How to start a business with friends and stay friends

Starting a business with friends can be a rewarding venture, blending personal trust and shared passion with sharp business savvy. Going into business with people you trust can make the startup journey more accessible, as you can pool your skills and resources. However, that accessibility doesn't guarantee an easy path to success.

This guide will take you through the practical steps of validating your business concept, securing funding, obtaining necessary licenses, and acquiring equipment to help you launch a successful business with friends in the U.S.

Step 1: Validate your business idea

Before you invest time and money, confirm people will buy what you plan to sell. You can create simple customer surveys using platforms like SurveyMonkey or Google Forms. Ask direct questions about pricing, features, and purchase intent to get clear feedback.

Analyze your competition

Look at who is already successful in your target market. For online businesses, you can use SEMrush to see competitor web traffic and marketing strategies. For local ventures, your city's chamber of commerce directory is a great resource for identifying key players.

Estimate your startup costs

Many new partnerships miscalculate initial funding needs. To avoid this, create a detailed budget. Startup costs can range from $3,000 for a simple service business to over $50,000 for a business that requires a physical location and inventory.

A sample budget for a small service-based company might include business registration ($500), a basic website ($2,000), legal fees for a partnership agreement ($1,500), and initial software subscriptions ($1,000). Having this financial map is a practical step toward stability.

Here are 3 immediate steps to take:

• Draft a 10-question survey for potential customers.
• Identify and list three direct competitors in your area.
• Create a spreadsheet to track your estimated startup costs.

Step 2: Establish your legal structure and licenses

You should form a Limited Liability Company (LLC). It protects your personal assets and offers flexible taxation. An S Corporation is another option that can save on self-employment taxes, but it requires more formal meetings and record-keeping. Most partnerships find an LLC is the best start.

Once you choose a structure, get a free Employer Identification Number (EIN) from the IRS website. You will need this for taxes and banking. Next, register your business with your state's Secretary of State. State filing fees for an LLC typically range from $50 to $500.

Also, check with your city or county clerk for local business licenses or permits. Processing times can vary from a few days online to several weeks by mail. A frequent misstep is to ignore local rules, which can result in fines, so confirm these requirements early.

Create a partnership operating agreement

This document is your group's rulebook. It should define profit distribution, roles, and what happens if a partner wants to leave. Many friends skip this step and rely on trust, which often leads to conflict. You can find templates online or hire a lawyer for about $500-$2,000.

Here are 4 immediate steps to take:

• Decide on an LLC or S Corp for your business structure.
• Apply for your free Employer Identification Number (EIN) online.
• Draft an operating agreement that outlines partner responsibilities and exit strategies.
• Contact your local city clerk's office to ask about necessary business permits.

Step 3: Secure your insurance and manage risk

Your next move is to protect the business from unexpected events. Several types of insurance are available, but a few are particularly important for new partnerships. Each policy addresses a different kind of risk.

• General Liability: This is your foundation. It covers third-party claims of injury or property damage. A standard $1 million policy often costs between $400 and $900 annually.
• Professional Liability: If you offer services, this protects you from claims of negligence. Premiums typically range from $600 to $1,200 per year.
• Key Person Insurance: A frequent oversight for friends in business is to skip this. The policy provides funds if a partner can no longer work, which helps the business survive the transition.

If you hire employees, you will also need workers' compensation insurance. With these policies in mind, you can start to gather quotes. Providers like Hiscox, The Hartford, and Next Insurance specialize in small business coverage and can help you find the right package.

Here are 4 immediate steps to take:

• Get a quote for a $1 million general liability policy.
• Determine if you need professional liability insurance for your services.
• Research key person insurance to protect the partnership.
• Compare quotes from at least two small business insurance providers.

Step 4: Find your location and get equipped

First, decide if you need a physical location or can operate from home. If you choose a home office, check your city’s zoning ordinances to confirm it is permitted. Some residential areas have restrictions on commercial activity, so a quick call to your local planning department can prevent future issues.

