You have been friends for years, and your friend has a ‘can’t fail’ business idea but needs some capital. That friend asks you to invest. What should you consider before you invest in a friend’s business? 

Think Like a Professional Investor

If they are asking you to be an investor, act like one. You will need to know the terms of your investment, and you will want to have a contract with repayment terms or a return on your investment schedule. If you do not have a contract, you may lose your money and your friend.  

Get All The Details

Talk to your friend about their business plan. You want to ensure that they have one and that the ideas and growth projections make sense for the type of company you are investing in.  

Communicate In A New Way

Communicate often but productively. While you and your friend may talk daily or weekly about your social lives and families, talking about business is different and can get heated. Set boundaries about where and how you will communicate. You could decide not to discuss business in strictly social settings. You can set boundaries on the language you will use, i.e only speak to each other about business like you would to your family. Set these communication rules in advance so that you are ready for the tough conversations.  

Protect Your Finances

Don’t invest money you cannot afford to lose. Never invest your last dollar in your friend’s company, no matter how good the deal seems. The old adage is never  loan to a friend or family member money you cannot afford to not get back. Also, if you are using your friend’s business investment as your retirement plan, that is not the safest use of your money. Make sure that you can afford the worst-case scenario.  

Consider Offering a Different Option

Offer your time, knowledge and support instead of your cash. Sometimes agreeing to use your skill set, whether legal, accounting or marketing, to help your friend make their business a success can allow you to help them grow their dream but not risk your cash. This is a way to show your support without the financial risk. 

Contact Moseman Law Today!

Investing in a new business is a difficult decision, but it can be a worthwhile financial move. Make sure to seek legal advice to assist with proper formation of the legal entity under which the company will operate and to make sure that the proper contracts are in place to protect you and your friend.  

Moseman Law Office is here to help.  Give us a call!