I've had a few businesses, and I've had a few partners. All things being equal, I could do without the partners. Financial strife is a leading cause of divorce in marriage, and a business partnership is kind of like a marriage, one that's all about the "scrilla." (I'm told that's the latest slang for money). If you choose to borrow for your business, you just said "I do."
Marriage of convenience
A bank loan is what first comes to mind when an entrepreneurial chap or chapette looks to grow the business. This would be akin to a marriage of convenience. The bank has something you want: Money. You have something the bank wants: Money with interest.
And so you start the courtship, which consists of a strong presentation on your part, and a thorough third degree on the part of the bank. Assuming your pecuniary pedigree checks out, it's a match. From that point on, it's all about performance. Keep up your end of the bargain and all is well. Miss one payment and it's "Bridezilla" with lawyers.
Bringing in a business partner is another option when it comes to infusing much needed dollars into your venture. A silent partner arrangement is typically similar to a bank loan, at least in principle.
Do what you agreed to do and nobody gets hurt. But just like a bank arrangement, the silent part goes out the window once the first check bounces.
A traditional business partnership is a lot more similar to a traditional marriage than you might imagine. Some are made in heaven, while others are forged with the white heat of hellfire. You both have an eye on the books , or at least you should. You both assume roles in the marriage, rainmaker versus nest builder, sizzle versus steak, good cop versus bad cop.
As long as the eagle flies and the company thrives, all is ducky. But, whether you've been friends for years or smitten at first sight, the matrimonial waters get mighty choppy when the coffers run red.
Desperately seeking credit
Whether you choose to hop in the business bed with an institution or a human, there is a piper to pay for the music they play. What if there were a third option?
In today's ultra-competitive market of razor-thin profit margins and failures galore, cash is an elusive king. Who couldn't use a little greenback infusion into the ol' company kitty? You want it, but do you need it? More important, can you afford it?
These days, credit is assumed to be a God-given right, as opposed to a last option, both in business and in personal life. I could get on my soapbox about this topic, but I'll save that diatribe for my caffeine-induced chat board rants.
Suffice to say, you don't necessarily need to get a loan to get ahead, and I'm living proof. I've built and sold businesses in difficult economic times and I've never borrowed a dime. I can also tell you that having the "no debt" mindset has the reverse snowball effect that borrowing does. Hitting the pillow debt-free is an awesome sleeping pill.
Slow and steady wins the race. That maxim is more true today than ever. If you're cash poor, but out of debt, you're probably in better shape than most of your competitors.
This means you're not constantly running up an escalator that's going the wrong way. You're not chasing the next dollar to make up for the two you've lost, with interest. You can take your time with clients, and not live and die on the success of the next presentation. Clients sense fear, and if you're hyperventilating as desperation oozes from your pores, it's palpable.
Start small and build a war chest. Don't jump at new and shiny, all that glitters is only so much window dressing. Going back the wedding analogy, does the $40,000 reception make the marriage any stronger? In many cases, the debt of the postnuptial show dooms the marriage because it puts the bride and groom hopelessly in arrears... and for what? It's no difference in business.
Of course, there are situations where a quick injection of capital is needed, and not all partnerships are bad. But looking over the postmortem of failed ventures, debt is often the cause of death...or should I say, divorce.
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Chris Prickett is a successful entrepreneur who specializes in defying conventional thinking. He’s built and sold two companies and made many mistakes along the way. He started a Phoenix, Ariz.s, real estate business in 2007, during the worst market in modern history, and business is booming.