There’s a big difference when it comes to asking people for help and asking people for financial help. However, most entrepreneurs who don’t have the necessary money to fund their business turn to their family and friends for financial help to fund their business.
According to a recent study done by the National Knowledge Commission, 63 percent managed to self-finance their business. However, that does not refer to the fact that each of them actually saved every penny and put it into the business. The study also shows that more than 50 percent of the self-financed entrepreneurs asked their relatives and friends for financial support to help them start their business. Despite the fact that your family and friends will say yes when you ask them, the tough part comes when they need to write you the check. Therefore, if you want your close ones to take a slice of your business, leave aside the awkward feelings of asking them for money and do your best to convince them that you offer 110% of your time and determination for the company to succeed. So here’s what you have to do to get the money you so desperately want and need:
1.It really doesn’t matter if you’re asking your best friend, your brother or your parents to help you finance your idea. First and foremost, when you’re going to talk to them, consider the meeting as if you would with a banker. You should present them a reliable and solid business plan that has firm goals and prospects set in stone and also show them how you plan on making a profit. Moreover, discuss about potential investors that could facilitate the work, thus they will see they money back and then some in a short amount of time.
2. Don’t hesitate to ask for enough money. When family and business mix, feelings will always be involved. Avoid asking them for a small amount of money and rather ask them for a fair amount. The potential risk when asking for a small amount is that you won’t have enough to finance your business and you’ll have to owe all your relatives. Also, they will lose trust in you and most definitely you won’t get a second shot at building a successful company with the help of your friends and family. Three pools of money should be taken into account: the initial investment, the money that is needed to jumpstart your business, the working capital, the money that ensures you hit the break-even mark and the home capital, the money that will ensure the survival of your company while the business is launched.
3. Have all your bases covered and make a payment plan. Before asking your relatives and friends for money, ask yourself how you’re going to pay back your loved ones with interest. Six month payment plans may be a good option if you plan on opening a business. Take into consideration other aspects such as: what happens if and when you can’t make a payment one month? By doing this, you’ll avoid a serious headache and having to calm down your business partners. Therefore, put it in writing; a legal document is the way to go.
4. If your friends and family do decide to contribute, expect them to take an active role in the organization. After all, they are an active part of your company so they should be aware of the actions your company undertakes. Before taking the money, make sure to discuss these aspects as well. It’s natural to ask questions, offer advice and check in so don’t take it personally. By showing them you’re well-prepared and professional you will gain their trust.