First of all, if you have to be the bad guy, don't dance around the issue. Be the bad guy. Then, if they are receptive, explain the reason (for surely there is one) why you need to be the bad guy. As long as the dividing line between business and personal is kept bright and clear, this should not be a huge issue. I guess some people consider me blunt, but I don't think many would say I hold a grudge or try to be unfair.