Quick Note: This factoid was written for the Relationships channel and its part of the V.I.P. project - ask if you’d like to learn more.
Relationships and financial matters can be quite tricky when they come together. As an investor and entrepreneur, and more importantly someone who has good friends and a loving family, I’ve created a list of Dos, Don’ts, and Realizations that everyone who might be considering a financial matter that involves someone close to them. This is all based on personal experience.
DO – Offer friends and family the chance to contribute to or invest in your enterprises. Although there are many things that can go wrong with involving your family and friends in anything money-related, the benefits of a successful endeavor heavily outweigh them. Family and friends who love and care about you WANT to help you succeed, and if there is an opportunity for them to profit as well, wouldn’t you want to help those people close to you rather than strangers?
DON’T – Expect contribution or "guilt" a loved one into doing something that doesn’t make sense to them. Even though we as investors/entrepreneurs feel strongly that the risks we take are justified, our family and friends did not choose this lifestyle, we did. All we can do is offer them the opportunity to join in, and provide the information and motivation for them to do so. If they don’t join in the first time, maybe they will later down the road . . . and the last thing you want is for someone to tell you later that they never really wanted to join but they felt guilt-tripped into it.
REALIZE – The more successful you are, the easier it will be on everyone’s part to work together. If you can start on your own, and get family or friends involved down the road (on maybe your 2nd or 3rd or 4th enterprise), you’ll have a track record to support your claims, and you’ll be taking better care of their money. You’ll also feel less pressure on yourself in the beginning, because it’s only what you’ve put into it that you’re risking, so if you fail, you haven’t failed anyone else. In business and finance, failure is inevitable on occasion . . . better to lose your money than the money of your loved ones.
DO – Have written contracts that detail everything about the nature of your agreement. This prevents any discrepancies later if something is "misremembered" by either person, and should help your family member or friend feel secure that you are taking this enterprise very seriously. Provide as much security or guarantee that you can for them; make sure they’re completely aware of the risks and rewards that are involved.
DON’T – Be informal; and this includes not letting them be casual about it either! If you’re going to make business or financial decisions based on whether or not a friend or loved one is working with you, you need to be definite about it. Make sure they understand the timelines involved and when they need to commit if they’re going to do so. Have alternative arrangements in mind in case they decide to back out before the commitment date. If they don’t want to take their role in your enterprise seriously (and this may come out in their actions long before they say it), thank them for considering you but tell them you’d prefer to wait until they’re really committed to what you’re doing.
REALIZE – This will be a learning and growing experience for both of you. People can be very different when dealt with from a monetary perspective. You may find that some of your family or friends have personal habits or attitudes that are detrimental to doing business with them, such as poor time or money management skills, or a much higher aversion to risk than yours. In a similar fashion, this may be the first time they’ve viewed you in this light, as an entrepreneur, or investor, or even just as an adult in some cases. They may be taken aback at how business-like you’ve become; you need to reassure them that your personal relationship remains unchanged, but that you need to handle the business relationship as professionally as possible in order to make sure everyone’s needs are met.
Sometimes, relationships do change. I have seen them improve, due to closer bonds and occasionally the new development of shared interests, and I have seen them deteriorate primarily because of an inability to work together. Use your judgment; if you see warning signs with how someone handled money or business matters, don’t attempt to work with them simply because they’re related to you. Getting involved financially with a family member or friend will bring you closer together, so make sure that’s something you wanted in the first place. Whether the enterprise you’re involved with goes up or goes down, it’s how you handle your obligations that will make the largest impact. Show honesty, integrity, and a willingness to do what it takes and whether the enterprise fails or succeeds, you’ve proven to the other person that they made the right decision to support you.