If you need a commercial space, you can negotiate the lease terms. Ask for a tenant improvement (TI) allowance to help pay for renovations. You might also request one to three months of free rent at the start of the lease to ease your initial cash flow.

A frequent mistake is for one partner to sign the lease alone, which concentrates all the liability. You should have the lease in the business's name, specifically your LLC, to protect everyone's personal assets. All partners should review the agreement before it is signed.

With the location settled, you can purchase equipment. A basic office setup includes laptops (around $1,000 each) and a multifunction printer ($400). Retail or service businesses may also need a point-of-sale system, which can range from $1,200 to $2,500 for a complete hardware package.

Here are 4 immediate steps to take:

• Check your city’s zoning laws for home-based business rules.
• Ask potential landlords about a tenant improvement allowance.
• Create a spreadsheet of your equipment needs with estimated costs.
• Compare prices for one key piece of equipment from a new and a used supplier.

Step 5: Set up your payment processing

First, decide on your payment terms. For service businesses, it is common to request a 50% deposit before work begins. For products, payment is due at the time of sale. You should outline these terms clearly in your contracts to avoid confusion.

When you select a payment solution, look for low transaction fees and no monthly costs. A frequent mistake is to choose a system with hidden fees that reduce your profits. Always read the fine print on pricing before you commit.

For businesses that accept payments on-site or on-the-go, JIM offers a streamlined solution. With JIM, you can accept debit, credit, and digital wallets directly through your smartphone. Just tap and the sale is done.

At just 1.99% per transaction with no hidden costs or extra hardware, it's useful for service providers or market vendors. Many payment solutions charge between 2.5% and 3.5%, so JIM's rate offers clear savings.

Here is how it works:

• Get Started: Download the JIM app for iOS.
• Make a Sale: Type the sales amount, hit sell, and ask your customer to tap their card or device on your phone.
• Access Funds: Your money is available on your JIM card as soon as the sale is done, with no wait for bank transfers.

Here are 3 immediate steps to take:

• Decide on your standard payment terms, such as requiring a deposit.
• Compare JIM's 1.99% transaction rate against two other payment solutions.
• Draft a standard payment clause to include in your client contracts.

Step 6: Secure funding and manage your money

The Small Business Administration (SBA) is a great starting point. Its 7(a) loan program is popular, but for new ventures, an SBA Microloan might be a better fit. These loans go up to $50,000 and often have more flexible qualification standards than traditional bank loans.

Lenders will look for a strong business plan and good personal credit from all partners, typically a score of 680 or higher. Interest rates for these loans usually fall between 5% and 10%. A common mistake is for one partner to have a much lower credit score, which can sink the application.

Explore grants and working capital

You might also want to pursue grants, which you do not have to repay. Look for opportunities like the FedEx Small Business Grant Contest or search the Grants.gov database. These are competitive, so a strong application is important.

With your funding secured, you need to manage it. Plan to have enough working capital to cover at least six months of operating expenses. Open a dedicated business bank account right away to keep your finances separate from personal accounts. This simplifies taxes and protects your personal assets.

Here are 4 immediate steps to take:

• Calculate your estimated operating expenses for six months.
• Check the personal credit scores of all business partners.
• Research the application requirements for an SBA Microloan.
• Open a separate business checking account for your partnership.

Step 7: Build your team and streamline operations

Even if it is just the founding partners at first, you should define each person's role. Create formal job descriptions with clear responsibilities. A frequent source of friction for friends in business is when roles overlap or tasks get missed because no one is assigned to them.

Define roles and compensation

For a new service business, you might need a part-time Administrative Assistant (around $20-$25 per hour) to handle scheduling and emails. As you grow, a full-time Operations Manager ($55,000-$75,000 annually) can take over daily management, freeing up the partners to focus on strategy.

A good benchmark for service businesses is to keep total payroll, including partner salaries, at or below 50% of your total revenue. This helps maintain healthy profit margins. Once you have your roles defined, you can use a platform like Gusto to manage payroll and benefits.

