Pros and Cons of doing business with friends.

October 15, 2012

Last week’s post on why 1 should quit being an entrepreneur mentioned that sometimes working with friends can have negative results. I’ve had the good fortune of working with some very agreeable and highly intelligent people. I should say that I’m blessed as I can be a bit hard to work with when people don’t hold up their end of the bargin. Last week, S from American Debt Project along with LaTisha from Young Finances and myself came up with a plan for a project for next year. I’ve been toying this idea around for a while and its fantastic to find others who are just as motivated as me when it comes to taking on new projects.

I am extremely cautious when I decide to work with someone new. I normally rely on my gut, but that doesn’t mean that I don’t do my research before entering in a business agreement with anyone. While doing business with friends may seem like a good idea because you are already familiar with where their strengths and weaknesses lie, it can easily turn into a disaster. However, there are some instances where it can work out, and there are some very successful joint ventures between friends – Google and Disney are prime examples of this. That being said, the majority of such business relationships do not work out as well as hoped. The ability for a friendship-based business partnership to work relies heavily on each party understanding where the boundaries are, and of course, not crossing them.

Advantages of Doing Business with Friends

As previously stated, the primary benefit to working with friends and family is that you already know their capabilities. This cuts down on the learning curve of working with a new person, and the initial employee training has the potential to go faster because you are know what they do and do not need to learn. Unfortunately, in most cases, the advantages of such a partnership end here.

Disadvantages of Doing Business with Friends

In a work setting, having a prior relationship with someone that you hire can elicit a multitude of responses from coworkers, especially when everyone else feels that the person in question is receiving favors simply for knowing you.  Not only does this often breed resentment, but it also damages a trusting work environment. Additionally, business has a way of coming in between even the best of friendships, and it can often be difficult to shake negative feelings that are a result of bad business decisions – or even necessary ones. For instance, disagreements about selling the business can easily lead to hard feelings.

The following are a few of the most common problems associated with doing business with close friends and family members:

  • Friends and family members often expect favors, like extra time off.
  • Other employees can become jealous of perceived favoritism.
  • It’s difficult to turn down a friend when they ask for time off.
  • It can be more difficult to talk performance issues and budget use.
  • Firing friends and family members is hard.

Unless your friend is also the cofounder of your business, or another integral role, then it’s usually best to have someone else act in your place when you have to make difficult decisions. For instance, talking about your friend’s or relative’s performance on the job can be a very tough thing to do in person, especially when their performance is subpar, because it’s difficult to remain objective when you are emotionally vested. This also applies to declining vacation requests, and addressing policy breeches. In this case, having someone else to handle the problem is the best route.

Final Thoughts on Doing Business with Friends

If you do decide to go ahead and hire one of your friends, or even go into business together, it’s important to set boundaries that you both agree not to cross. For example, expecting favors and exemption from the rules is not only bad for your relationship, but it can also easily bring down a business.

In the end, hiring friends and family is a personal choice that can only be made by you; no one else is in the same business position and therefore cannot tell you what the right decision is for your situation. The most important thing to remember in cases like this is that you should always hire employees, and find business partners, based on merit and not on their relationship to you. On a lighter note, doing business with friends and family does have one inherent advantage – in the event anything goes wrong, you know where they live!

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  • Michelle October 15, 2012 at 12:12 pm

    I definitely think it’s hard to do business with friends and family. My friend HATES her realtor, but it’s her fiance’s aunt so they can’t fire her.

    • Marissa October 16, 2012 at 12:10 am

      I would hate that. I would assume that her aunt tries to share her opinion in her purchasing decision.

    • American Debt Project October 16, 2012 at 9:37 pm

      That is NOT good. My friend wasted several months of househunting with a “family friend” realtor…the lady was not knowledgable about the market and cost my friend a lot of money in inspections because she did not know about a building things that were easily discoverable. When it comes to your money and real estate. I would have no problem not hiring friends.

  • Pauline October 15, 2012 at 12:21 pm

    It is very hard indeed. I started a company with a friend out of college and he was also my roommate. While we had our functions written down and didn’t cross boundaries, it was hard to see him sleep in some days when he was supposed to prospect or meet with clients, and not say anything.
    I ended up walking away and five years later we are still close friends, because we never let anything personal interfere with the business.

    • Marissa October 16, 2012 at 12:11 am

      Thats fantastic. Its very rare to see friendships survive after working together.

