Mike and I have been good friends for a long time. We met in 8th grade when I started attending the school he had attended for several years. We more or less ignored each other that year. Actually, I thought he was a bit of bore. Still do. Anyway, in 9th grade we landed in the same typing class with a teacher who was just plain mean. She really didn’t seem to like people generally, let alone wiseacre-types, so Mike and I didn’t stand a chance. We had to present a united front to confront the battleaxe, and here we are more than 25 years later investing in real estate together.
Anytime friends go into a venture together, they put their friendship at some risk. If the venture does poorly or there is a fight over money, the friendship may go down with the business venture. Just think Sonny & Cher, Simon & Garfunkel, Bill & Hillary. So here are some things to consider before going into business with a friend.
Would you make a good business partner with anybody? Some people just have to call all the shots. They want to be in charge, and they don’t have the patience or temperance to give a business partner 50% control. Hey, wait a minute. I’ve just described both Mike and me. Nevertheless, some folks are just not cut out for a 50/50 business model. If that’s you, spare your friend and your business or investment.
Would your friend make a good business partner? I have a lot of close friends that I’d never go into business with. I’d play golf with them on the weekends, watch their children, and let them watch my children. But I wouldn’t go into business with them. The reasons vary from person to person, but include (1) their lack of business savvy (I made an exception with Mike), (2) their lack of knowledge about the businesses or investments that interest you (Mike made an exception with me), and (3) their approach to business ethics (I have some friends who cross the line from time to time). The point is that good friends don’t always make good business partners. You need to know the difference.
Is the nature of the business or investment you and your friend are contemplating right for the two of you? You may have a good friend who also would make a good business partner, but the wrong business or investment. This was the biggest hurdle for Mike and me (in my opinion). We invest in real estate located where Mike and I grew up. The problem is that I now live about 7 hours away by car. So Mike is left dealing with the tenant phone calls and working with the contractors (Nice, I know!). We spent some time talking about this point and resolved that our time investment would simply not be equal. Mike is ok with that, although he does bellyache about it from time to time. I try to pull my weight in other ways, but the fact is Mike puts in more time than I do. A partnership is never equal, and you should come to terms with that (if you can) before you undertake an investment with a friend.
Are you both in agreement as to the direction of your business? You need to be clear about the direction of the business or investment from the start. If the two of you are working at different speeds or in different directions, trouble is on the way. Mike and I have not always been on the same page (although fortunately we have always been in the same chapter). Mike wants to buy real estate at a faster pace than I do. At the start of our endeavor, I was far more cautious than he and wanted to proceed at a much slower pace. Actually, I was scared to death of buying rental properties. Mike wanted to buy real estate like we were shopping at the dollar store. This required both of us to give a little (he slowed down; I sped up).
Is the business or investment financially realistic for both of you? Real estate investing, like most all business ventures, requires capital. If most or all of that capital is coming from just one of you, the potential for trouble increases substantially. Mike and I agreed from the start that the capital investment and profits (Mike, where are my profits?!) would be split 50/50. Many times, any other arrangement would add stress to the arrangement and make a bitter end to the deal and the friendship more likely.
Anytime you go into business with a friend, there is a risk that the business and the friendship could end badly. In some cases, however, it’s worth the risk. Having known Mike for more than 25 years, I trust his judgment, know how he thinks, and have confidence that he knows what he’s doing when it comes to real estate. Besides, his mom makes the world’s best chocolate chip cookies, which I made part of the deal. What could possibly go wrong?
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What a great outlook you have. I have always wondered how it would work if I went into business with a friend. Thanks for the tips.
Looks like you guys are doing great. I would never get into a partnership simply because my dad had many bad experiences with partnership, so I am very reluctant to go that route.
If people put this in practice for marriage, the chances of divorce could reduce to almost nil.
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Passerby, we appreciate your comment. Being married for nearly 20 years (to the same woman) does tend to teach you a thing or two. And we hope you convert from passerby to subscriber!
I am currently in business with a friend now. Yu have to trust the person you are working with. Have common goals, and have thought into the future. Set your boundaries and expectations up. Most of all be respectful.
The benefits to us have been immense. We can delegate task. The most important aspect is our customers get the attention they deserve with both of us. Where with one it would be more difficult to accomplish
I do urge caution however whenever looking into a business partnership. It has to feel right first.
Megan
http://www.PassportMentors.com
I’d like to suggest that true 50/50 business partnerships do not work well in the long run because there is no tiebreaker. That’s why in marriage, though both husband and wife have equal value as persons, and both contribute 100% toward the marriage, they must play different roles in the marriage. If both husband and wife decided to play the same roles (both manage the finances, both make the final decision on disciplining the kids, both decide where we’re going to eat out), then a stalemate occurs at every difference of opinion (and the kids play the parents against one another). In all human relationships, there must be a leader - a person bearing the privilege (and weighty responsibility) of a tie-breaking vote. Of course, I’m not talking about a dictatorship here, either in marriage or in business partnerships. But the plainly observable fact is that the popular view that American society takes towards marriage (that of a 50/50 marriage) just doesn’t work…look at all the broken marriages on your street alone! If the popular idea of marriage worked, then why is everyone getting divorced? It’s because our ideas are WRONG! Frankly, the idea that “I contribute 50%, and you contribute the other 50%” usually leads to a competitive (even adversarial) relationship where each is waiting for the other to contribute 50% of the work/money/time/effort before they will. Even if it’s simply a 51/49 split, there needs to be that one person who carries the final tie-breaking vote. A 50/50 split only works when one of the parties is brain-dead. A 50/50 split does not work if there are two independent minds at work. Nobody reaches agreement/compromise 100% of the time, and that’s when 50/50 arrangements become dangerous.
onthuhlist, that’s exactly why Mike and I work so well together. I make 100% of the decisions, and he does 100% of the work.