This usually drives entrepreneurs to ask family and friends for cash to help fund their business. But mixing money with personal relationships can be a recipe for disaster. We have put together some tips and advice on who to ask, how to make it legal, and to prevent it from jeopardizing your relationship. Bringing money into any kind of family or friend relationship can be problematic. There is an old saying "it's not about the money" but it is always about the money. Financial situations whether in personal or business can cause a great deal of angst. But there are ways to minimize the problems and that is if you're going to seek funds from family and friends you need to be prepared and handle it in a very professional way just as you would with any business transaction.
1) Develop a Business Plan - Don't just come up with some hair brained idea, you should put some thought into the business and do your homework. You must have a business plan prepared before approaching anyone for funds, you want to approach this as you would a Bank or potential investor. You don't want to go to a family gathering and walk up to your Uncle Joe or Grandmother and say hey I wanna start this business can I have that extra $10,000 you have in your account? You don't want to do that, you must demonstrate that it's a viable business idea, that you know how it's going to work, how you plan to pay the money back, you know how much money you're going to need and how you're going to use it. Also never point out specific funds that you know a person has acquired or has.
2) Create a List of Prospects - Think about the people who you are close to, who believe in you, trust you and respect you. Of course this would most likely be your family and friends, but they can also be your business associates. Once you have prepared the list, look over it and refine it. There are three criteria you should look at, the first is emotional baggage, you don't wanna ask someone to lend you money if you've had conflicts with that person in the past. Also if you know good and well that when you ask them for that money and they give it to you it might create problems them with their family or friends. Second, can they afford to lose the money? we know that most small businesses are going to fail, so you don't want to go ask someone and take their little nest egg or all their life savings. They are depending on you to pay that money back, worst case scenario you go out of business and they lose their money, it's not a fair thing to do. Look for people who are more fluent and have money they can afford to lose. Third, look for people who have real business experience, they will be able to better look at your business plan critically and also add or bring new ideas to your business that you may not have thought off.
3) How To Approach - You don't want to ambush people or catch them off guard when approaching them about funding your business. You want to be as professional as possible, call them and schedule a meeting with them and explain to them exactly what you're going to be talking about. Once you have scheduled that meeting, make sure you're prepared and ready to answer any questions that they might have.
4) Give it Some Time for Thought - Give them time to digest your proposal, don't put them on the spot or pressure them. Don't demand an answer right there.
5) Be Gracious - If the answer is no, be gracious about it. Don't use emotional blackmail to get money for your business.
6) Keep it Legal - You need a promissory note that is notarized, you can find templates for these online. Establish the interest rate you're going to pay and payment terms detailing the payback schedule. You can use free loan calculators available online. Establish late or prepayment penalties, what happens if you're late on payment or prepay the loan.
Bottom line is you should not expect any type of special treatment just because you're borrowing from family and friends. It will help minimize the problems you have with those relationships in the future.
No comments:
Post a Comment