There is an age old saying, “don’t mix family and business.” Even if you’ve never heard the saying, there are about 100 articles via Google that might tell you the same even if you’re thinking about it, but is it really true? Doing business with family and friends might be as simple as laying out rules and protections to ensure there is no confusion, drama, or risks.
Some of the largest businesses in the world like Walmart, Hermes, Reliance, and others were started by families. The reason they work is because they were set up as exactly that — businesses. Here are things to keep in mind:
Start an LLC
Before investing or buying anything, consider forming a limited liability company (LLC). When you form an LLC, you’ll come up with an operating agreement (here are our tips to create one), which outlines the roles, guidelines, investment rules, allocations and protections for your investor club or tribe, as we like to call it. This may feel a bit overwhelming, but this is where platforms like Tribevest can come in to help. Tribevest lets you form an LLC and start a business banking account in less than 24 hours, making it easy and simple to get started.
Set up an investment pool or scheduled contributions
When everyone is invested, everyone cares about the direction of the business. You’ll want to make sure that you outline your minimum contributions, guidelines for selling, and more when setting up your LLC. While you’re dealing with family and friends, business shouldn’t be personal. If starting out you outline exactly how much is allocated for the business, set up a cap table, and schedule automatic contributions as a part of membership, it takes the personal aspect out of the money.
You might be wondering, who collects the money and how do I keep track of it? Again, there are platforms like Tribevest that make it easy to do this. You can set up a business banking account, schedule contributions, and view your cap table all in one place. If you want to start an investment club or start your own, you can also check out the National Association of Investors Corporation for information and support.
Investing on behalf of your family and friends
In some cases, if your friends and family see that you’re good at investing, they’ll want you to invest on their behalf. This is where you need to be careful because there are legal ramifications if this is done incorrectly.
So, is investing with family and friends a good idea? Yes. Are there ways to mitigate risk and keep it strictly business? Yes. Does this mean you should do it? It’s up to you. While we think investing with friends and family is a good idea, we believe you should follow the necessary business, financial, and legal steps to do it the right way. If you’re looking for some help to get things setup, create your investor tribe using Tribevest, and we’ll walk you through it.