Last night, I was watching Braxton Family Values, a reality show on WeTV about Toni Braxton and her four younger sisters: Towanda, Traci, Tamar and Trina. Each of them have families or their own, and their own career paths and aspirations, but they all have a love of singing. Last night’s episode mentioned Traci being at a crossroads as far as her career. She lives in Maryland with her husband and son, while the other girls are in Atlanta and Los Angeles. She said she’d only move if the sisters would do a family album together, a project that keeps being pushed back.
So she decided to continue her prior dreams of becoming a hairstylist and opening a salon. When she mentioned the idea to her sisters, Tamar asked where the salon would be and scoffed at the idea of a hair salon being successful in Maryland. She also wasn’t too fond about investing in the company, and it seemed like the other sisters weren’t too keen about the idea too. This got me thinking: why wouldn’t they invest in their sister’s business venture? Did they not think it would be successful? Was it because of the location? Was it Traci’s work ethic? It was hard to wrap my brain around, but it looked like Traci was on her own.
Investing in a business of any kind is definitely a huge decision to come to. You have to ask a lot of hard questions before giving your money away:
- Don’t be quick to say yes: An investment is just that: an investment! You plan on making money from this deal too. Would you blindly give your money away to a stranger? Your loved ones should be no different. Do not allow emotions to get in the way of your business.
- What’s their business plan?: Because they’re your friend or family member, you don’t have to require they have a fully typed out business plan, but they most certainly should have their elevator pitch ready for you. The 5 W’s and how should answered and should be realistic. If they’re not sure or still have to think about it, then you still have to think about lending them money.
- Are you okay with losing money?: The fact of the matter is, a lot of small businesses fail. Of course, your loved one is going to believe they’re the exception, but you have to be a realist. Decide on a number you’re comfortable with possibly losing. If you’re not comfortable with the possibility of not getting your money back with interest, don’t do it.
- Do it legitimately: Get every agreement in writing in the unfortunate event that you have to take your loved one to court. You want to ensure that you have a written agreement regarding how much you’re investing, what your involvement will be in the company, and when this money will be paid back.
- Offer other support: If you can’t provide financial support, maybe you know of other ways to help your loved one out. You might be able to connect them with suppliers, networking contacts, or find some potential employees. You don’t always have to invest your money; an investment of time could be just as valuable.
The only benefit that a family member would receive is that I would definitely take a look at it. If it were a friend coming to me, I might not even look at it depending on what I had going on in my life. With a family member I would at least take a look. At that point, it would go through just as rigorous of a ‘sniff test’ for me to actually do anything.
Great post. I wouldn’t invest in a family member’s business solely because they were a family member. I would still need to believe that the business has potential for profitability and believe that my family member was responsible before I would invest.