Get By with a Little Help from Your Friends?

Physician's Money Digest, September 2007, Volume 14, Issue 9

Physicians are often targets of investment-friendly fire. It is often assumed that a physician's cash flow is endless, and don't you know that a good friend of yours has just the right idea for how you should invest all that extra money? Entrepreneur magazine suggests caution and getting it all in writing when investing in a friend’s business.

The two most important things a physician should aim to accomplish when investing in a friend's business is to make a good profit and, most importantly, to keep the friendship intact. The first step should be to know your role in the business. Do you want to be an active member of the business or just a silent partner? Will you be making decisions regarding the business? Make sure your role is clear from the beginning, before you invest. The next step is to do your homework. Review your friend’s business plan, and check the market and competitors to ensure that the business has a future. The number of other investors and bank loans involved also may give you an indication of how safe the investment is. Last, put all terms in writing. The National Venture Capital Association (www.nvca.org) offers free samples of legal documents. Make sure to have a lawyer review the deal before you sign. It may seem cold, but keeping things strictly business will help keep your friendship as profitable as your investment.