Doing Business with Friends

by Rebekah Rhys

Have you ever heard the popular warning: Never do business with friends? When you own a business, it’s inevitable that you’ll know and be friends with other business owners and entrepreneurs. And undoubtedly, somewhere along the way, your business and your friend’s business might choose to do business with each other. (Ten points for throwing the word business into a business blog.)

In today’s world, business with friends is often not clear-cut. But that doesn’t necessarily mean you should never do business with friends. I have had plenty of work opportunities over the years where I’ve been referred to an employer by a friend, or I was hired by a friend, or I referred someone I knew well to various employers. Some of those experiences have gone really well, and some of them haven’t. The one common thread involved in transactions with friends that can make them successful or not is: Expectations.

In any kind of business relationship we have expectations of the product or service we’re providing or receiving. When we do business with friends, we have conflicting expectations: We simultaneously want a higher level of service (i.e. special favors or deals) but often value our our friends’ or friends’ companies’ capabilities at a lower level than our expectations of a business we don’t know at all. I like to call this the “prophet in his hometown syndrome.” For whatever reason, we often underestimate our friends’ business prowess because we knew them when they were a pimply freshmen in high school, for example.

So in this mixed up world of wanting to hire someone you trust to perform a service, juxtaposed with conflicting expectations of that person’s goods or services, we have a dilemma. How do we have a good business transaction while still maintaining the friendship that led to the transaction? How do we get past the personal stuff and move into into the space of finding true benefit for our businesses by hiring our friends?

In my experience, there are two simple guidelines to working with friends:

1. Check your motivation.
When hiring a friend, first consider: “Am I doing this so Karen will feel grateful to me later on?” Or, ”Am I doing this because I’m hoping to get a deal and not have to pay full value?” If so, don’t hire your friend. Your friend is in business to provide for their family and for their employee’s families, while delivering a great product or service. If you feel like your friend owes you a deal because of your friendship, what you’re not considering is that there are may be multiple people (and their families) at your friend’s business who will also be affected. Most people won’t want to help a friend if it may cause their family and coworkers to suffer.

Also consider outlawing the following phrases:
“It’s just a quick _________”
“Well, he can afford to give that to me. Have you seen his house?”
“I supported her when she was starting out, so now it’s her turn to give me a favor.”
“Well I wouldn’t charge them if they hired ME for a job…”

Instead try:
“What can I bring to the table that may be of benefit to them?”
“Can I negotiate pricing for this project without it feeling personal?”
“Will I be ok with whatever price is negotiated without feeling wronged or slighted?”

2. Get it in writing.
9 times out of 10, friends doing business with friends feel that getting something in writing feels strange, unnecessary, and makes the whole process feel very formal.

However, 9 times out of 10 this feeling is wrong. Doing handshake deals and avoiding putting a business deal in writing “because they’re a good person” or “because I know them really well” inevitably leads to miscommunication and misunderstanding, shaped by the issue above: unclear expectations.

You may have two people in a room who will participate in a handshake deal, walk away, and hear only a piece of the important information (which is typically the thing that benefits them the most). Then, if something goes wrong during the transaction, there is no written agreement to fall back on, and the whole thing can blow up (and potentially the friendship as well).

The bottom line is, even in the absence of a formal agreement, take a piece of paper, write down the bulleted services Party A is providing to Party B, write down when the work is expected to be done, write down a price, and have both parties sign. It’s simple, and while it may feel uncomfortable, it’s potentially the only thing keeping you from losing a friendship.

Get it in writing, or risk losing your friendship over it.

Yes, you can do business with friends. Just make sure you’re following the above guidelines if you want it to be a good experience.