Nurse Staffing Company Giving It All Away

Last week I had the opportunity to talk to Susan (not her real name) in Florida. She was a registered nurse who -- like many others -- grew tired of making money for others. She opened her own company and started staffing the company with her co-workers. Eventually she had about 30 nurses working for her.

It wasn't difficult -- especially with the nurse staffing shortage -- for her to get contracts with health providers. Hospitals, prisons were delighted to switch to her and give her long term contracts because her punctuality, thoroughness and follow-up were excellent and well known in the area.

So far, a common story in the nurse staffing business.

Here's why I want to share this story with you: after several years of growing her nurse staffing company, handling it on a shoestring from her home kitchen, she realized that she was wasting incredible amount of time juggling her cash flow to make ends meet and even worse, there was no way she could keep on growing at the same pace without an infusion of working capital.

She knocked on the doors of countless banks: big as well as community banks. She received a standard answer from them: "Your company is very profitable ... unfortunately, you don't have sufficient eligible collateral. Please come back next year." Her lack of collateral is what made her business unattractive to banks.

So here was the shocker when she told me about it: she decided to bring in a new partner. At the time I spoke with her, she was in negotiations with him. "What is this new partner bringing to the table?" I asked.

"Money," she said.

"What else?" I asked.

"That's it!" she replied.

It turns out she was giving up 50% of the company for $80,000.

I spent an hour with her on the phone and explained to her: Only, repeat o-n-l-y give up equity in your company if the new partner is bringing in new technology, new contacts or can supplement activities that you don't do well, i.e., if you're good in marketing and he/she is a good administrator.

Never, repeat n-e-v-e-r, bring in a new partner if all you want from them is working capital. It is probably the most expensive money you can get.

Why don't I just want cash?

To start, you have to share your profits forever. When you borrow money, you're paying an interest rate; when you have a partner, you have to share your hard-earned profits with them. That could cost you exponentially more money than interest rates.

Also, you now have to share your decisions with them. Sometimes, you have to relinquish control. Now that's not a good move. Why would you do that with somebody that doesn't understand your trade? Sharing decisions (especially when you are used to making them yourself) is difficult.

Third, you can get rid of a lender. A partner is very difficult to shake.

Bottom line ... be creative (use the Internet, contacts, networking) to check out different sources of working capital while being skeptical about "investors" that ask for your equity. Unless they are a "proven entity," you are better off by yourself. It often is a quick and bad solution.