Dealing With Friends in Business - How to Get Paid
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A reader of my weekly newsletter approached me with a question which is common to many small businesses. Here was his problem and how I thought he could tackle it.
“I am a one man business in the labour consulting field, I have a small regular clientele who are more personnel friends. However every month I struggle to get my payments from them. I obviously do not want to get too heavy handed due to the risk of losing their custom but on the other side the lack of payment or the late payments is creating a cash flow problem for me. How do I get through this one?
Your suggestions or advice would be greatly appreciated.”
Sound a familiar problem? Well, here is how I think he and you could address this sort of commons issue.
You are dealing with an issue facing many start up businesses – your first customers are sometimes friends or family and therein lines a number of problems:
1. You can feel that you should be eternally grateful for they help and support in assisting your start up
2. You can feel obliged to stretch that gratefulness to the point where it hurts your business
As you are finding out the time has to come when you must break away from the original terms of business and put dealings on a more firmer, business-like arrangement. The trick of course is how to do this without thinking you may lose not only their business but their friendship.
So the first step is to acknowledge the fear that you have in the back of your mind about the potential loss of business. Having acknowledged it, accept it as a possibility – welcome to the real world! During your business life you are going to lose clients along the way – you may as well test your reaction now instead of later!
This acceptance of the possible loss of business is an important and essential first step. Without this what you have to do next will never happen and the problem will remain.
Now to tackle the problem. You have to be open, honest and transparent with your friends; this is the crux of what follows next.
Step One: Acknowledge how their support has been invaluable in getting you started.
‘John, I’ve got something important I need to discuss with you. Before I start I want to say how instrumental your support has been in helping me get my business off the ground …’
Step Two: Outline the present situation.
‘As you know as we have been friends we have both been flexible where payment terms on invoices are concerned. I’ve been pleased to do this because of your support.’
Step Three: Outline the problem the present situation is causing.
‘As the business is growing my cash demands are becoming bigger and so cash flow is getting harder to manage. The flexibility around payment times is now getting more difficult to control.’
Step Four: Outline your idea scenario.
‘Now that the business has become more established we need to put some discipline around settlement terms and so ideally I like to see any invoices settled as promptly as possible.’
Step Five: Outline the action and final outcome which you feel is fair.
‘Can I suggest that from next month we agree to settle within say 10 days of invoice of date and then 5 days the month after? This will give you some time to make any adjustments on your side. How does that sound?’
Can you see the progression here? We have outlined the present situation; outlined the impact it’s having on you and the business; come up with your ideal outcome; and finally come down from that to suggest a phased approach over a few months.
In tackling problems many people go straight to Step Five. The build up and setting the scene is vital. Once the problem is understood by the other party the solution is easier to arrive at. It may be a straight ‘yes’ or it will be a great place at which to negotiate a way forward.
If your friend walks away, well do you really want to be doing business with that type of person anyway? However, you may be surprised to find them agreeing immediately. They may not taking advantage; it’s just you’ve never pushed and so they become unknowingly relaxed. You may get a ‘Stu, no problem. Why didn’t you tell me before?’
Who knows, in reality this problem may not be a problem at all. You may be making it into a bigger issue than it actually is. Being up front, honest and transparent will bring this to a head.
Below this problem though is a deeper problem, which I’m sure you are aware of. Your fear of losing the business is because you have no one else to fall back on. Your customer base is too narrow. This has to be a wake up call to get out there and canvas new business … but that’s a different question again!
© Small Business Success
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Article Published/Sorted/Amended on Scopulus 2007-01-16 00:08:10 in Business Articles