If the four friends had come to me before starting their night market business, I would have advised them as follows:

Steps to take before money changed hands

1. Develop a business plan. This would have helped the friends to clarify their vision for the business, identify their target market, and develop a strategy for success. The business plan would have also been helpful in defining the roles and responsibilities of each partner.
2. Create an operating agreement. An operating agreement is a legal document that outlines the ownership structure of the business, the roles and responsibilities of the partners, and the procedures for making decisions. It is important to have an operating agreement in place, even if it is not required by law.
3. Discuss ownership stakes and profit distribution. The friends should have discussed how they would divide ownership of the business and how they would distribute profits. They should have considered factors such as the amount of money each partner contributed, the time and labor each partner committed to the business, and the skills and expertise each partner brought to the table.
4. Choose a business structure. The friends should have chosen a business structure that was appropriate for their needs. An LLC is a good option for small businesses, but it is not the only option. Other options include partnerships, S corporations, and C corporations.

Is an LLC the best option?

An LLC is a good option for small businesses because it offers limited liability protection to its owners. This means that the owners are not personally liable for the debts and liabilities of the business. LLCs are also relatively easy and inexpensive to set up and maintain.

However, there are some disadvantages to LLCs. For example, LLCs are not considered to be separate tax entities, so the owners are personally taxed on the profits of the business. Additionally, LLCs can be complex to manage, especially if there are multiple owners.

Other options

If the friends were concerned about the complexity of managing an LLC, they could have considered other business structures, such as a partnership or an S corporation.

A partnership is a business structure that is owned and operated by two or more people. Partnerships are relatively simple to set up and maintain, but they do not offer limited liability protection to their owners. This means that the partners are personally liable for the debts and liabilities of the business.

An S corporation is a type of corporation that is taxed like a partnership. S corporations offer limited liability protection to their owners, but they are more complex to set up and maintain than LLCs.

Valuing non-cash contributions

When valuing non-cash contributions, such as time and labor, it is important to consider the fair market value of the services being provided. For example, if Adam was working on the events full time, his contribution would be worth more than the contribution of Duane, who was only able to provide limited support.

One way to value non-cash contributions is to use the hourly rate of a comparable employee. For example, if Adam would have been able to earn $20 per hour working another job, his contribution to the business would be worth $20 per hour.

Another way to value non-cash contributions is to use the percentage of time that each partner is contributing to the business. For example, if Adam was working on the events full time and Duane was only able to provide limited support, Adam’s contribution would be worth more than Duane’s contribution.

Conclusion

If the four friends had come to me before starting their business, I would have advised them to take the following steps:

• Develop a business plan.
• Create an operating agreement.
• Discuss ownership stakes and profit distribution.
• Choose a business structure that is appropriate for their needs.
• Value non-cash contributions fairly.

By taking these steps, the friends could have avoided many of the problems that they are now facing.

Additional tips for friends starting a business together

• Be honest and upfront with each other about your expectations.
• Communicate regularly and openly.
• Be willing to compromise.
• Respect each other’s skills and expertise.
• Be prepared to put in a lot of hard work.

Starting a business with friends can be a great way to achieve your goals, but it is important to do your homework and be prepared for challenges.