Hi everyone!
I've been seeing some recent rise in forums lately of people asking if it's a good idea to go into business with friends or family. I'm sure it's due to people trying to find alternatives for themselves to earn money during this COVID mess with loss of jobs or seeing opportunity. To this I say, if you do, have EVERYTHING in writing BEFOREHAND.
I'm sharing this with no names to protect folks and their future en-devours, so if anyone knows our story and leaves comments I ask that you not use names. Thank you! :)
Three years ago my wife and I decided to team up with two other couples in building an LLC for REI focused on helping families get out of undesirable scenarios. One of those couples was my best friend, pretty much a brother in most respects, I'm sure everyone has a person like this in their lives. My background was in construction, property management, website development, and I was a very good networker. My buddy's was in food service management, but he could sell an ice cube to an Eskimo, a skill I very much lacked, and he was very good about learning the book smarts on things but lacked the actual hands-on experience, which I had. Our third partner couple were neutrals, they knew both of us enough to feel comfortable to invest with us, pretty much just limited partners, they were going to throw money and hang on. My buddy and I grew up playing sports, saw each other just about every other day, had experienced deployments together, and even experienced great loss together when our third co-best-friend crashed his motorcycle in front of both of us and died in our arms. Both my buddy and I were, and are still, tied together forever. Even though I will not be reaching out to him after we were done with this LLC.
Overall I would say our business was a success. We had two projects that put us all in the black. When we first started we expected that I would bring very little money, all the experience and most of the hands-on sweat equity. My buddy would bring some more money than I, less experience but great negotiating skills, and was going to also bring sweat equity into the game as well. Our last partner brought money and in-sight having owned a business of his own before, and very little if any sweat equity. We spent a year trying to get our business model perfected before moving forward into an actual project and had an attorney draw up all our papers and agreements. With our fore-mentioned things we brought to the table we would each draw a third of the profit, and we also had a small provision to adjust rates when people put in more according to sweat equity or money. Not a totally definitive drawing, but between that and verbal agreements we felt very good about our figurative futures. I should note that I quit my job to do this full time, my buddy was working full-time and he was going to come out to help after his work schedule, and our last partner was retired and would provide very little as far as hands-on help.
Now, there's definitely something to be said about figurative results and actual. Figurative results are just that, you plan and hope for the best/worst and hope to come out with an expected product. Then there is actual results that differ sometimes from your figurative expectations. And this is where you need to have things in writing, when things change, how do you address them so no one feels hurt, it's just business. You have to not only have exit strategies for your investments, or even how to close your business, but in how you adjust fire when things change.
When the rubber actual hit the road for moving in on our REI's it turned into that I was providing the most amount of money and sweat equity. My buddy provided the next greatest amount of monies and sweat equity, neither of which were nearly what was expected and verbalized that he would bring. Lastly our third partner that was supposed to fund the most money actually provided almost none and moved out of state. Because our small provisional agreement allowed for adjustment in payouts due to how much people put in we were good with no hurt feelers there, we would adjust payouts, no problem. However, both the projects were expensive and we found for both that they would become even more expensive and would take double the time on both projects. I realized very quickly our profits were going to be dramatically less and that I actually was going to get the short end of the stick. Not because people weren't being paid out fairly, but because I was paying for two projects carrying costs and most of the flip costs, as well as still paying for my family's life, all on no incoming funds (Remember, I was doing the flip full time).
I approached my buddy, who you remember was supposed to provide more time and funds in our mostly verbal original agreement, to see if he could start holding up his end of the deal so we could get these projects off our books. He took offense and pulled away quickly because nothing was holding to him in writing as to why he should and was upset thinking I wanted more profit or more out of him. This turned into a battle of wills. My needing to get the project accomplished so as to feed my family and have a home against his desire to not be pushed for more money or time until he wanted to. I believe anyone can understand both of our frustrations in this case, I needed to move faster, he was comfortable with the pace. I was running low on funds quickly though and no one was fessing up on time or money to help out. After many uncomfortable conversations, my buddy finally started throwing more money into the pot and then began acting as though I was still the problem in the business. Which to be honest there was no business without me paying bills, meeting people, getting contractors, paying the two mortgages, paying for the flip, doing the work.
This is what leads to hurt feelings, where friends and family can suffer from. Not having the black and white to refer back to when things don't go the way you had originally figured or hoped. Business agreements keep people in check so no one is taken advantage of, no one walks away with hurt feelings, because it's all just business that was pre-planned. There's obviously more that both sides could share on the matter but ultimately it doesn't matter, the damage is done, and some of the best friends that anyone can have are now left to their own devices. If anybody could make it work, it was us. And we didn't. We took a solid year of preparation, and we still didn't. We were brothers, as close as brothers get, and we still didn't.
Read this and don't hear who's right or wrong, but that you need to protect your relationships with lots of discussion beforehand that leads to great, solid, black and white, agreements that will point you in the right direction when things change. Go into business with people that are willing to communicate clearly, and if they can't or aren't willing to then just keep them as good friends or family, not business partners.
