If you have someone that you love or are close with approaching you about investing in their business, and you think that it could be a good financial investment, there are a few ways to protect your money. There are some things that you can do to improve your chances of getting your money back out of the company, and making money down the road.
You want to have an agreement with the person to make sure that you both have the same views for the business. Here are a few things you want to do before you put your money at risk.
Consult a Lawyer
Talk with a lawyer before you put any money up in advance. The lawyer should be able to draw up an agreement for the amount of money you are going to invest, explaining what your role will be and what the terms are for the money to be paid back. You may want to be a long term shareholder, or you could just want your money back with a little investment.
Hire an Accountant
Hiring an accountant, like the ones at Herman & Cormany, should be a term of your contract that you both agree on before you give any money over. The accountant is going to watch the company finances to help improve the profitability and success of the business, and to ensure that the business doesn't get in any tax problems. It also prevents one partner from being responsible for the finances, and stealing money or mismanaging things.
Schedule Investor Meetings
Schedule a meeting quarterly where the two of you can go over the progress of the business to make sure that things are going as they are supposed to. You can schedule these meetings with the account or your lawyer, to make sure that there is a mediator or someone who can put the details into perspective.
You don't want to lend a family member or close friend money and then end up never seeing it again because you didn't make them accountable for the money that they borrowed. Make sure that you meet with a lawyer before you even think about writing a check, and be sure that your future business partner is willing to agree to the terms you have set, and to hiring an accountant. This can help the partnership and relationship go more smoothly when you have your own money on the line because of their business.