FINANCE
If a friend invites me to invest in his/her business, what precautions should I take?
Just do not... if you care for your relationship...
check in what form he/her wants you to enter, is it equity [partner] or debt [lender]. Understand the business first. also understand if your friend knows the business. Find out more about other people in the same business. Also what is the return you would want in the business, you get 8% on fixed deposits from a bank which is secure, you should get more from your own business. since you would be putting in more time of your own time.
you should sign a document of your interest in the business. there is a share certificate for equity and a deposit receipt , you should obtain one. look at the balance sheet if he has one and verify the same with your auditor. look if the business is making profits and what would be the extent of sales he makes . check the bank borrowings and status of loans
First take that business as not Friend's business but as your business you will get your answer.
Take a position in the business. Commit to its success or don't get involved.
Speak to a lawyer and be prepared to lose your friendship.
if you don't have experience in or around their area of business then don't. If you do get a proper contract if you are unable to lose the money then don't do it.
Use your accountant and lawyer to review its tax liability and see if they have the company structured right. But only ever invest money you can right off if something goes wrong.
Treat it like a business, not a friendship with emotion and people issues. Set the guidelines up front that it's all business.
All you can, and do the "due diligence" yourself and seek objective help, as though the people involved are NOT your friends. And invest less, as if they were NOT your friend, as if things go sour, you want to keep your friend(s)..
Not my expertise.
think about the effects on the friendship if the business does not work. Personally business and pleasure should be kept separate
I think a huge factor relies on trust. Can you really trust who you are paying on return. Another factor would be to consider how good of management skills do they have to really get their business to be a success.
Do your homework! keep business and friendship separate.
A thorough investigation needs to be done. Many questions asked, before making an educated/appropriate decision.
You must look at this investment as a business opportunity and not a friendship opportunity. You must look at their business plan, the product they are offering and see if you think it has a good future and see what obstacles could occur before the company can actually become profitable. Will the business need a great deal of capital to get started? Is this a product that has a good future or will it become antiquated and passed over by newer technology? Try to get an independent appraisal from somebody you trust and not just make the decision yourself to invest in this business. |
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