Businesses that are in the early stages of development have to solve a key problem very early on and that is funding. Most small business owners don’t have enough money to start a larger scale business on their own so in order to get their business off the ground they have to rely on other revenue sources.
Because venture capitals, angel investors, and often times, banks won’t lend to companies without any revenue stream, finding the right funding can be a difficult task. Many future business startup owners look to family and friends for revenue.
This has plenty of advantages. First, your family and friends already know you, your good and bad habits, and your past track record of success. Second, it would be unreasonable for you to ask for an interest free loan but regardless, the interest rate they would like will probably be lower than the rate you would receive from a bank.
If you plan to ask family or friends to be a part of your business, it’s important to do it the right way. Instead of asking for a loan, ask them to be a partner who shares in the growth of business. This changes the loan in to an investment and may give the person a higher sense of comfort.
Before you approach your family and friends, keep the following in mind.
When you ask for money, be positive without being arrogant. Nobody will invest in your company if every sentence that you utter comes with a negative qualifier about how it’s a tough market and you’re going to do your best. Don’t ask for money until you know you can succeed and convey that when you ask the question.
It’s all in the delivery. Not only do you have to be positive but you have to be passionate as well. You aren’t in business to make money, you’re in it to meet a need and change the world in some small way. Passionate people succeed but people with other motives often fail.
Don’t ask for money when all you have is a dream. Nobody wants to finance your dream, not even people who love you. If you’re building something, build a prototype with your own money. If you’re service oriented, get commitments from customers to show that you have already done some of the grunt work.
You don’t need a formal business plan to show your friends and family but you should have some financial data available showing them that your idea has been researched and the numbers support the success of your business.