Rick Kahler: Risks of Investing, Doing Business With Family | Financial Awakenings
Every now and then I get a call from a client wanting my opinion about starting a business with a friend, investing money in a business owned by a family member, or co-signing a loan to help a family member buy a business. Being in business with family is something I know a little bit about, having been in partnership with my father and brother for 40 years. Going into business with family members or close friends can carry a high degree of risk, both financially and emotionally.
In part this is because it is uncomfortable or difficult to ask the necessary dollars-and-cents questions. We don’t want to seem uncaring, unsupportive, or untrusting. We are concerned about damaging the relationship. Yet the relationship is far more likely to suffer if we don’t ask those questions and the venture fails.
The following are some things to consider before you invest or go into business with someone close to you:
1. Don’t even consider putting money into a business without seeing a detailed business plan. Ask the same questions about risks, costs, and potential profits that you would ask if this person were not a family member.