SETTING up in business with a friend can be a recipe for personal and professional disaster.

According to research from Bibby Factors Northwest, one in five small business owners have lost a friend through business dealings.

Despite these findings, almost a quarter of people still feel more comfortable doing business with people they know well.

David Hinder, sales director at Bibby Factors, said: "It is important to bear in mind that just because someone is a good friend, it does not mean that they will make a good work colleague.

"Choosing your business partner is as important as choosing your life partners and requires considerable thought and planning before you take the plunge."

Bibby's research shows that personal conflict can have a devastating effect on a small firm's stability, potentially leading to serious financial difficulties, unpleasant legal disputes and a wrecked livelihood.

However, by laying the correct foundations when setting up in business, the chances of things turning sour can be reduced. Bibby Factors has developed the following guidelines:

Pick the right partner. When choosing a business partner, you need to be sure that they have the same values and attitudes to work that you do.

Pool your strengths. You need to determine what each of you is bringing to the party.

Establish your legal status. In a partnership, each partner is legally responsible for business debts incurred by the other.

You should draft a partnership agreement setting out each party's rights and obligations.

Put it in writing. Your partnership agreement should be drafted by a solicitor and include areas such as finance, roles and responsibilities, benefits, notice periods, disputes and what happens in the case of incapacity or death.

Insure against the unknown.

Consider taking out life and critical insurance on each partner to provide a fund to buy out the other's share in the event of a partner becoming incapacitated through illness, injury or death.