Business Partnerships

If you want to do business with friends—here’s how to do it.

From Profit-building strategies.

The business idea you‘ve been discussing with a friend sounds better and better. The next step seems obvious: “Let’s work on it together.”

A hand shake, a glow of good fellowship and you’re off. But do you have a winning combination? Perhaps. Unless the business relationship is carefully spelled out, you could end up losing money— and your friend.

Case in point: Two friends bought a piece of property. They got it at a good price and looked forward to a handsome profit.

Then an emergency arose.

One partner had to sell before the agreed upon time. The two had only vaguely discussed that possibility and started arguing about what procedures to follow procedures that should have been clearly spelled out before they applied for the mortgage.

The situation was finally resolved. But only after each partner had incurred needless legal expense and lost a longtime friend.

The situation can be just as touchy when using a friend’s professional services. “The fee seemed high,” said a publisher who hired a friend’s law firm to draft  a book contract, “ but I was reluctant to challenge it because I didn’t want my friend to think I was cheap.”

Without a doubt the publisher would have discussed the fee with a stranger and probably would have gone elsewhere had the matter not been resolved to his satisfaction. But since, he was dealing with a “friend,” he was silent. Now the friendship is clouded because he feels he’s been taken.

Beware when friendship distorts the “mutuality of respect and advantages” in the business relationship, warns Professor Stuart L. Meyer, who teaches courses in new ventures and entrepreneurship at Northwestern University Graduate School of Management .Once friendship gets in the way of business , you could find yourself facing many problems.

Like the publisher, you might not apply critical standards to a friend as you apply them to someone you know only through business. As a buyer, you might expect special price breaks from your friends; as  a supplier , you might expect unwavering loyalty from your friends.

This doesn’t mean you should never do business with friends. But you must exercise caution. As Professor Meyer implies, requirements of friendship must take second place to requirements of sound business practices.

Going into business with friends. The key here is to keep the channels of communication open. You can usually resolve potential conflicts if you anticipate and discuss them. People often break up because they don’t understand each other’s expectations or needs.

There is no substitute for the paper describing the deal between you and your friend. It needn’t be a formal contract; a letter of agreement is sufficient. But that letter should cover the scope of the project, time-table, and remuneration, where the work will be done, and procedures for settling disputes, such as appeal to a mutually respected third party.

If either of you deviates from the agreement— for example, there’s an unexpected delay in completion or an extra charge for some service or material—you should tell the other immediately. Never presume friendship lets you do something you wouldn’t do with a stranger.

One consultant always drafts a letter of agreement when he works with friends. “If they say, “We’re friends, let’s just shake on it,’ I tell them the letter will protect both of us. If they still won’t sign, I might not work with them.”

Can customers be friends?

Top sales people often say their customers are their friends. The kind of friendship they mean doesn’t include after-hours social contact. It’s cultivated during business hours only. If it leaves the office at all, it’s only as far as the lunch table.

Smart salespeople know that too much friendship in a salesperson-customer relationship can turn into a disaster.

Another expensive consequence of putting friendship first is that you may have difficulty doing what comes naturally—asking for leads, because you don’t want to put pressure on the friendship. Thus, an important source of possible new business could be lost.

All salespeople have occasionally differences with their customers over the size of orders, product conditions upon delivery, service or performance, payment schedules. A good salesperson works hard to resolve those differences. That requires bluntness and straight hard talking.

Lending money to friends.

When a friend asks for business loan, he or she is putting you into a difficult position. Lending money to a friend’s corporation is especially hazardous.

Wesley Geer worked for Oceans West Development Corporation. Ken Farquhar was his immediate superior, majority stockholder and president. One day Farquhar confided to Geer that he needed $2000 to meet the payroll.

Wishing to save his own job— and the friendsip –Wiseley gave the cash to Farquhar who then used some of it for payroll and the rest for other corporate debts.

Geer thought he’d protected himself when he asked for a promissory note with “both signatures” on it. Farquhar gave him his signature followed by  a dash and the name of the company.

Time passed, and Geer founded himself suing for his money. When he obtained a judgment against both the corporation and Farquhar individually, Farquhar appealed, claiming he’d signed the note as a corporate officer and therefore wasn’t personally liable for repayment of the note.

But the court found that the note was ambiguous. Farquhar hadn’t indicated he was signing in a representative capacity and Geer hadn’t seemed to it that Farquhar signed as an individual. In such ambiguous situations, said the court, the intention of the parties’ controls. The Supreme Court decided that Geer had intended Farquhar be individually liable.

Geer was lucky. Farquhar had wanted to sign as a corporate president, but he didn’t clearly say so. Had he made that clear, Geer would have had the almost impossible task of trying to collect from a failing company.

The message is clear. Protect yourself by being specific.

~ Contributed by spooky.