Is business with a friend a good idea?

Llyllyll

Afternoon,

Please forgive the long post but I would really appreciate some advice.

I am just about at my wits’ end in my current job (taxman) and need to get out for the sake of my sanity. A friend has a valeting business and he is always asking if I want to work for him on a self-employed basis. I am thinking of perhaps doing a few days a week with him whilst keeping my current job to see if I am suited to it. What do you think?

Another option, if I decide I like it, is to buy 50% of the business (just a thought at the moment). Now my friend is very good at what he does but he currently leaves most of the paperwork to his accountant. The legacy of being a taxman means that I would want to see ALL the books and stock/equipment levels before I committed to this however. There is obviously then the possibility that if he runs things differently to the way I would then we could have disagreements from the start. I could help with the admin/tax side of the business but could that be seen as interfering with the business that he originally set up.

If I were to buy 50% should I have an agreement drawn up by a legal professional to reflect the amount of investment each party has made, how profits would be distributed etc.

Is it wise to go into business with a friend at all?

Thanks.

saubryn

I have friends that have ran businesses together - some of them have succeeded, some of them have failed due to arguments / disagreements / more effort from one party than the other.

It can work, but I agree you should draw up a proper agreement and look at the business carefully before buying in. If you have any doubts, then I'd avoid it, but if you are happy with everything and both of you are taking the business seriously / its laid out exactly what you will each be responsible for, then it should be OK.

Are you firm enough friends that if the business didn't work you wouldn't fall out over it?

Hanxx

One of my best mates successfully works alongside another of my mate's, so it can work.

But yes, I would recommend that you have a proper agreement drawn up. It makes good sense, and if you do fall out you'll be covered.

WHA

Make sure you both have your "exit" route mapped out. What happens if either of you wants out? How much would the other pay? What if one of you dies? What if one wants to sell but the other doesn't and can't afford to buy the others' share? The list is endless. Work through all the permutations before hand and you should be fine.

Also, do you really trust eachother - being in partnership means "joint and several liability" - that you are both liable for all the partnership debts - so you could be held liable for something you knew nothing about - e.g. if your partner bought a new van in the partnership name but couldn't meet the payments - you would both be liable for any claims against the partnership from disgruntled customers for example. If one of you can't pay your half share, the other becomes liable for both partner's shares!

By the way, you mention starting off as being self employed before becomming a partner - as you are a taxman, I am sure you know all about HMRC's stance on whether someone is employed or self employed but for the benefit of other readers of this thread - to be self-employed you have to pass HMRC's status tests, such as providing your own equipment, risk and reward, etc etc which are summarised on their website. It is not allowed for two people to simply decide that one is self employed working for the other - if you don't pass HMRC tests, you are deemed an employee. Obviously in this case, once the OP joins the business as a partner, they do take on the risks and rewards etc so are self employed.

Llyllyll

Thank you all for your replies.

Yes, I think we are firm enough friends that if the business didn't work we wouldn't fall out over it. To be sure though everything would need to be mapped out beforehand in a formal agreement as others have suggested.

WHA - Some useful reminders there for me as there is a hell of a lot to think about. In your example of:

"joint and several liability" - that you are both liable for all the partnership debts - so you could be held liable for something you knew nothing about - e.g. if your partner bought a new van in the partnership name but couldn't meet the payments

is it possible to set up accounts so that any purchases over say £500 had to be authorised by both partners?

Thanks.

Astaroth

It is possible but then that doesnt work with credit agreements etc which is the bigger risk than the account becoming overdrawn.

I assume that it is a partnership then at the moment rather than him as a sole trader or a Ltd company?

You could form an LLP (this is where I am stretching my company law knowledge) http://www.companieshouse.gov.uk/infoAndGuide/llp.shtml if you arent wanting to go down the full Ltd route