10 Questions to Ask Before Family and Friends Become Business Partners Thinking about bringing loved ones into your business? Before you take that leap, here's what you need to know to protect your relationships and your company.

Bringing a family member or friend on board as a business partner may seem like a fine idea, but the relationship can prove tricky to navigate--or to end, if things don't go well. "It's easy to get into business, but it's hard to get out," says Wayne Rivers, president of the Family Business Institute, a consulting firm based in Raleigh, N.C.

That means you need to take a step back and think carefully before partnering with a friend or relative. Here are 10 key questions to consider:

Are we in it for the same reasons?
Be clear about your goals. Do you want to expand your business and eventually sell it, or build something your family can pass down? "The mistake is not being clear about what your intentions are," says David Ransburg, a consultant with The Family Business Consulting Group, Inc., based in Chicago. If you don't have the same goals for the business, you'll have a hard time making plans or coming to a consensus on big decisions.

What is this person bringing to the job?
Don't let your relationship color how qualified and well suited for the job your potential partner might be. Think about the credentials and level of commitment you would expect from anyone you were giving such a key role in the company. You may want to write a job description with qualification requirements and see how the experiences of a friend or family member measure up, Rivers says.

Should you offer an equity stake in the business?
You need to decide whether you want to offer your new partner an equity interest in the company, and if so, how much and how soon. Not only do you want to be sure a potential partner can add value to the business before sharing ownership, but you also should consider giving the person an interest in the business over a period of time, say five years, rather than all at once, says John Davis, faculty chair of the Families in Business Program at Harvard Business School. It can be easy to deal informally with family and friends, but you want to make the terms clear in a signed shareholder agreement.

What will happen when we can't agree?
Resolving conflicts with family and close friends can be particularly challenging because personal feelings can easily get mixed up with business decisions. "With friends and family... you might make more knee jerk reactions," says Ira Bryck, Director of the UMass Family Business Center in Amherst, Mass. "You can be your worst self where you need to be your best self." You will need to figure out a way to remain professional by taking personal feelings out of decision-making and focusing instead on objective measurements and standards.

How in sync is our risk tolerance?
Despite your personal connections, you and a family member or friend may feel very differently about taking risks. For example, an older sibling who saw his parents take many risks when starting the family business might be more willing to take risks himself than a younger sibling who got involved later when the company was more established, Bryck says. Determine how in sync you are on such vital decisions as launching new products or trying out new forms of advertising. While you can certainly disagree from time to time, you don't want to constantly butt heads.

What will each of our roles be?
In a 2010 study of 518 family-owned businesses, the most successful ones had made each person's role in the company clear upfront, says Tracy Shaw, assistant vice president of business market development at MassMutual Financial Group, which oversaw the "FamilyPreneurship" study. For Lidia and Uli Fluhme, married founders of Gran Fondo NY, which began running an annual 110-mile cycling event in New York in 2011, the division of labor has been clear from the get-go. While Lidia Fluhme takes care of logistical aspects of the event, her husband is responsible for interacting with cyclists and handling marketing and legal matters. "He's the visionary, and I'm the implementer of what happens," she says.

How will we keep our personal and professional lives separate?
When working with family or close friends, the boundaries between your personal and professional lives are bound to blur. But you can maintain some work-life balance if you establish a few rules. For example, you might agree not to discuss work during family meals or to talk about personal matters at work only in an emergency.

How will this person be evaluated?
Family and friends tend to sweep a lot of things under the rug in business rather than addressing them, Rivers says. But you need to hold one another accountable and figure out how you will evaluate each other's performance on a regular basis. If providing feedback, especially criticism, seems too difficult given your personal relationship, you can seek out a third party for the assessments, Rivers says.

If it doesn't work out, what do we do?
It isn't unusual to want to change your career, but when you're in business with a close friend or family member, you might feel you can't leave because it will hurt your personal relationship. Before asking a family member or friend to become your partner, consider what might happen if one or both of you wants out. How will you handle the exiting partner's shares? Who will take over the responsibilities of the departing partner? What will this do to your personal relationship?

What will our succession plan look like?
Even if you both plan to stick it out for the long haul, you're still going to have to think about your successors. Unfortunately, succession planning often goes unaddressed because it suggests mortality, illness or other unpleasant life events you'd rather not discuss. But failing to address succession planning "is like getting on a plane with a pilot who hasn't learned how to land the plane," Bryck says. "You really need to sit down and have this difficult discussion."