It's the age of the startup, and it feels like everyone has their own business. Whether you have an idea for an app, a cafe, or a publication, working for yourself can be a very tempting prospect. But running a business isn't a one person job, and you'll undoubtedly need help bringing your aspirations to fruition. Most likely, you'll turn to an equally ambitious friend to help you get your business off the ground, but is working closely with a friend a good idea?
Here are 5 tips you need to know before going into business with a friend.
1. Keep it Equal
The tips on this list are in reference to a business relationship in which each party has an equal share of authority. Hiring a friend to be your subordinate in a business venture is never a good idea, as the unequal power dynamic will undoubtedly cause problems in the friendship. Additionally, it can be hard to respect someone as your boss if you're used to grabbing drinks with them on the weekend and know all about their personal life. When going into business with a friend, the only real option is for both parties to have an equal investment in the venture. This also means trying to keep salaries and work loads as equal as possible.
2. Set Clear Guidelines For Your Professional Relationship
One of the dangers of working with someone you're close to can be withholding honest feedback for fear of damaging your friendship. It can be harder to be blunt with a friend than it is with a colleague, but open communication is necessary for any business to work. Before you go into business together, sit down and discuss how you will both work to create a productive professional relationship, without sacrificing your friendship. This may mean agreeing that the success of the business depends on neither friend taking professional feedback too personally or even very explicitly laying out each person's role so that there's less potential for conflict later on.
3. Agree to Keep Work Within Work Hours
One of the fastest ways to ruin a friendship is by making it all about the business you have together. A simple way to avoid this is to agree to only discuss work during work hours, allowing your friendship to continue to exist as something separate from the business. Of course, with the long hours that often come with starting your own business, sometimes this is easier said than done. If you and your friend need to be able to talk about work at all hours of the day for most of the week, that's fine, but make sure that you leave at least an evening a week where you can just be friends.
4. Avoid Being Competitive
It's natural for friends to share a sense of healthy competition, but this can backfire when you're both working towards the same goal. Try to create a business relationship in which success and failure is shared equally, regardless of who had a larger hand in the creation of each outcome. If you're constantly trying to prove to each other that you're the more valuable half of the partnership, it's going to be pretty hard to get anything done.
5. Know Each Other's Strengths and Weaknesses Before Going into Business
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If you're constantly frustrated with your friend for being bad with clients, and they hate the way you handle numbers, you may find yourself with an unproductive partnership and a damaged friendship. Before you go into business with a friend, it's important to have a real understanding of the way your respective traits will complement each other and what weaknesses you need to keep in mind. If you start the business relationship with a clear understanding of the other person's strengths and weaknesses, you're less likely to grow resentful towards them later on and can create a distribution of responsibilities that best suits each person's skills.
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When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.
A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.
One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.
The Federal Reserve
The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.
This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.
The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.
Whether you're leaving a job involuntarily, departing for something new, or just want to prepare for the unknown, it is smart to understand all your options regarding your 401k.
Frugal gifting often gets a bad reputation. However, this shopping method does not make you cheap — it makes you practical. Frugal gifts often avoid waste and overspending and can be just as meaningful (if not more so) as any other present.
With the National Retail Federation predicting each consumer this holiday season to spend upwards of $1,000 on holiday gifts amidst an economic recession —this year might be the perfect time to reconsider your spending budget. We've formulated the ultimate list of frugal gift-giving ideas to get you started.