate if one person steps back, help prevent resentment when the business faces challenges.
Yes. The article uses Bower Architecture as an example — the founders planned for parental leave and how the business would support someone taking time off and continue operating without them. Including family and relocation scenarios in your agreement is recommended.
Advisers prompt discussion of practical and sometimes uncomfortable scenarios you might not think about when you’re ‘starry-eyed’ about a new venture. They encourage formal agreements that address contingencies such as illness, death, new partners, relocations and exits.
When it works, running a business with friends can be enjoyable — the article describes founders who look forward to coming to work and spending time with mates while working hard. Good planning and clear agreements help preserve both the business and the friendship.
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