Updated: Feb 23, 2019
Last month, I had a conversation with a wonderful couple about investing in a family business. The family was coming together to create a business that had the potential to be very lucrative for everyone. However, the initial investment was very high and the couple wanted my advice on whether to save up to join in the family business or accept that it wasn't in the cards for them.
You would be amazed at how often this scenario comes up.
One family member dreams up an amazing business idea that they can't handle on their own, so they recruit other family members. Next thing you know, so many people in your family are in on the deal that it feels like everyone has bought in EXCEPT you.
So now, you're stuck questioning: Am I making a mistake by not investing in this business?
If you're in the middle of this scenario or it hasn't come up YET but you think it might, let me share with you some key questions to ask yourself before saying Yes.
1. CAN MY HOUSEHOLD AFFORD TO MAKE THIS INVESTMENT WITHOUT DEBT?
One of the most dangerous moves that you can ever make is to take on debt to start a business. Why? Because debt adds risk and entrepreneurship is risky enough on its own.
If you invest your life savings in a business and it goes bust, you're broke and have to find a way to make more to support yourself. That may not be ideal, but it's not really all that scary. You can easily handle that with a J.O.B. and some smart budgeting.
However, if you invest someone else's money (i.e. take on debt) into the business and it goes bust, not only are you broke and have to make more money to support yourself, you also have to make more money to pay back the debt!
That's the exact type of scenario that sends families into bankruptcy (and divorce court).
As unpopular as this will be with many capital investment groups, I recommend that if you have to take on debt to invest in the business, your answer should be "No."
2. IS THIS BUSINESS IN ALIGNMENT WITH MY SKILLS AND TALENTS?
Have you ever watched an episode of Shark Tank? If not, let me give a brief synopsis: Entrepreneurs with growing businesses pitch to self-made billionaires in the hopes of getting an investor in their business AND the strategic insight that comes from having a self-made billionaire as an partner.
One of the things I have consistently noticed with the billionaire investors is that if the business is not in alignment with their skillsets, strategic partnerships or core competencies, they will quickly pass. They don't try to talk themselves into it. They simply say something like "This business is outside of my expertise and I'm not sure if I have the right network in place to effectively grow what you're doing. For that reason, I'm out."
I want you to do the exact same thing (because, who better to model in business than a self-made billionaire)! If this family business is something that you, with your skills, talents and expertise, can't really help grow, you should consider passing. Unless you're okay with being a silent partner, I'm going to advise against investing in anything that does not make room for your particular set of talents.
3. IS THIS BUSINESS IN ALIGNMENT WITH MY HOUSEHOLD'S GOALS?
If you're married, this is something you definitely have to consider. What are the goals for your household and does this family business align with it?
There was another couple where both spouses wanted to start a business. She wanted a clothing boutique and the husband wanted to own a event hall to rent out for weddings, conferences and banquets. Looking at those businesses, would investing in a family-run book store make sense?
Or consider another couple that enjoyed taking trips in their RV with the kiddos every month. (Those were some cool clients, BTW) That works well for a couple that has the ability to work remotely. They can go anywhere! But what if a proposed family business included catering corporate events and required them to be available most days to prep, cook or serve food?
There goes those RV trips!
Take a moment to sit with your spouse and talk about what you want life and business to look like. If the family business aligns with that, then consider investing. But if the family business interferes with your ability to create that life or those businesses, you should probably keep your investment.
4. AM I INVESTING BECAUSE I WANT TO OR BECAUSE I FEEL I HAVE TO?
It's time to shift from the practical to the emotional.
The numbers make sense. The business aligns with your skills and you can even see how it works with you and your spouse's shared dream. Of course, you realize all of this mostly because your family has been actively shooting down every objection that you raise.
No one can get you to do something you don't want to do better than family can. They might logic you into it. They may emotionally draw you into it. They may even attempt to manipulate you with talks of family loyalty and support.
Don't let that sway you!
If, at the end of the day, you don't actually WANT to invest in the family business, then don't do it. An entrepreneur that is not passionate about their business is pretty much doomed to failure. By the time it is all said and done, you will have probably wasted your time and money as well as their time and money because you're not doing your portion of the work to the best of your ability.
Save yourself (and them) the headache and just say "No!"
5. WILL INVESTING IN THIS BUSINESS PUT MY FAMILY RELATIONSHIPS AT RISK?
Here is an issue that will kill any perfectly laid business plan: a family dynamic that turns toxic over money.
Raise your hand if you have lost a friend over money you spent on them or money you loaned them and they never paid back? 🙋🏽 Think about how painful that was. Then think about how much more painful that would be if it happened in your family.
This last question requires that you dig really deep and think about the personalities in your family. Do you think that your family dynamic will turn toxic if something goes wrong with the business? Do you think that anyone in the family will attempt to take advantage of anyone else or misuse the money? If so, is that something you want to risk?
Be honest with yourself about who your family is and who is involved in this venture. If you aren't comfortable saying "We can handle this," then you probably shouldn't be investing in it.
If you can make it through all 5 of those questions and still want to invest in the family business, DO IT. It will certainly be a unique journey, but many families have done it successfully and made a lot of money.
However, if, like the couple I coached, you go through the questions and your heart says "Don't do it" - LISTEN. Remember, we're building a dream life and getting dragged into a family business that you cannot afford, that you cannot help grow or that you simply don't want to do does not line up with that plan.
Family or no family - be true to yourself, be true to your goals and walk in alignment with your dreams.
Tiana B. Clewis
Ready to become a #dreambuilder in your money, your life and your business?