Doing Starttup Business with Family and Friends? Home Based or Office Based?

1. Doing Business with Family and Friends

Many times the best ideas come to mind over a family dinner—and they belong to the family member or two or three who decide to run with it. Sometimes you need inexpensive labor, so you bring on the 17-year-old cousin you rarely saw to help with the business. Or sometimes you just want to keep profits in the family.

Lots of people go into business with family and friends. Restaurants are often family owned and run, as are dry cleaners, manicure and pedicure shops, and so on. This often works best with “communal” property, where the individuals all share expenses and the income “… goes into the household kettle of funds, which everyone involved can draw from.”

If you are an independent person with your own family—and your partner is, too—you might give this a second look before going for it. Many people have reported family tensions or even complete disconnects. Money is a very powerful thing—sometimes it’s best not to mix money with people you care about. I have a couple of personal stories to share here—while for the sake of keeping bound­aries, I refuse to go into business with my family or even discuss finances with them, there have been occasions where I’ve made mistakes, and friendships and even my marriage has suffered as a result.

The first mistake wasn’t so much my decision, but my husband’s. Just after we married, I was going through files (to throw them away—not much excites me more than cleaning out cabinets! Hmm … business idea—note to Palm Treo!) and found some documents about an investment in a movie company for what I consider a substantial amount of money, but my new husband did not consider it “a big deal.” He had invested in a family member’s C-list (at best) movie—neither of them having any movie experience. The family member involved was a mort­gage broker on top of it, so my skepticism about his ethics are questionable to say the least.

When I asked my husband if he had been paid back, he said that the deal had “gone south” and he wouldn’t be paid back. I was furious! This seemed like such an obvious waste to me. That was money we could have used toward the pur­chase of our new home, our wedding, our retirement. I am still shocked that this particular family member would even ask my husband to invest in something with such a high level of risk, with no documentation whatsoever about what their recourse would be if they didn’t get their money back. To this day, I have never thought the same of that individual—because I’d never ask for an invest­ment in something so ludicrous, I have had a hard time understanding this other individual’s thought process—or lack thereof. Did it create marital tensions? Definitely—particularly when I informed my accountant and subsequently wrote it off as bad investment debt, as per my accountant’s instructions. (Too bad we can’t screen for this stuff before marriage! Hmm … another business idea ….)

As you may already know I am also a coauthor, and I tend to be very candid and open in my writing. I think that sharing personal, human experiences with read­ers makes your work more usable, more informative, more real—and creates a human connection through writing.

I have had three coauthors in my life. While all three wrote their halves of the books technically, my involvement was significantly greater than the 50 percent I will earn one day in royalties. I tend to go all-out with marketing, hiring publicists that are more than most mortgages and cars combined, updating the website daily, and so on—and my partners frankly don’t.

I realize this is a matter of personality and drive and perhaps a bit of internal motivation that leads me to never stop trying—and all three of course had families that came first (I am the only childless one, so I am certain that played a role). In fact, I’m not sure (beyond one who traveled a bit and tried to get on tele­vision regularly) what they did when it came to trying to sell our books. About a year later, one other coauthor stepped up and held seminars and forums that took some time to try to sell books and stepped up to help financially with some tele­vision media, but it was rough for awhile. I had to officially “let it go,” realizing that no one will care or be as involved as I am because of my personality type.

This type of situation can lead to personal tension between friends, family, and so on. I’ve been able to separate work from business now, knowing that it “isn’t their thing,” to work 80 or more hours per week to accomplish a goal. These were partnerships by agreement, not by business creation, but they resulted in the same downside nonetheless. One of my dearest friends and I got into a heated discussion with a lot of hurt feelings midway through one book. He is such a good friend that I decided not to ever write with him again, because I care about him too much to do that to our friendship. From this point forward, I will never write with a coauthor. It isn’t due to writing issues or their not supplying content and not being experts, but to the all-important promotion up to and after the release of the book.

This brings up a very essential point: find out, if you do intend to have business partners, how they see their involvement. Do they see it as a “full time part time” job like you perhaps do—part time officially, but one that will take 30 to 40 hours per week of your time? Will they sacrifice personal time like you do? Think of all these things before engaging with a partner. It may be hard to tell a friend or family member “no,” but sometimes it’s best for the relationship.

Consider these risks before you take the plunge with family and friends. It sounds terrific to work with people you already inherently trust, but trust me— there are downsides. Be prepared for them. Even the people you think are least likely to leave you hanging with a majority of the work may do so, as everyone works differently. If you are like me, and tend to work very fast and dedicate 18- plus hours per day to your work, partnering isn’t always the best idea because you may never feel like someone is pulling his own weight, even if he is just behaving like a normal person.

Understand your personality and assess others’ personalities, and if you still want to go for it, be very thorough in documentation, noting who will do what and when and how. Keep it in writing and have repercussions for an individual who doesn’t live up to expectations.

