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Is your partner too generous with entrepreneurs? 4 questions to ask

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When a contractor does a good job for you, it is natural to want to compensate them generously. Being generous with others is not just an altruistic act; it makes you feel good too. In fact, researchers at the University of Michigan have proven that being generous improves your mental and physical health and promotes longevity.

Is your business partner too generous?

Most people have been underpaid and undervalued in their area of ​​activity, so it's admirable to extend your generosity in every way. However, there are considerations that you must take first, especially when you are in an equal partnership where you both have control over finances:

1. Can you trust your partner for financial decisions?

There is no way around this – a person will carry his personal financial habits in his business. If your partner occasionally spends money without paying bills, this habit will show up in your business.

You can spot this model by observing how they manage their personal debt.

Responsible Behavior to Look For includes:

  • They actively solve their debt . The people responsible are indebted, so the existence of the personal debt is not a red flag in itself. A good business partner will be reducing or consolidating his personal debt rather than ignoring it.
  • They take unconventional measures . A responsible person will actively do everything in his power to manage his debts. If they have a credit card, they will pay, even between billing cycles, to avoid compound interest. Debt relief experts at law firm Rowdy G. Williams explain the compound interest, "You must understand that your interest rate is charged on a daily basis. if your APR is 15%, if you divide this amount by one year (365 days), this means that you receive a 0.041% interest on your unpaid balance every day – retail is a sign that your partner is serious about financial obligations.
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The behavior of the red flag includes:

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  • They accuse someone else of their debt . Interest rates are very high, and some credit card companies have small print that goes against the consumer. However, blame the credit card company, or anyone else, is a red flag. Debt Roundup clarifies this point: "You can not blame a credit card for your problems. It did not do it. It does not just go out of your wallet and does not scan at the cashier. He does not just decide not to pay each month and make floating balances. You want a partner who will take full responsibility for any situation, whether she created it or not.

2. Are your compensation decisions financially sound?

Consider that you and your partner will make major financial decisions together and that you may need to trust yourself to make smaller decisions alone. You must know that your partner will act in the best interest of the company at all times. This includes providing appropriate compensation to potential entrepreneurs.

Offering too much back-end compensation to entrepreneurs is not wise. None of them offers percentages of profits to entrepreneurs.

3. What is the real cost of the promised basic salary?

You may need a website and your partner knows a developer. He or she could offer the final developer pay of $ 3,000 for designing your website. That sounds right, but what happens when the same type of agreement is offered to a graphic designer, a photographer, a videographer, an author of content and other entrepreneurs?

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Your business could quickly accumulate a debt of more than $ 15,000 if you do not correct the numbers before entering into these agreements.

There is nothing wrong with paying the contractors at the back if they are willing to provide the work in advance. The problem is that you will have several people waiting to receive their payments at the same time.

4. What is the problem of offering percentages to entrepreneurs?

With sufficient funding, you probably do not offer 2% of your profits to the entrepreneur who has customized your WordPress theme. The only reason someone would consider this kind of transaction is when it does not have the capital to pay in advance, and does not know how much it costs that 2% reduction .

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The contractor's compensation should be a joint decision

You and your partner should always make decisions about how to compensate your contractors together. In this way, you will not be surprised to discover that your partner has offered his cousin some of the profits of the business to get you out of a jam.

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