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posted: 7/7/2013 6:37 AM

Work Advice: 'Biz With Friends' is a dangerous game

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Q: A friend of 15 years and I started a side business a year ago. My friend referred me to my first client and told me she would help out for half of what I charged the client. At the end, the client told me I was more professional than my friend and that it was obvious I did most of the work. With each new client, my friend has done less and less. With our most recent client, I handled all of the client contact from the initial consultation onward. Afterward, my friend asked for her 50 percent. I don't think she is entitled to it and don't plan on giving it to her.

We have no written agreement regarding our business relationship. In addition, she has never put any money into the business, whereas I have invested in marketing and overhead. I have tried talking to her, but she doesn't seem interested in the business. I am now looking into operating on my own as a legal entity and have applied for an employer ID number. I have not discussed this with her and really don't want to. How can I sever our business relationship without destroying our friendship?

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A: This is the sort of situation all those group projects in school were preparing us for. And, if you're going to be a business owner, it's the sort of situation you are going to have to master: diplomatically ending professional relationships with people you dread dealing with. Granted, the impossible clients and unreliable vendors you will encounter in the future might not be friends, but how you treat them will affect your professional reputation.

I hope previous talks with your friend were explicit: "When you said you'd help out, I thought you'd be contributing more. But since then I've been investing most of the time, labor and capital, so I don't think a 50-50 profit split is fair any longer." If you've instead let this ant/grasshopper business plan go unchallenged, I can't entirely fault her for thinking she's owed an equal share.

Your next talk should be even more straightforward: "I appreciate your help getting started, but I've realized I work better on my own." And you should give her half of that last payment (less documented expenses). She may or may not be entitled to it under your nonexistent contract, but winning that argument almost guarantees losing the friendship.

By the way, before you hang that new shingle, I suggest you retain a business attorney and an accountant. If you handle taxes and contracts as casually as you seem to have handled starting this business, you could lose more than a friendship.

• Karla L. Miller has written for and edited tax publications for 16 years, most recently for the accounting firm KPMG's Washington National Tax office. You can find her on Twitter, @KarlaAtWork.

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