Should we invest in a friend's company?

elljay

Good morning - I'm not sure which board to put this in but hopefully someone will be able to advise. A couple of friends and I have recently been made redundant and are frantically jobhunting as there wasn't much of a payout. Another friend has asked if we might be interested in investing a couple of thousand in a business he's just starting. I feel it might be risky given that a previous company went bankrupt but it could be different now if we invested and also insisted on being hands on,though I'm not sure how much control we could actually have. I also know he's learned a few lessons but I still feel he thinks we'll hand over the money and then stay in the background and let him get on with it, however it's my money and I want to know what's happening with it.

What sort of things should we be thinking of, what sort of documents should we insist on having, what sort of safeguards can be put in place - I really can't afford to lose the money.

If we go with it, would we then be self-employed directors even though working for the company and therefore also employees? Sorry, maybe that part is for the employment board.

As you can see, I'm very confused - help please

Ell

ozzage

It is something you'd invest in if it wasn't a friend?

You say you can't afford to lose the money and you don't have a job, so without knowing anything about it it sounds pretty dangerous to me.

You'd want to be very sure it would be a success. At the very least if you are considering it, check out their business plan in detail and see if how viable it looks.

Personally to me I'd run a mile unless I was 110% sure it was really a sure-fire winner. Most likely scenario otherwise is ruining a friendship and not being able eat or pay bills on top of the bargain...

Sooler

elljay wrote: »

I really can't afford to lose the money.

The answer is simple - don't do it.

Seems the friend is after cheap easy money.

Think Dragons Den, he wants 3 people to put up 2K - for what? Nothing.

Never put money in unless there is a guaranteed way of getting it out

Peggy40

Not sure many things in life are sure winners! All these entrepeneurs have taken risks havent they. They might have lost mega bucks along the way, and learned lessons from it. What I would say is - the business could ruin a friendship? If you are seriously considering it - maybe you would be better off thinking of something that you could set up yourself? Even if its only selling something on ebay? Just a thought..

Biggles

If you were already in a well-paid job, and were given shares in the business in return for your investment (in writing), as well as some kind of prospectus in order that you could see he had a viable business plan, then I might say, 'Have a punt'.

As it is: Absolutely no way!

Mr.Mulla

It seems that it's a unanimous advice here. I too would say that you think twice before getting into that deal with your friend. If you have read or are familiar with Robert Kiyosaki's books, there is a part there that says that it is never a good idea to loan money to a friend or relative, more so with joining on a business venture with a friend without any clear understanding of what is to take place. You'd be risking your money and your friendship, so I suggest that you just look for something else, or go venture on your own Peggy40 said. Good luck

fairtrade

A friend of mine invested in a Company run by their friend. The Company had a sound business plan and seemed to appeal to a niche in the market. As of yet the business has not accrued any income, has spiralling costs and my friend has been approached for more investment, which they declined to give, they do not expect to get any capital back on the original investment. Even if the business plan looks good there is always a risk. If you can not afford to lose the money - why gamble?

MyRubyRed

Don't do it!!!

elljay

Thanks everyone, as you say, pretty unanimous, though I do feel pretty sorry for the friend trying to make a go of his business. And no, I'm no businesswoman (and it shows!!!), business doesn't interest me at all, and I'm likely to give away any profit over and above what I take for my immediate needs, I don't see any point in keeping it, my needs are and will remain pretty small, which is why I was thinking of passing it to him to get going. If he can give me back what I've loaned him in a few months/year then that would be fine. The only thing about this is that he does have some orders which he can fulfil so I'm still wavering a bit, and it is in an industry that he knows well and has contacts.

Still not sure, but your advice will help me to come to an informed decision. Thank you all. Incidentally although my main job has gone I do have others, and a self employed contract, so not quite destitute!

Thanks all!

sabretoothtigger

however it's my money and I want to know what's happening with it.

Sounds like you would lose your friend this way. If it was a business you were interested in then maybe but if its of no benefit or interest to you, you'd be essentially gifting the money

anamenottaken

elljay wrote: »

. . ., and I'm likely to give away any profit over and above what I take for my immediate needs, I don't see any point in keeping it, my needs are and will remain pretty small, which is why I was thinking of passing it to him to get going. If he can give me back what I've loaned him in a few months/year then that would be fine. The only thing about this is that he does have some orders which he can fulfil so I'm still wavering a bit, and it is in an industry that he knows well and has contacts.

I would say only 'invest' in this venture if you can afford to actually give it, with never a possibility of a real need to get it back. Then if it is returned at any point (and it sounds like a loan is being requested not a purchase of shares in the company) then that is a bonus.

Years ago I lent money to my BIL. There was a repayment plan which he kept to for a while but then the business was insolvent and I eventually got nothing more back (other creditors - like the staff - were ahead of my claim in the queue). BUT I had lent it knowing that it was risky AND I was not really concerned about having it returned. Unless you can afford to give, don't lend. (And if you do lend, don't let the borrower know you aren't worried about not being repaid.)

If it were a limited company in which you could buy shares, then you could have more say in what happens there - but really only if you have more than 50% of the shares.