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Are your mates killing your business?

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“Oi! Am I glad to have you as a mate for the freebies”, sound familiar? Oh yes, I am sure you do. Expect to be frazzled by your friends as they don’t want to pay up. For you it is business while they beg to differ. One of the big rules of business is to never do business with friends and if you do then charge them the same as all. Mixing friendship and business has its own unique set of challenges.

Friends are people with who you closely network with and they form a strong support system. This makes you bend a few rules for your friends and family against your better judgement.

Basic collapse of business model

If you start being the friendly CEO and start providing discounted rates or freebies to your friends and family, then your profit margins are affected and accountability for the loss incurred is lost. Hence there is no way to document and get back the loss incurred. In case there are employees working under you, then it is a far more complicated situation.

Employees form the backbone of your business. When you provide a discount for your friends, it reflects your personality and not that of the business entity. Hence while accounting, Mates’ rates will be a component that cannot be justified.

Research proves the adverse effects of business transactions with friends

When the effects of business transactions with friends were studied, it was concluded that:

  • Friends are charged lesser than strangers
  • Buyers are prepared to pay more for their friends’ commodity
  • Price negotiations were more in the case of strangers than friends

When dealing with strangers, you promote the interests of your business in a better way than when dealing with friends.

Mates rates for employee referrals

In order to promote your business, referral bonuses are good for employee retention. You can introduce an incentive for the successful intake of leads referred by existing employees. This boosts the general morale and generates a positive image for the company. This type of Mates’ rates is the closest that comes to making all the involved parties happy.

Mixing personal and professional relationships

Not all is bad in involving friends in your business. Great businesses like Microsoft and Google have co-founders who are best friends. They were able to accomplish successful transactions by setting aside their friendship and giving top priority to business in times of need. When you feel you are in a sticky spot just make sure that:

  • Both you and your friend have boundaries that you both have agreed upon
  • Keep the discount low enough so that you can still cover the costs later
  • You have a solid reporting and tracking system to review the discounts

Conclusion

Overall, mates’ rates are not the best thing to happen to your venture. But if you prioritise right and keep track of the discounts offered you might just be able to pull it off.   

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