Even if one’s business partner seems like the right fit, they can often fail to uphold their end of the bargain and act in less than honorable ways. A great many businesses are founded by duos, however operating as a team means that there is more potential for things to go horribly wrong — things like a business partner ruining your credit.
In fact, CNN Money’s Jennifer Alsever notes, “65% of high-potential startups fail as a result of conflict among co-founders, according to Noam Wasserman, a professor at Harvard Business School who studied 10,000 founders for his book The Founder’s Dilemma.”
If one’s business partner ruins the credit the organization depends on, then it’s time to be ultra-strategic about how to move forward so that the organization is protected as much as possible.
Is it happening to you?
Often business partners that aren’t good matches show warning signs prior to major conflict. For those hoping to avoid the calamity, it’s important to note that signals are probably there that can point to the fact that two business partners aren’t on the same page.
Common red flags include:
One benefits more than the other: If one business partner is not bringing the same level of value as the other to the partnership, it can be an issue that harbors resentment as time goes on.
Goals do not align: If one partner is most interested in maintaining all control of the company and one is most interested in making as much money as possible, things will not pan out for both individuals, and thus conflict will likely arise
One is problem oriented, one is solution oriented: People deal with issues differently, and often that is beneficial; having different views on issues and how to approach them can fasttrack problem solving. However, if one individual is obsessed with the problems and fails to contribute to solution-based thinking, they will drag everyone down.
There is no trust between the two: Though not always the case, often the type of person who is going to sneakily ruin your credit is the kind of person who is not going to be honest in general. Small, seemingly insignificant white lies can be the foundation of a serious pattern of deception.
Obviously, this is not a cut and dry list by any means. But, it can serve as a beneficial method to assess the type of person one is considering entering into a professional relationship with.
How does an individual ruin a company’s credit?
This is fairly straightforward, but it happens because most business partners are operating as parties with equal power. Even if one individual is primarily responsible for the finances of the business, a partner likely has shared access to all accounts, the business credit card, and the info for recurring orders.
Here’s the truly unfortunate thing: because of the nature of shared accounts and co-signing, even if the innocent can highlight the guilty’s part in the decisions that destroyed the company’s credit score, it can be much harder to actually prove that innocence. Entrusting a partner in a legal capacity means that the system will not easily allow for one party to simply refuse responsibility when it goes sour.
To keep the guilty party around or not?
Successful entrepreneurs understand that the way to be successful is to turn obstacles into opportunities. Given all of the legwork required to completely separate financially, it can be tempting not to do so.
For the professional uncertain about whether or not this is the right path, it’s critical to seriously consider the implications of allowing someone who has proven to be detrimental to continue on in a position of agency within the company.
In terms of how to navigate that decision Dayton Uttinger of Fiscal Tiger notes, “Rework any credit cards or shared accounts to limit your co-liability. This might mean completely separating your bank accounts or just opening a joint account that requires both your signatures to withdraw any money.”
How can you recover?
There are some fairly straightforward things that a business owner can do to rebound after having been burned by a business partner’s bad credit. A good place to start is removing access from the offending partner. This may include closing accounts or cards.
Recovering will also always include tightening the reins as much as possible so that the company as a whole can save the resources available and reapply them wisely.
Rebuilding the company’s credit must be the end goal. Unless an organization is wildy desirable to lenders for a variety of reasons, having good credit that allows the company to borrow when it needs to is crucial.
Whether or not a company will receive the funding it requires is largely connected to how good the credit score of both the organization and the individual is.
“Depending upon the lender it could be the primary reason your application for credit is rejected. That doesn’t mean an imperfect credit score will make it impossible to find small business financing, but it might dictate where you can look,” says Ty Kiisel of Forbes.
He also suggests that in the pursuit of improving one’s rating, the number one thing to do is monitor credit score. Make sure that, without fail, payments are made on time. Don’t close cards needlessly, and only apply for credit that is actually needed.
Always consider how to further bring the total level of debt down. The lower the debt to credit ratio, the better a business’s ability to bounce back will be.
Is it terminal?
Not at all! However, it’s also not an easy fix. Repairing the credit of an organization is the result of a concentrated effort on behalf of the entire workforce. Rebuilding stability is a much slower process than the negligence that knocked it down.
It’s also important to note that this battle is predominantly one of the mind; it’s a matter of accepting with a cool head that things have changed, and recognizing that with time and care, things can change again.