  • Andrea October 15, 2012 at 2:19 pm

    Many of my clients are friends and fellow bloggers. I enjoy working with people I know for the most part, but it’s also difficult because (1) there’s more pressure to make everything “perfect” and (2) if things don’t work out, there’s much more at stake. It’s also hard to maintain pricing when I work with people I know; everyone expects a discount.

    • Marissa October 16, 2012 at 12:12 am

      Do I get a discount?

  • Modest Money October 15, 2012 at 2:55 pm

    The other problem with doing business with friends is that could jeopardize the friendship. If they aren’t pulling their weight or somehow taking advantage of the situation, bitter feelings of resentment might develop. You might find out that you didn’t know that friend as well as you had thought.

    • Marissa October 16, 2012 at 12:12 am

      I’ve seen that first hand. The problem is that I voice my opinion and it makes people defensive.

  • John S @ Frugal Rules October 15, 2012 at 4:42 pm

    I agree with Jeremy that it can potentially harm your friendship. Doing business with friends definitely poses its own unique set of challenges and that’s why it’s important to go into it with your eyes open to that. I think having an understanding that the friendship comes first is important to have so you don’t end up just ruining the relationship.

    • Marissa October 16, 2012 at 12:18 am


  • My Money Design October 15, 2012 at 4:56 pm

    It may seem cold, but I always keep the two separate. When it comes to matters of money, business is business, and I make no exceptions.

  • Lauren @ L Bee and the Money Tree October 15, 2012 at 4:57 pm

    I used to work for a pair of friends who started a hedge fund. I think it worked out because they were VERY different, and had a different set of strengths. They knew it and they capitalized on each of those.

    • Marissa October 15, 2012 at 5:12 pm

      I work with a friend who is the opposite of me. She’s a lot nicer and can protect people from my bluntness. It works out for both of you.

  • WorkSaveLive October 15, 2012 at 5:55 pm

    I’m not sure I could ever do business with friends/family. Well, I wouldn’t mind doing business with them, but hiring them to work for me would be something I would try to avoid at all costs. There are certainly upsides to it, but it could also completely destroy a relationship. In many of my scenarios, the cons completely outweigh the pros.

  • Mo' Money Mo' Houses October 15, 2012 at 6:23 pm

    I personally like to separate business from friends or family, because when money is involved things can turn south quickly or people can show their true colours. But that’s not to say that always happens and sometimes working with friends can turn out to be great (I unfortunately haven’t really experienced that myself).

    • Marissa October 16, 2012 at 12:15 am

      I’ve lost a few friends because of money. I learned my lesson.

  • Jacob @ iheartbudgets October 15, 2012 at 6:39 pm

    Business with friends is a very sticky situation, especially once you get into the income and tax side of things. I like how Dave Ramsey always quotes “the only ship that won’t sail is a Partnership”. No relationship is worth losing for money. BUT, if you plan well and set specific boundaries and responsibilities, your chances of success are MUCH higher.

    • Marissa October 16, 2012 at 12:15 am

      Thats a great quote 🙂

  • Andy Hough October 15, 2012 at 10:26 pm

    I’ve never had a business with friends or family and I don’t think I would do so. There would have to be special circumstances, otherwise the potential pitfalls would be too large.

  • Eric J. Nisall - DollarVersity October 15, 2012 at 11:27 pm

    It’s a very fine line to work with friends and/or family. It seems like a great idea at first but there are things that can come up that tear it apart.

    For a short time I was working with family in a construction business, building new homes. I was the accountant (of course) and responsible for paying bills and payroll besides the books and records. At first it was great, but then things started to change. I was being given personal bills to pay from the company account which is where I drew the line and resigned from all aspects of the company with the state and all. Some time later, I had the IRS knocking at my door looking for back payroll taxes which weren’t paid. Even though I was no longer associated with the company, or the people for that matter, they had it on file that I was once an officer and they couldn’t find the others to contact so they came after me. Suffice it to say, it was a rough lesson to learn about the dangers of going into business with friends or family.

    • Marissa October 15, 2012 at 11:45 pm

      Oh wow. Thats insane. How long did that last?

      • Eric J. Nisall - DollarVersity October 16, 2012 at 12:26 am

        I only stayed there for a couple weeks after it first started. Getting the IRS off my case was a bit more difficult, but the state keeps the records online so I sent it over to them showing when I resigned so they could see that the period they were trying to collect for was post-Eric. Of course, they had 2 different offices handling the case so when I satisfied one, the other came calling. I was like “I just settled everything with someone else, now you’re coming after me? Try getting on the same page will you?” They finally got their act together and have since left me alone.

