by Joel Barretto, CFP® | Negosentro.com |
I was recently asked to intercede and provide some coaching in a business partnership consisting of people who are friends and family with one another. The partnership was less than a year old, yet there were a lot of misconceptions about how the business was being run, not to mention people’s motives. The business was on the brink of failure, needless to say that their relationships were about to fall apart.
Upon consulting with the individual partners, it became clear that the hindrance to their success was due to lack of proper communication, systems, and organization.
My Mom always used to say that “money is the root of all evil.” I’d hate to start this on a negative note, but the number one rule should be… If you can avoid doing business with family and close friends, then by all means DO!
I have seen too many relationships destroyed by money, for the simple reason that they did not follow the right protocol in dealing with family and friends.
Fact of the matter is; a lot of times it can hardly be avoided. In times of dire need or when you get a brain fart on a lucrative business; the first thing you think about is someone within your network. So if you’re going to solicit funds from family or friends, follow these simple rules to help you keep those relationships intact:
- Always in writing - People have this misconception that because you’re dealing with someone you have known all your life, it’s not necessary to put it in writing because there’s trust. WRONG! All the more reason you should put everything in writing. If it’s a business proposition then have a business plan and contract. If it’s a loan then have a promissory note.
- Be clear and direct to the point - It’s important to fully disclose everything and go over the details of the investment or loan prior to signing anything or before money changes hands. Trust me, the discussions are not very pleasant after the fact. This is where most of the problems start. This is also where you see a different side of that person you thought you knew so well.
- Keep all lines of communication open – The key word here is “communication.” No one likes being left in the dark when their money is concerned. Don’t wait to be asked about what’s happening with someone’s loan or investment.
- Empathize – Always put yourself in the other person’s shoes. Ask yourself how you would react and what questions you might have for someone proposing and investment or loan to you. This will help you anticipate a lot of their questions.
- Don’t ASS-U-ME anything – This goes back to the old adage “too much familiarity breeds contempt.” Don’t assume you know someone well, especially when it comes to money.
- Don’t make promises or guarantees you cannot deliver - Quite self explanatory, don’t you think?
- Understand the difference between a guarantee and a promise – Guaranteeing something means you are willing to back it up with something of value to you (i.e. collateral). Meanwhile, a promise is simply backed by your integrity and honor. Either way, both are very strong convictions, so make sure you use it sparingly and in proper context.
Sounds about the same rules as in doing business with a perfect stranger? Well duh, it is! Don’t take your relationships for granted. It’s not worth it!
Joel Barretto, CFP sold his financial planning practice in Irvine, California U.S.A. to promote financial literacy and awareness in the Philippines. He is a respected Certified Financial Planner practitioner with over 24 years of experience in helping people optimize, manage and protect their wealth.
He is a public speaker and lecturer on a variety of financial planning issues and strategies. With a passion for entrepreneurship, Joel dabbles in venture capital projects and mentors up and coming entrepreneurs on growing their start-up companies. He is a 2nd degree black belt in the martial art of Kempo and enjoys performing and directing stage musicals for community fund raisers. You can reach Joel at email@example.com.