I’m going to be blunt.  The best solution to the problem of how to navigate the dangerous waters of hiring a friend is just to avoid it.  It’s hard, and it doesn’t usually end well.  I hired a good friend early on in a former business, and it was much harder than I thought it would be.  He ended up not having the skills I thought he did, and I ended up unable to afford to keep him on.  For the longest time, his parents refused to speak to me.  We’ve since mended fences, but it would have been better for our friendship and better for my business if I’d never hired him.

That said, I know that some of you will hire your friends, and here are some ways to improve your chances of making it work:

Never do a 50-50 partnership, at least not at first.  

50-50 feels all nicey-nice, but it sets up potentially catastrophic consequences.  You’re much better off structuring the deal so that each of you receives equity for effort over time.  I advocate starting each partner off at 10% ownership and evaluating the business – and what each of you has brought to it on a regular basis (quarterly works well) based on predetermined metrics.  Instituting a schedule and agreeing on the terms ahead of time lets the changes in the agreement be determined by objective – rather than subjective – means.

Set a clear distinction between business and personal matters.

One of the reasons that it’s so hard to successfully employ a friend is that friends relate as equals, and employers don’t relate equally to their employees.  It’s an inherently difficult transition.  If you’re going to hire a friend, I suggest making it clear that since both of your livelihoods depend on your new business relationship, that putting your social relationship aside might be necessary.  You may think it’s an extreme step, but it can make all the difference.

Make expectations crystal clear.

The problem with hiring a friend doesn’t arise until something goes wrong, and then good luck finding a way to discipline a friend whose job performance is unacceptable.  The key here is to outline your requirements and the consequences if they’re not met – ahead of time.  Rather than having to find a way to tell your friend that he’s not measuring up, let your objective standards speak for themselves.  Being clear ahead of time saves headaches later

Prepare for strong emotions.  

Since you share the same social circle as your friend, you will find that it’s difficult not to become too competitive with your new employee – a problem you don’t have with the rest of your staff.  This competition can create stronger emotions than you’re used to, and you need to agree ahead of time on what you’ll tell your group of friends should things not work out.  It may feel like a prenup, but that’s okay.  Taking steps to preserve your business and its reputation before problems arise is prudent for both you and your new hire.

Decide if it’s worth losing your friendship.  

The most common outcome for entrepreneurs who hire friends is that it ruins the friendship.  If you’re not willing to lose the friendship – even if the relationship sours despite your best efforts to preserve it – then you shouldn’t make the hire.  If you bring a friend on board, you have to be prepared to make the decision to save one or the other if necessary.  Everyone thinks that it won’t happen to them, but the numbers don’t lie.  Preparing yourself for the worst case outcome (while hoping for the best) helps you make a clear-headed decision.

Can it work?  Yes.  Is it likely?  Unfortunately, not.  My advice is to avoid hiring your friends.  If you absolutely must, then you need to prepare yourself – sort out how you’ll handle potential problems and resolve disputes – in order to increase your chances of success.  Weighing the importance of your friendship against the importance of your business – your livelihood – can be difficult, but you’ll find that if you avoid being realistic and honest with yourself, it will cost you more in the long run.