There are a lot of businesses that have blossomed over the years, and your friends’ business is one of them. According to the Business Formation Statistics (BFS), In May of 2022, there were 420,586 applications applied for. This is the era of pursuit, and if you want to aid in that pursuit, before investing in your friend’s business, here are a few things to consider.
Let’s Get Down To Business
- See how serious your friend is about their business. Sometimes, starting a business is more alluring than keeping up a business. Get clarification on if this business is something they’re actively pursuing or is it a hobby.
- Ask questions. This is an investment, and that’s a big deal. Don’t be afraid to ask questions on questions. Talk with your friend and see where their head is at. Some questions you can ask include “Do you have a business plan or any strategy?” “Do you have a marketing plan, 5-10 year plan?” “Do you have branding?” “What’s my role?” “Are we going to be an LLC, S-Corp, or what?” (If applicable) “How much am I or you willing to invest?” “Do I want to help with this?” “Who’s keeping up with booking? Who’s doing taxes? Are we hiring people to offset the responsibility?” Etc.
- Does the product or service seem like something you can get behind? Whether it’s in line with your morals or you believe they have something the public would appreciate, you need to make sure you feel comfortable with it because how do you sell a product or service that you don’t even care about. It’s a disservice to the business in the long wrong.
- What’s your ROI (Return on Investment)? If you were to invest money, do you own a percentage of the company? Are you on the board? What decisions do you get to/want to make as an investor? Can you be a private investor where you get a percentage of the company but don’t get caught up in the day-to-day business? Discuss how you want to show up in the space.
- Starting/running a business requires you to be prepared for ebbs and flows. If there are any problem areas, you should address those before investing. Or see if your investment will help those problem areas.
- You are two individuals, so you may have different ideas. Share your ideas for the company and see if you’re on the same page. Maybe you’ll say something that your friend never considered or vice versa. The goal here is to align, not to agree on everything. So, if you do have different ideas see if they can work together.
- Money can complicate things. So, whether you’re putting up the same amount or there are differences, discuss finances and debts. You’re determining if you both are financially responsible or is one you. Your finances need to be in good hands. If you need help keeping up with money in and out, use a tool like Quickbooks.
- Spending can make this complicated too. If you have a company card, do both of you have buying power, or is one person responsible for keeping track. Therefore, before any major purchase, discuss it so that no one is in the dark.
- Create an agreement for yourselves that you both have to sign. This agreement will cover everything from responsibilities, Ownership, roles, if you can’t agree on something – who makes the final decisions, etc.
- Although you are two friends joining forces, don’t take that for granted. Make sure to put everything on the table (so to speak) and have open conversations. Also, this MAJOR KEY separate business from friendship. They are not the same, and you shouldn’t take business situations personally. This is how businesses and friendships fall apart.
- Get a business account! It will make things much easier for you to keep up with business finances.
- Keep your accounting books clean and separate your personal and business finances. Pay for things for your business with your business account and/or business credit card.