Relative risk: Keeping financial enterprise all in the family

When family members ask you to finance a business venture, it's an emotional and financial risk. Here is how to survive with minimal damage.

By Karen Caffarini, AMNews staff. May 19, 2008.

For some physicians, making a business investment decision is all relative. A relative asks them to invest in their business or a friend's business, and the physician breaks out the checkbook.

After all, that's what family is for, right?

Wrong, say some experts who advise physicians to stay far, far away from the thought of ever investing in a family member's business.

Right, other experts say, but only to a point. There can be good reasons to consider investing in a business proposition. The key is that you, and the family member, treat your investment like a business deal, not an all-in-the-family favor.

Investing in any small business or venture is risky enough, but family deals in particular make some financial advisers and family counselors cringe. A physician who wants to placate a relative may skip important steps in starting a business.

Many physicians are familiar with the hands-out pressure, in part because the wisdom that says doctors are flush with cash hasn't caught up with today's financial realities. An Oregon surgeon contacted for this article said he was amazed at the number of loan requests he received from family, friends, and even minor acquaintances, early in his career.

"There often is family pressure; a lot of dynamics often are involved with family requests," said David Sebastian, financial adviser with The Physicians Wealth Management Group in Parsippany, N.J. "In the end, though, it's all about risks. Can you afford to take the risk?"