Tips for asking family and friends to invest in your business
For many new business owners the options for finding funding for their business are often somewhat limited. While many new business owners turn to using their own resources this may not be enough. Turning to family and friends often becomes a matter of necessity in a tight lending market. However, there are certain guidelines that can make this process much more effective and help you to keep your personal relationships intact. Despite your enthusiasm for your business you should never take any personal relationship for granted. Here is are some tips for asking family and friends to invest in your business-
- Treat your potential investors with respect and courtesy-Remember, that your family and friends are not the local bank. While a traditional lender will expect to be asked for money you may be approaching your family and friends unexpectedly. You need to make sure that you are approaching them at the best time possible-for them. Keep in mind that most likely they will need to be able to assimilate the information you provided and take time to think it over.
- Be prepared before approaching them-You shouldn't simply approach your family and friends and just speak "off the cuff". It is important to take sufficient time to think through what you need to say and how you are going to say it. You should also have the details worked out. First, and foremost you should be prepared as to whether you are approaching your family and friends for a loan or an investment. There is a vast difference. While a loan would have to be repaid if your business goes under you would not be responsible for repaying an investment. You should have what you want in mind in terms of an amount, repayment terms (if applicable), and any other conditions that will need to be met.
- Make sure that you are business like-It can be helpful to set up a time to meet. You may want to approach your family member or friend and broach the subject. Then if they are interested in discussing it further you can set up a time to formally discuss the details. An invitation to lunch (where you pick up the tab), can often be the perfect setting to discuss a business opportunity.
- Prepare a presentation-It can be very helpful to take the time to prepare a formal presentation. Your presentation should include: your business plan, financial reports and any promotional literature. Keep in mind that you will need to sell the idea to your family and friends and you should not expect them to immediately want to get on board. The amount of preparation that you put in to your presentation will play a big part in how successful you are in getting family and friends to put money into your business.
- Put everything in writing-Finally, when you do have family and friends who agree to put money into your business you should put everything in writing. This is true whether or not you are taking a business loan or an investment. The bottom line is that there is nothing that can make a relationship go bad faster then having a misunderstanding about money. You should make sure that everything is spelled out in detail so that there is no possibility of a misunderstanding. Do not allow yourself to give into the familiarity of the relationship. Anything that has to do with your business should be done in the most professional way possible. You want to spell out all details that include: the terms of the investing or borrowing, repayment terms, and any other agreed on terms. Then you should have all parties sign.