Set up your operational systems

To keep everyone organized, you can use project management software. Platforms like Asana or Trello offer free plans that are perfect for new teams to track tasks and deadlines. For team communication, Slack is a popular choice that helps reduce internal email clutter.

Here are 4 immediate steps to take:

• Write a one-page job description for each partner's role.
• Research average hourly rates for an administrative assistant in your city.
• Create a free account on Asana or Trello to map out your first project.
• Calculate your target payroll budget based on your revenue projections.

Step 8: Market your business and get customers

Start with focused, low-cost marketing. You can join your local Chamber of Commerce for about $300-$500 annually to network with other business owners. For online efforts, pick one social media platform where your customers are active. A B2B service might choose LinkedIn, while a visual product could use Instagram.

A referral program is another powerful first step. You can offer existing customers a 10% discount on their next purchase for each new client they bring in. This approach leverages the trust your network already has in you and your partners.

Track your marketing results

Many new partnerships spend money on ads without a clear view of what works. You should track your Customer Acquisition Cost (CAC). To find it, divide your total marketing spend by the number of new customers. A CAC under $100 is a good initial target for many small service businesses.

Here are 4 immediate steps to take:

• Research the membership fee for your local Chamber of Commerce.
• Choose one social media platform to focus on for the first 90 days.
• Draft a simple referral program offer for your first customers.
• Create a spreadsheet to calculate your Customer Acquisition Cost (CAC).

Step 9: Set your pricing strategy

Your pricing directly impacts your profitability and market position. A common approach is cost-plus pricing. First, calculate the total cost to deliver your service or product. Then, add a markup to determine the final price. For many service businesses, a 50% to 100% markup is a solid target.

Another option is value-based pricing, where you charge based on the perceived value to the customer. This works well if your service offers a unique solution or significant return on investment for the client. It requires confidence in what you deliver.

Many new partnerships make the mistake of underpricing to attract their first clients. This can devalue your work and create financial stress between partners down the road. It is better to set a fair price from the start and justify it with quality.

To inform your decision, research what your competitors charge. You can review their websites or even call to ask for a price list. A simple spreadsheet comparing their rates to yours will give you a clear picture of where you fit in the market.

Here are 4 immediate steps to take:

• Calculate your cost-plus price for one core service, including a 50% markup.
• Research the prices of three direct competitors and log them in a spreadsheet.
• Decide if a cost-plus or value-based model fits your business best.
• Draft a price list for your main services or products.

Step 10: Maintain quality and scale your operations

Establish your quality standards

To keep your service consistent, create a quality checklist for every job. This document outlines the exact steps and standards for your work. Friends often assume they share the same definition of "good work," which can lead to conflict. Writing it down removes any guesswork.

You can also measure customer happiness directly. Use simple one-question surveys to get a Customer Satisfaction (CSAT) score. A score of 90% or higher is a great target. This data gives you a clear benchmark for performance and helps you spot issues early.

Know when to grow

Scaling too fast can strain your finances and your friendship. Set clear triggers for growth. For example, you might decide to hire when you consistently turn away more than 15% of new business for two months straight. This prevents reactive, stressful decisions.

When you do hire, consider an administrative role first to free up the partners. As you expand, a Customer Relationship Management (CRM) system becomes very useful. A platform like HubSpot offers a free version to help you track clients and manage your sales pipeline without an initial investment.

Here are 4 immediate steps to take:

• Create a quality checklist for your main service or product.
• Set a target Customer Satisfaction (CSAT) score of 90%.
• Define two workload triggers that signal it is time to hire.
• Sign up for a free CRM to start organizing client data.

Starting a business with friends is a unique journey. Remember that clear agreements and defined roles are what protect your friendship, not weaken it. With a solid plan, you and your partners are ready to build something great together.

As you prepare for your first sale, a simple payment solution helps. JIM turns your phone into a card reader, letting you accept payments with a flat 1.99% fee and no extra hardware. Download JIM to get started.