03 Apr Why You and Your Friend Still Need a Partnership Agreement
“We were such good friends, we didn’t write anything down. We didn’t think we needed to.”
Trevor and Ramon, friends since high school, were bringing their lifelong dream to fruition. They’d always dreamed of going into business together. They were both creative professionals. Trevor had always loved photography and has been running his studio for five years. Ramon was a senior graphic and video designer leaving a big agency to start his venture. With their complementary skills, longtime friendship, and respect for each other, Trevor and Ramon felt the time was right to link up and join forces. They were going to be business partners.
“I was never interested in partnering with anyone else. But partnering with a friend seemed like a safe bet,” Trevor said. “Since we knew each other so well, there was no need to be so formal and have a written agreement for how we would do things.”
But that approach started to show cracks. He thought he and Ramon shared the same values because of their years of friendship. But then they had to deal with a sticky issue and things quickly fell apart. “We saw the situation completely differently.” They couldn’t agree and the business died. More importantly, the friendship died.
“I lost a lot of money on the deal but that’s a sunk cost. The real loss was my friendship with Ramon. To have built that relationship over decades and to have it all fall apart in months . . . that’ll take a lot longer to heal,” Trevor lamented.
Too Many Variables to Leave to Chance
Differences in the vision for the business’s future, financial management, and operational roles had strained their relationship. Without a clear agreement, disputes over profits, reinvestment, and direction left them at a crossroads, risking not just their business but their lifelong friendship.
This is a reality faced by many longtime friends who venture into business together. The initial harmony and understanding can quickly be overshadowed by the complexities of business management, leading to conflicts that jeopardize the business’s success and tarnish personal relationships.
Why Do Friends Need a Written Agreement?
Entering a business partnership with a friend without a written agreement is akin to sailing a ship without a map. No matter how strong the trust or deep the bond is, the unpredictability of business demands a framework that clearly outlines each partner’s role, responsibilities, and expectations. Here’s why:
1. Clarity and Direction: A written agreement serves as a blueprint for the business, providing clear guidance on decision-making processes, profit distribution, and dispute resolution, ensuring all partners are aligned with the business’s goals and methods.
2. Protection: It safeguards the interests of all partners, ensuring that personal relationships do not cloud business judgments and that each partner’s contribution and stake are duly recognized and protected.
3. Conflict Resolution: By establishing mechanisms for addressing disagreements, a written agreement helps prevent disputes from escalating, preserving both the business and the underlying friendships.
4. Future Planning: It facilitates smooth transitions for scenarios such as succession, exit strategies, or the inclusion of new partners, ensuring the business’s longevity and success.
As Trevor and Ramon’s story shows, while friendship forms a solid foundation for partnership, the unpredictability and demands of business require a well-crafted written agreement. A written partnership agreement is necessary not because of distrust between friends, but as a testament to the value of the relationship and the shared vision for the business.
Protect Your Business and Friendship
Don’t let your dream venture become a cautionary tale. Protect your business and your friendship by establishing a solid legal foundation from the start. Talk with Len to find out how: BOOK A MEETING NOW
