Nurse Staffing Company Giving It All Away

Last week I had the opportunity of talking to Susan (not hear real name) in Florida. She was a registered nurse who - as so many others - got tired of making money for others. She opened her own company and started employing her co-workers until she eventually got about 30 nurses working for her. It was not that difficult 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 pretty common story in the nurse staffing business.

But here is why I want to share this story with you: after several years of growing her 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. Their answer was pretty standard..."your company is very profitable...unfortunately you do not have sufficient eligible collateral...please come back next year." Banks were reluctant to give her money because she did not have collateral that the bank was interested in.

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. I asked, "What is this new partner bringing to the table?" She said, Money." "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 about one hour with her on the phone and explained to her basically the following: 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 cannot do as well by yourself, i.e., if you are a 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 money. It is probably the most expensive money you can get.

Why don't I just want money?

To begin with, you have to share your profits FOREVER. When you borrow money, you are paying an interest rate; when you have a partner, you have to share your hard earned profits with them. That could be exponentially more money.

Also, you now have to share your decisions with them. Sometimes, you have to relinquish control...now that is REALLY dumb. Why would you do that with somebody that doesn't understand your trade? Sharing decisions (especially when you are used to taking them just yourself) is quite difficult.

Third, a lender you can get rid of...a partner is much, much more difficult.

So bottom line...be creative (use the internet, contacts, networking) to check out different sources of working capital but be very 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.