Does this sound like you? You and a close friend have decided to go into business together. After all you get along so well what could possibly go wrong? What is the worst thing that could happen?

Many things could happen not the least of which is the friendship dissolves and one of you takes legal action against the other. Here are 7 tips of what to consider or do before you go into business with friends.

1. Think long and hard about the potential loss of the friendship. Can you weather losing the friendship. Is a successful business worth this price?
2. Strengths & Weaknesses Analysis: Each of you needs to create a list of what you’re good at, what you like to do, what you aren’t good at and what you hate to do. Then compare to determine where there are gaps.
3. Develop a list of critical tasks, activities and functions you will need accomplished in the business.
4. Divide up the responsibilities using the lists you developed under #’s 2 & 3. Make sure you equally distribute what people don’t like to do and give people the responsibilities they are good at. Anything left unassigned represents where you will need outside help.
5. Develop an exit strategy. Today, before the business has a value, discuss and establish how a founding owner will be bought out. This is often referred to as a Buy/Sell Agreement. This needs to be done while cooler heads prevail and there is no emergency situation.
6. Establish how the owners will be paid. How and when will money be withdrawn from the business by an owner. What constitutes a legitimate expense or cost that triggers reimbursement. It needs to be equitable and not allow any one owner to put the business in jeopardy.
7. Create a “Business Prenuptial” which is a written document that sets out the what, where, when and how of your ownership with your friend. It is the culmination of the considerations under Tips #3-6. Anything that is ambiguous is an opportunity for disagreement and adverse consequences so resolve them now. Include a provision for when you will review and update the information.

In the course of completing these tasks don’t be surprised to find out you are better as friends than you could be as joint owners.

What additional tips would you suggest?

My colleague, Kathleen Burns Kingsbury, a wealth coach has written two recent blog posts that I recommend you read:

1. 5 Books on Wealth and Money Psychology.
2. 5 Tips for Fighting Fair Financially. If you have problems talking to your significant other, business partner or children, check out this post.

Kathleen and I share a commitment to helping people become more financially literate.  I think you will find valuable information in both of these posts.