This morning I got a DM from a client who started her business with a friend and the friend decided that she didn’t want to be a part of the business anymore. That friend wanted all the money they invested into the deal back out. She wanted a refund. The problem with situations like this is that it might not be the most optimal time to cash someone out. There are likely other issues going on. They might not have even had the money. Business is not like a day job. Sometimes your lack of money is a timing issue not a money issue.
The big issue here is not that she wanted her money back. The issue is that the friends didn’t have a partnership agreement so they didn’t have terms that spelled out how they should dissolve the company or pay someone out. They didn’t have terms that indicated WHEN someone can attempt to leave. They didn’t have terms that spelled out what they money they used would be characterized as which would spell out how and if she could get it back. It is likely that the friend was thinking one thing about the money (loan) and the others were thinking another (equity investment). One is secured and one is not.
Now they will have to come to some sort of agreement later, when the relationship is less friendly. That isn’t the time when you want to figure out how things should go. People start moving out of spite regardless of what is right. It is much better to take your time, be less anxious and get the terms in writing before you launch the company.
This week in long distance real estate investing for 6/25/18
Recently we had some work done on a house where we engaged a general contractor without a contract. It wasn’t a heavy job so I didn’t think anything of it. The contract did a “good enough” job but not a job up to the standard I would expect. Now we are spending money to patch up his half work which is dragging down the profitability of your investment. Another instance was an individual who had one idea of how the real estate side of the club should function. Because I didn’t have docs signed by him he was free to leave even though he has money in a deal. Now the thing about both of these situations is they made me a tighter business man. Sometimes you have to experience pain to appreciate the things we look over like contracts and things like that. I act like I have it all together but I am practicing what I preach. I am learning by making mistakes and doing. Had I not engaged in these issues I wouldn’t have implemented the practice systematically, I also would not be as serious about enforcing them. Don’t just assume that people are thinking what you are thinking. Get it in writing.
You HAVE to be thorough even if it seems unnecessary, even if you get push back and people question the hassle, because you never know when you will have to lean on the contract. When we deal with tenants I constantly point at the contract and what they signed. I let the contract be the bad guy not me. The same is true whenever you deal with anyone. I now require everyone to sign some sort of document to engage with me because I don’t know their motives, I don’t know their aims, I don’t know anything until they flex on me at a later date.
If you are going to do business, make sure you don’t do homeboy business, even if you are doing business with your homeboys.
The most immediate people you will do a deal with are the people close to you. When you break out the contract they will say “come on man, I’m your boy”. They are right, they are your boy, but business and friendship have absolutely nothing to do with each other. This blog will detail a few reasons why you need to get things in writing when you start working with other people.
Things Just Ain’t The Same
When you enter into an agreement people have fresh memories. They remember all of the details. They remember who pays for what and who gets what. Years later though people forget. They also seem to insert clauses and agreements into the contract that were never there.
You need to protect yourself from these memory lapses. You need to ensure that the terms are written in stone so that there can be no forgotten responsibilities or clauses when it is no longer convenient to abide by the terms of the deal. Things change, people change, contracts stay the same.
You Can Always Amend It
This might contradict that last statement but it also doesn’t. Most people don’t want to get into a contract because they don’t want to lock themselves into something that later won’t be advantageous. Remember that you can always amend the contract at a later time. Similar to the Constitution which is a living breathing document, so too can your Partnership Agreement or Membership Agreement or whatever. You can always amend it to better reflect the times.
The key is that you at least get SOMETHING in writing that the parties are bound to. It’s better to have some contract than no contract. It’s better to have some predictability than none. Written agreements help you plan out how you will conduct yourselves. The stability helps you win long term.
Check Yourself Before You Wreck Yourself
One thing that I learned over the last month is that people are finicky. They want your spot and they will flip on you. The people that know you the best have the most ammo because you opened yourself up and became vulnerable. These folks are screen shotting your messages, they are waiting to expose you. Protect yourself from that liability with a non disclosure and non compete agreement.
When you do business with people you give them the game. You give them a lot of the game. You show them how things are done, they get copies of your contracts, your worksheets, you contacts. Protect yourself and operate in an ABUNDANCE of caution. They will laugh, they will be offended but they wont be able to bankrupt you. I would rather offend someone than lose.
Business is personal
Sometimes I think I am too nice. I am a people pleaser. This is not a way to govern yourselves. Conducting yourself in that way will get you taken advantage of. From now on everyone who engages in a DM, phone conversation, email, business transaction or whatever will sign a NDA.
I implore you to make sure any and all partners you work with sign docs before they send money. All money is not good money. Protect yourself before you wreck yourself.
If you are interested in investing with our club on either the stock or real estate side we would be happy to welcome you into the partnership. Email email@example.com today to join.
Be great, invest well,