A family member has offered a large amount of money to be an investor in my business. I need the cash but I’m worried about the personal fall-out if things go awry. Should I formalise the arrangement or maybe steer clear of mixing family with business?
There is no doubt that family and business can mix. Saying “don’t mix business with friends/family” is simply a generalisation and is only true in most cases.
There are numerous cases where families work together and build very successful companies together. Where it goes wrong is if agreements aren’t documented and communication is not open and honest.
Treat your family member like an investor and document everything with competent lawyers and professionals.
Make sure you are both clear on what you expect out of the relationship so there are no misunderstandings. Meet regularly and discuss ideas, issues and potential problems and solutions. If your family member chooses to invest in your start-up they need be clear that it’s risk capital and there is a chance they could lose it all.
They need to be comfortable with that. If that happens, it’s their choice and it’s business. It should not affect your personal relationship.
If things go bad between family members in business, it’s because people tend to run their business relationships (with family members) like they do their family relationships – casual, undocumented and with limited communication.
So, in conclusion, proceed but with caution, get professional advice (especially in the legal area), document everything and keep the lines of communication open and on the table.