1.1. Pros of Family and Friends

There are advantages to family or friend businesses. One is keeping the profits with people you care about, which is a big one particularly if you become highly successful. The idea of working day-in and day-out with someone you really like or care about or love is another great benefit—laughing while you work is great! Sometimes the inherent trust that comes with knowing someone you go into business with makes it all worth it, too.

Another benefit is that of “backup.” Working with family and friends, you will never feel “alone” in your endeavors. Those who you work with are familiar to you and you are familiar to them, which means you will likely be able to step into each other’s roles more easily (particularly if you share information about your day jobs, should the need arise). You will also be there for each other in business as you are in your personal affairs.

Easily accessible resources is yet another huge benefit to starting a business with friends or family or both. Oftentimes when friends or family get together to start a business, they will pool resources, financially and otherwise. This is obviously much easier than having to hit the pavement with lenders on your own.

1.2. Cons of Family and Friends

I gave some personal examples of the disadvantages, but here are some more general ones. Resentment if the business doesn’t go so well, and it was primarily one person’s idea, is a big one. This can happen in any business partnership, but when the one that you begin to resent is your family or friend the tension and emotional burden is far greater. You may find yourself trying to figure out how to get out of the relationship on the business end, while maintaining it on the family/friend end. This flat out may not be possible.

Another is a 50/50 split of revenues without a 50/50 split of workload. This can happen with any business partner, but this again leads to resentment; and resent­ment at work is one thing—resentment that carries over into Thanksgiving din­ner is another.

Another big downside is if or when one person wants to leave the business, if the other cannot afford to continue or buy out the partner. While this can happen anyway, it is particularly difficult when family is involved. What if your brother whom you are in business with needs out to send his kids (your nephews) to col­lege? How do you say no without feeling terribly guilty later? How do you say no at all? What will this do to your relationship if your business was just booming?

Another downside is, particularly with spouses or family members you live with, never getting away from them. Everyone needs their adult time, their alone time, their time to get away from their loved ones or friends. Sometimes too much of a good thing isn’t so good. There can also be issues later, with regard to who owes who what, and how revenues (if there are any) should be split or reinvested into the business.

Remember, although it is counterintuitive, it is sometimes easier to share your thoughts and feelings on your new venture with a random business partner than with a loved one.

2. Home Based or Office Based?

Another major decision you will need to make fairly quickly on your path to entrepreneurship is whether you will be home based or office based. You can have both if you have a separate building on your property, such as a casita or guest house, but you may still feel like you never leave home.

I have had both a home-based and an office-based business. I can speak first hand about some pros and cons, and I’ll include some additional expert knowledge, too.

In our survey, a whopping 89.4 percent of respondents worked from home, and 8.5 percent worked from a totally separate office building. What did the survey respondents say about the difficulty in working from home? Fifty-two percent said it was not very difficult and 34 percent said it was not at all difficult, but 13 percent said it was very difficult. No doubt the type of business is driving these statistics.

2.1. Pros of Home or Office

The pros to working in a home-based office include a very (very) short commute and the ability to get to work quickly should the need arise. (This whole issue of no commuting could be by far one of the best advantages right now, considering the recent rise in fuel and other transportation costs.) If you have small children and need to be close to them or you are caring for another individual, a home office can be a great option for you. It also gives you a nice tax write-off for home office deductions.

The upsides to an office-based business is the feeling of getting away from work—when you leave the office and go home, you’re home—not at work. You can still write off your expenses associated with your business rent, utilities, and so on. It is easier to expand in an office-based solution, because usually you will have room to extend the suite, or add desks at the very least. You also get the feeling of ownership in a different way than a home-based business provides. There is something about walking up to a building with your company name on it that gives you a sense of pride and empowerment that, in my view, a home- based business doesn’t give you. Also, if you need to meet clients and customers, you automatically get additional credibility.

Another great benefit to working from home, which I take full advantage of, is no dress code. If you have the ability to conduct your business either primarily or entirely out of your home, you can wear whatever you want. I often spend a great majority of my day in my gym clothes—they are simply more comfortable to work in. If I need to do a web- or camera-based interview, most of the time the only things that change are the hair, makeup, and top part of my outfit. Sometimes my television hits that are remote (not in studio but from a remote facility) are done wearing a jacket and nice shirt with gym shorts.

The downside to this is that I don’t often get to see myself fully dressed in any of my many business suits, which makes me feel empowered and capable. Having to get dressed up in my fancy threads does provide me with a sense of accomplish­ment and success that I don’t get when I forego them for gym clothes. Of course, going out to events, speaking engagements, residencies, and in-studio interviews takes care of that problem right away.

