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Doing Business with Friends

Just last night I watched a television commercial which featured several people who own their own small business (really small, like one-person shops or a business with fewer than five or six people). They talked about their customers or clients who were just down the street.

Their experience got me thinking that their clients can easily be people they know outside of a work relationship. They may, in fact, also be friends. Doing business with friends adds to the complexity of the relationship. It's harder to ask for money from a friend. It’s the primary reason we counsel people not to lend money to friends. Getting paid back can be risky, and resentment over an unpaid debt often ends up ruining the friendship.

In business when you do work for someone and they owe you money for that work, they have, in essence, borrowed from you and now owe you. Businesspeople will tell you that clearing accounts receivable is one of the nastiest, most unpleasant parts of being in business. Many businesses actually build in an expense line in their budgets to account for people who don't pay their bills.

Now, add in the complication of the client being a friend and the money problem gets even trickier. Yet, in spite of that complication, people do business with friends. Here are three tips to help make that business relationship successful, help you keep the friendship and still get paid for your work.

  1. Bids. Make sure you spell out the scope of the work very carefully. When dealing with a friend, the danger is to be loose with how the work is defined. That lack of specificity is the start of having the work not go well and payment may not be commensurate with the work done.
  2. Contract. When you go to a service area for work on a car, they routinely look at your vehicle and then give you an itemized proposal for the work that needs to be done. You sign on the dotted line for that work. Similarly, you need to draw up a work order, a contract with your friend that identifies the work, the deadlines, and the payment schedule for the work. Have your friend sign the contract to indicate his agreement to its conditions.
  3. Payment. Getting paid is the hard part, especially when a friend drags her feet. It's amazing how fast money can become a problem between friends. Be firm, but not angry in any communication with your friend. One option to help mitigate the problem of payment at the end of a job is to have payments due at specific completion points throughout the job.

Finally, even though this is your friend, avoid the temptation to make any promises that you can't deliver on. It's better to say “No" up front than risk serious harm by not delivering
what you promised.

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