Before diving into investing in your friend’s business, consider both business and personal risks. Although childhood best friends Ben and Jerry made it work, mixing friendship and business is not an easy thing to do. When a friend pitches an investment opportunity, as hard as it may be, treat the decision as if it were a stranger asking you the same thing. If the business stands out and shows promise, ensure you hash out a clear partnership agreement, because pinky swears won’t cut it. In the agreement, define whether your investment is to be considered as equity or a loan, nail down repayment terms, and clarify your role (if any) in business decisions. Negotiate an exit plan too, so you have the option to bow out if needed. How much you want to invest is up to you, but don’t commit more money than you can afford to lose. For instance, you might invest $5,000 for a 10% share in the business profits over five years in a limited partnership. That would put you at risk of losing $5,000 if things go south. Remember, you’ll need to report partnership income or losses on your taxes. The bright side is that if the business runs at a loss at the start, you could offset other income, potentially cutting your tax bill.