Now that I work from home, I am generally much healthier as well. Even though I live part time on one side of the country and part time on the other side of the country, I have a gym in both places and it is up to me when I go. It is up to me what time I eat and what I eat. Rather than having to cram all of my personal errands and lunch into a one-hour block of time, I am not restricted to the local fast food stop. I can actually cook a healthy meal or take the time to go to a real restaurant, which in turn has provided me with an overall healthier lifestyle. Keeping with this same benefit, I can be much more flexible about when I visit the gym, and can go at a time of day when I feel strongest, rather than at a specific time my employer deems is okay. Any time I have a block of time free,

I can take the five-minute drive to my local gym and work out.

Are you a night owl? I am, which is why working from home is a great option for me. I can work until 2 A.M. and then sleep until 10 A.M., should I choose to.

I typically do my best thinking late at night. In fact, it’s quite late as I am writing this section. Not having to report to an in-office boss at a particular time allows me the option of working as late as I need or want, still being able to sleep in, as long as I don’t have any meetings, travel, or media spots lined up for the next day.

2.2. Cons of Home or Office

There are also downsides to both a home-based and an office-based business. For starters, home-based businesses don’t often allow you to disconnect from work. For years I was working in my loft; day-in and day-out, the loft in my home was all I saw for 10 or more hours on end. Yes it was convenient, but it was also convenient to go upstairs and check e-mail at 11 P.M., when I should be trying to unwind and head to bed because I had an early morning television interview the next day. A nice middle-ground solution for me was to find a home with a casita—I leave work and walk into the house, and it isn’t quite as easy to go into the office right before bedtime or at any point during the night.

Another downside to a home office is lack of expansion. Even in my new casita- turned-business-office, I only have room for two desks. Should I hire a third person, one of my file cabinets has to go—and it will definitely be a cramped space. I may be able to add on to the building, but that is expensive.

You may not also get the same feeling of really running and owning your own growing business at home that you would in an office building. Running your latest venture from home means that your client meetings may need to occur at Starbucks. I certainly don’t have room for a conference table and I don’t know many home businesses that do. I once recently went to a meeting at someone’s home where she had converted at least three of her bedrooms into offices for her employees and the conference room was the kitchen table. It didn’t feel the same discussing business on placemats with the kitchen appliances sitting next to us. You’d be surprised how much the setting of an environment actually impacts the actions taken—a meeting over a dining room or coffee table will often prove less productive than one in a boardroom, unless you exude great discipline and focus!

When you are working from home, it can also be hard to get into “work mode” if you don’t set a routine and stick to it. The first two years of doing my online teaching business full time, I worked in my loungewear or gym clothes, which often didn’t come off until I went to the gym around 6 P.M.—then back to loungewear. The only time I put on real human clothes was for conferences or for television segments.

It is also, of course, much easier to feel isolated at home, particularly if you are a business of one. As I stated earlier, the walls of my loft and my computer screen were all I saw for hours and days and months on end, with my only interaction with others being that of the random front-desk staff at my local gym, and my husband when he got home from work. Now that I have consistent contractors,

I actually have someone to talk to during the day, bounce ideas off, laugh with, strategize with, even have lunch with when time permits. Life is a little less lonely this way. They always say life is lonely at the top—if that is the case, I must have been on top! Since I wasn’t, suffice to say it can be lonely by yourself in your home office!

Office-based businesses also have their downsides—commutes, for one thing. Hopefully, if you do select an office, you select one close to home; but you may have to select one close to your clients, and the two may not be the same thing. Office-based businesses, particularly small rented suites, may also give you luxu­ries like a shared administrative assistant, cubicles if needed, conference rooms, mailing services, access to technology (fax machines, copiers, etc.), and so on.

An office is often more expensive, however, and is another added cost to your startup, which you may not be able to afford immediately. Sometimes entrepre­neurs start at home, and when they get too big they move into an office. This is a great alternative, particularly if accommodating your growing office needs would mean moving to a much more expensive home. However, you won’t have your work at your fingertips should you need it, and rolling into work in your pajamas isn’t quite as easy!

2.3. Tax Implications of Your Business Location

There are tax implications for both choices. Home-based business write-offs are determined, in general, by the percentage of your home that is used for business. Take the square footage of the business portion, and divide it by the total square footage of your home. This gives you a percent of the home used for business. Then figure out what percent of that is used purely for business and not for fam­ily sharing (like e-mailing). Here is an example:

2000-square-foot home

200 square feet used for office space

10 percent of the home is used for business purposes

Of that, you spend 60 percent of your time doing work things in that space and 40 percent of your time doing personal things in that space. Sixty percent of 10 percent is 6 percent—so you can write off 6 percent of your home expenses.

What are home expenses? Mortgage interest. Association fees. Insurance. Utilities that are commonly shared with the house. And so on. If you use a sepa­rate phone, that is fully deductible, too.

Again, talk with a tax accountant on this because home offices are one of the big­gest reasons returns get audited.

If you are an office-based business, then all costs associated with rent, utilities, and so on will go on various lines on your Schedule C of your 1040 tax return.

Source: Babb Danielle (2009), The Accidental Startup: How to Realize Your True Potential by Becoming Your Own Boss. Alpha.