Mixing business with pleasure

For most of us, trusting our close friends and family is entirely natural, but is there any truth to the age old adage that you should never mix business and pleasure?

For every example of a successful business which is run by close friends or family members, there are, in our experience, equally as many examples of businesses, or relationships (or worse still, both!), that have failed when close friends or relatives have gone into business together.

There are obviously a lot of potential benefits to be derived from going into business with people that are close to us. However, we would advise anyone thinking of doing so to exercise some caution.

Successful business relationships

Often, family or friends enter into business relationships without ensuring that each person’s rights and obligations are clearly defined and recorded; agreements are made “on a handshake.” The problem with this approach is that it can often lead to friction if there is any misunderstanding about what each person is required to do, or not to do, in any given circumstances.  It also means that if a dispute does arise, it will be necessary to determine not only whether a party has done what they were supposed to do but also what it was that they were supposed to do. This adds an additional layer of unnecessary complication to the dispute resolution process.

These potential problems can easily be avoided by putting appropriate written agreements in place which set out the rights and obligations of everyone involved. Such agreements can also provide for specific dispute resolution mechanisms to be used if things do go wrong. All of this can have the effect of reducing, or avoiding entirely, what can be significant costs of having to resort to Court proceedings to resolve a dispute.

Common misconceptions

Unfortunately, close friends and family often overlook or ignore the benefits of having appropriate written agreements in place. This can be due to them believing that, because of their personal relationship, nothing will go wrong in their business relationship, or that by raising the question of putting formal agreements in place, they will cause offence and damage the personal relationship.

On the contrary, we think that asking the other party to enter into a formal written agreement indicates your desire to protect your valued personal relationship from the potential damage that can be done in a stressful business environment.

Another common misperception is that having written contracts drafted is an unnecessary expense. However, the costs of Court proceedings to resolve a dispute which arises as a result of the parties not having an appropriate written agreement in place will far outweigh the costs of having a contract drafted.

Whilst we hope that friends and family never fall out and have to enforce the terms of any business agreements, we would recommend taking legal advice as to what specific agreements would be appropriate for your particular business.

Click here for information on Holmes & Hills Solicitors’ dispute resolution services.