  • Canadianbudgetbinder October 15, 2012 at 11:31 pm

    I don’t personally think I would cross that line when it comes to business and friendship. It always seems to go wrong like lending money to a mate who never pays you back. Even though you set boundaries really if you are mates how well will you stick to them. I think I cherish my family and friends and I would opt to not pay them to do work or go into business with them. I would however barter services with them like you paint my garage and I’ll mow your lawn type of deal. Great post. Mr.CBB

    • Marissa October 16, 2012 at 12:18 am

      Barter is a great idea. Most people don’t think of that.

  • Glen @ Monster Piggy Bank October 16, 2012 at 10:06 am

    I went into business with a friend once and it was a terrible idea. We both wanted the same thing, but had different approaches when aiming for the same goal.

    Eventually we closed down our business as it was affecting our friendship, and we both came to the same conclusion that business and friends can be a slippery slope and that it isn’t for everyone.

    Having said that, I have worked with a number of friends on other business ventures which have worked out great. I think a lot has to do with how clearly you enunciate your goals and plans up front.

  • Anne @ Unique Gifter October 16, 2012 at 4:22 pm

    For some reason, this reminded me of the part in the eMyth book where job descriptions and contracts are very clearly laid out at the beginning. There can be so much bad blood when going into business with friends and especially family. That said, it can work out so well, too. *sigh*

  • LaTisha October 16, 2012 at 5:12 pm

    I tried to go into business with a friend once but we soon realized that our ideal time commitment in the business was different. We decided to put things on hold for a while until we could align our ideals.

  • Francisco Rodriguez October 16, 2012 at 5:26 pm

    Hey Alvin, I really enjoyed the part when you discussed advantages of Doing Business with Friends,
    and especially the part about you already know their capabilities. Really helped me do business with friends!

  • Anonymous October 17, 2012 at 12:33 pm

    I have gone through that feeling of working with my friends. The only point I hate is that professional problems become a cause for personal grudges. That is why don’t work alongside my friends anymore.

  • Jessica October 17, 2012 at 3:47 pm

    Just found your blog and I am so delighted! I am working my way (slowly, but successfully) out of student debt as well and it is a pleasure to find someone else on the same journey!

  • AverageJoe October 17, 2012 at 4:49 pm

    Great advice again, Marissa. I prefer not to do business with people who previously were friends although I’ve developed many friendships from business relationships. I’ve found that friends know that I won’t be as hard on them while a stranger will. Family is the same. Handle with care.

  • KK@Student Debt Survivor October 18, 2012 at 2:44 am

    Great post! I’ve had both good and bad experiences doing business with friends. I once bought a product from a friend and then didn’t like it. It was really hard to tell her and our friendship suffered after the fact (“how could you not love the product I sold you?”). Since then I’ve been really careful about the types of deals I do with friends.

  • mike@finance-falcon October 18, 2012 at 3:54 am

    I don’t know but, last time i had a business partnership with a friend. It all fell, thank god not our friendship. I remember we went into a lot of disagreement that time. We opened a small drinking bar in our ton 3 years ago, it was doing fine during its first 5 months but after that things got shaky and we don’t know where we did wrong. Probably with all the new competitions coming out that are awfully good.

  • Peter October 18, 2012 at 4:05 am

    I’m not sure I could ever do business with acquaintances/family. Well, I wouldn’t mind doing business with them, but hiring them to work for me would be something I would try to avoid at all costs. There are definitely upsides to it, but it could also completely destroy a relationship. In many of my scenarios, the cons fully outweigh the pros.

  • American Debt Project October 18, 2012 at 5:52 am

    The hardest part is making sure everyone is staying on top of their part and staying within reason on schedules. Usually any group/team environment benefits from someone who is an ass-kicker/doesn’t take any crap/doesn’t make exceptions. You usually don’t want to disappoint that person so they keep you in check. What I am trying to say is feel free to crack the whip!

  • access control miami October 22, 2012 at 6:25 am

    it’s very hard indeed. I started a company with a friend out of university and he was also my roommate. While we had our functions written down and didn’t cross boundaries, it was hard to see him sleep in some days when he was supposed to prospect or meet with clients, and not say anything.