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An Idiot-Proof Guide to Doing Business with Friends

Posted by & filed under Entrepreneurship.

The other day, my head exploded. An Idiot-Proof Guide to Doing Business with Friends

That’s what it felt like, anyway.

I received an email from a young singer-songwriter friend of mine who “hired” a videographer friend of mine on my recommendation.

Everything was fine until I reached the following paragraph in the email (I’ve changed the names):

I wanted to get your opinion on a matter regarding the video. Tom has set the price at “whatever you can do” but I want to make absolutely certain that he feels appreciated and knows that he did not waste his time.

Do you have any advice?

 

I immediately wanted to clunk these guys’ heads together. This is a classic example of the #1 reason why business between friends so often fails or creates hostility:

A lack of what I call “Cash Clarity.” Here’s the overly simple definition:

Creating certainty in all parties involved in any business transaction on the specific amounts of cash, payment, fee, etc. before any business takes place.

After discovering the complete and total lack of Cash Clarity between these two guys, here is the response I sent:

The advice is—you should’ve never agreed to do that. Tom should never agree to do that. That is a half hearted way of doing business. Creates uncertainty for everybody. Nobody knows what to do. Hence, here we are.

In this case numbers do speak louder than words. Always concentrate on getting the number first. Especially if it involves money. If you don’t do it first—it’s too late. If you don’t do it first, you’re guaranteed that somebody’s going to feel bad. Both of you are too high up on the pyramid of life to create bad feelings for anybody.

Both of you need to learn this lesson now and forever. To make that point perfectly clear, offer him $10. Send him a check for $10 and say here’s what I can do. I guarantee you this will never happen again. I believe you will learn your lesson and Tom will learn his.

The going rate a year ago (that I paid) for a finished video that was shot and edited, was $1,000 an edited minute. Your video is supposed to be 90 seconds. That would be $1,500. I’m sure that’s not what either of you had in mind. Now do you see how you need to start talking with numbers and not feelings? I have never been able to deposit a bag of feelings at the bank.

 

Talking about money is hard enough. Throw friends (or, in this case, even friends OF friends) into the occasion and things become downright impossible for most people.

Cash Clarity, however, will make just about all the usual worries go out the window. How do you achieve it? There are four simple steps:

 

Step 1: To Free or Not to Free

There is no “do what you can.” At the very beginning, you either decide if it’s free or not free. If it’s not free, you then decide how much. Immediately. It’s that simple.

Step 2: Get Specific

The word “around” should not appear before the agreed-upon price. There should not be a range of prices. There should be one final figure that both parties feel good about.

If that figure cannot be found, you should walk away.

Step 3: Prompt Payment

After arriving at the agreed-upon price, both parties must be crystal clear on what the payment process will look like.

Is anything to be paid up front? Will it be paid in full immediately upon the project’s completion? Do they accept online payments?

When you have agreed to the terms, honor them. Don’t pay the day after you said you would. In fact, pay early if you can.

Bottom line: don’t make the other person have to chase you down to get paid.

Step 4: Over-Deliver

In the email exchange above, Tom was filming a video for my singer-songwriter friend (we’ll call him John), making John the client in this scenario.

But that’s not how I advised John to look at the situation. Here is the exact response I sent to him after he informed me that he and Tom talked and agreed on the $10 payment I suggested as a lesson for them both:

Hey, John!!!

Would you like to take this to the next level and really WOW everybody and yourself? Consider sending Tom an Amazon gift card. This can be done with a physical card or simply an eCard. This is in addition to the $10 check you are sending today.

No one should get short changed by this situation. You can send it for $50 or $100. At this point, the value is not as critical as the thought. I want you to feel like you did not take advantage of anybody. And we certainly do not want Tom to feel taken advantaged of. 

Remember, he is your client. Most of the world would think you are the client. But you must turn that around. You must wow your clients to keep long-term relationships.

Know this lesson is for both of you. So each of you must take full responsibility for this situation.

Even at $100, Tom is not getting fully paid or compensated for his time, energy, and effort.

You want Tom on your side. Tom wants to be on your side.

Always tilt the balance toward the other person. Add all the value you can in every situation with all people concerned. Make sure the Win/Win is always in the other person’s favor. When you do this, you will never lose and will be blessed beyond belief.

 

This client philosophy you can apply to every business relationship, regardless of the level of friendship—the other person is always YOUR client.

I’ve done this with everyone from the company that cuts my lawn to the companies that publish Andy Andrews’ books. And you know what? Something strange happens…they always seem to go above and beyond with their work!

Is this post resonating with you? Click here to tweet this: The secret to taking the awkwardness out of doing business with friends: http://bit.ly/1dUrqyK

At some point, you’re going to encounter an opportunity to do business with a friend. All you have to remember is that it IS possible to avoid the mistakes that doom so many other long-term friendships and business relationships.

All you need is a little Cash Clarity.

In case you’re curious, John did send Tom a $150 Amazon gift card and a $10 check. Both parties remain friends and continue to work together.

What’s the biggest mistake you’ve made when doing business with friends? What did the experience teach you?

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  • David Mike

    Nothing can compete with the uncomfortable feeling of waiting for payment from someone you know. Take care of business first before you do business! Good call Robert.

  • http://www.jasonkoscinski.com/ Jason Koscinski

    I made this mistake myself with a good friend. We back-tracked and worked it out. Now every deal is clearly defined up front before any work is done. Important topic. Good advice.

  • http://mnhometown.com/blog Jake Olson

    What do you think when there’s a mismatch between what a company can pay and what the friend contractor is worth. I have a friend who’s a high-caliber graphic designer and another who is an amazing WordPress coder. Our company generally operates on more of a shoestring budget, hiring amateurs or off-shoring for these kind of things, so I pretty much always assume I can’t afford these guys because their work is so high quality and client lists so impressive, but at certain times on certain projects, I think I should at least give them a chance to turn it down.

    • http://therobertd.com/ Robert D. Smith

      Great question, Jake! The bottom line is that, right now, you are doing nothing more than assuming these projects aren’t a good fit for your friends. The only way to find out is to ask. If you do, a great move would to use that phrase from the end of your comment: “I wanted to at least give you the chance to turn this down.”

      Be upfront, respectful, and let them know that it is 100% fine with you if they pass.

      • http://mnhometown.com/blog Jake Olson

        Thanks Robert! that’s very wise. Love your blog.

        • http://therobertd.com/ Robert D. Smith

          Thank-YOU for reading, Jake! It was good getting to hear from you.

  • http://EvaPScott.com/ Eva P. Scott

    Then there are those who state upfront how much they want, then add to it later because it took longer than they thought it would. I still felt taken advantage of and no longer do business with them.

    I refuse to do business with friends now.

    If you are on the side of the one who is stating how much you are willing to accept, stick to that price no matter how long it takes you to finish the project. Unless you don’t value the friendship.

    • http://therobertd.com/ Robert D. Smith

      Ugh. That’s the worst, Eva. A great thing to remember for those doing the charging.

  • http://www.jasonkoscinski.com/ Jason Koscinski

    Question: My attorney friend encouraged me to have my contractor friends (graphic artists, coders) to sign and agree to a Work for Hire Agreement. Basically the work they create for me and my clients is technically owned by me or my client and not them. I really had a hard time asking my college buddy to sign the contract. I did. Then I tore it up. Ideas?

    • http://therobertd.com/ Robert D. Smith

      Jason, my advice is to listen to your attorney friend. :-) Just about any time I hire someone (friend or not) to create something, I ALWAYS make sure I own the work. There is nothing wrong with that. Even if you think you’ll have no reason to use what they’ve created ever again, even if you trust the friend 100%, you’re better safe than sorry.

      I would find some tape to put that contract back together if I were you! :-)

      • http://www.jasonkoscinski.com/ Jason Koscinski

        got that!

    • Chris Eckhardt

      I second Robert’s advice. In the professional world it’s understood that when the client pays, they’re buying the work, rights and all. It can sometimes be hard for freelance creative folk to see their work as a product, but it works out much better for everyone involved.

      You may want to offer a clause that allows them to use the work they create in a personal portfolio though (assuming your clients are ok with it). That would be nice.

  • Jim

    Over Christmas, a friend from work mentioned that he was having a hard time selling his oak pool table. He didn’t really want to sell it, but the room it was in wasn’t big enough, and they only used the table for folding laundry. He bought it for $2,600. Five years later, when he decided to sell it, he asked for $1,000 (which included a paid-for professional move), but didn’t get any calls. He changed the listing to $500, with no move, but still wasn’t getting any action. I asked him a little about it, and he said, if you wanted it, I’d sell it for $300. I told him to check with his wife and if she was OK with that price, to consider it sold. We struck the deal, and as we were leaving for the day, I overheard that two or three other people called about his ad, and he told them it was sold. When I went to pick it up, it just didn’t feel right to take it for the $300 we had agreed on, so I just wrote the check out for $400 as a surprise. He was very happy to accept it. Even at the higher price, we both ended up with a better deal than we expected.

    • http://therobertd.com/ Robert D. Smith

      Loooooove this, Jim. An awesome gesture on your part! Always look to overdeliver!

  • http://www.jmlalonde.com Joe Lalonde

    Great discussion Robert. When I was running my computer repair business, I struggled with what to charge and often came to the Whatever you can afford/want to pay line. It never felt right, I usually felt cheated. So I’m with you. Set a price and deal with it.

    • http://therobertd.com/ Robert D. Smith

      Definitely a valuable lesson every entrepreneur learns at some point, Joe. Thanks for sharing!

  • http://www.stephenmelancon.com/ Stephen Melancon

    Robert, this is probably the best advice I have seen on how to handle business with family and friends! I love the concept of “tilt the balance towards the other person”. Now for my story:

    Many years ago (back in the 1900’s), I was selling a car from when I was in college. The car was in good shape, but only worth about $800 (my intended selling price). I mentioned that I was selling the car during a family get together, and one of my family members said that their son would want the car. To which I replied “Great! Consider it his. Just tell him to call me and we’ll work out the details.” It all seemed so easy and innocent…. So when he called, I decided that I would lower the price to $600 since he was family. He said him mom told him about the car, and I said he could have it for $600. There was a long pause… Then he said “my mom told me you were going to give it to me”. This is where things went down hill. In the end, he bought the car for less than I wanted to sell and there were awkward interactions by all for months.

    After reading your post, I realize that I should have told his mother on the first interaction “Great! I’m selling it for $800. Have him call me if he wants to buy it.”

    • http://therobertd.com/ Robert D. Smith

      Sometimes, family can be even more awkward than friends, Stephen! Thanks for sharing! Huge lesson learned for all, I’m sure.

    • SRK

      Whenever I’m told that something “is yours”…until I have the item and they turn down any offer of money, I don’t assume it’s free. Sounds a bit pessimistic, but it saves me from disappointment and usually leaves me very happy in the end. …not that this would’ve help you in your situation since you were on the other end. But it’s something for other’s to keep in mind.

      • http://www.stephenmelancon.com/ Stephen Melancon

        I agree with your approach. It’s better not to make assumptions. I don’t think that is pessimistic, I would call it more “managing expectations”. Thanks for the reply.

  • Chris Eckhardt

    Robert, this is great.

    I was just in a very similar situation, but instead of the cash, which we decided up front, it was the details of the work that were too vague. I was building a website for a friend and it got to the point where so much was being asked for that I felt taken advantage of. I had to send them a creative brief halfway through the project to outline exactly what the scope of it was (pretty embarrassing). I now issue a creative brief for EVERYTHING before the work starts, even for free work.

    • http://therobertd.com/ Robert D. Smith

      Thanks Chris! The process of building a website involves sooooo much more than most people realize. Smart move with the creative brief!

  • Brandon Triola

    Great post! I feel like this goes for doing business with family as well. Uncertainty is never good.

  • http://www.callbox.com.sg/ Dara Lin

    It’s hard doing business with a friend. You have to get calm and trigger for always nice attitude to not hurt their feelings if you have to say something about their work. When it comes to money matters it may cause disappointments paying them less with what they’ve done. Better to settle everything before accepting.