How To Raise Money From Your Friends & Family

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Continuation from yesterday…..(Beggar Thy Neighbor)

Beggar Thy Neighbor:

Ask your friends and family for help. Outline what you are trying to do and how you will compensate them once your business is up and running. In essence, you are opening up credit lines or “favor lines” with the people who can help your business get going.

For example, do you have a relative who rents office space for his or her own business? Great, ask them for a free desk space or a cubicle.

Do you need a small size production run or products to sell? See if you can talk your local supplier or manufacturer into doing it on a 30-60-90 day credit terms in return for payment, interest and future business.

Do you have a friend who is an attorney? Super, ask him or her to help you incorporate or for free legal advice in return for future business and referrals.

You get the idea. Think about. There is no risk for either the manufacturer to manufacture (the order is too small) or for your relative to allocate one cubicle of space for your use. In fact, you would be surprised what some people would be willing to do once you explain your situation honestly. And that would save you a ton of money and time in the process. Something that money cannot buy when you are trying to get your business off the ground.

Revenue Financing: If you have gotten thus far your product validation tests were a success. That means you were able to sell your products or services and generate some sort of revenue. The next best option you have, particularly if you are moving forward with the option of self financing, is reinvesting all of your revenues right back into the business.

Outside of the obvious benefits above, there a few more. Particularly, if you plan ahead and reinvest your revenue/income at the appropriate rate you can achieve maximum growth velocity for your new business venture while getting rid of your tax bill. In short, attempt to get to some sort of a revenue for your business as soon as possible, then use it to grow your business at a fast pace.

While these are your best options for self financing, it is quite likely that not many people will have the access to their own capital or a network of people that can help them. If such is the case, your next best option is to ask your friends and family.

Friends & Family:

If you do not have access to your own capital the next logical option is to ask your friends and family. If you do everything right, it shouldn’t take you more than 1 week to cover this phase of the capital raising process.

In the industry, family money is oftentimes called “Dumb Money”. It is dumb because the people who are making the investment or lending decisions are making them based on various emotional factors as opposed to an in depth analysis of your business idea and/or your business deal.

And in most of the cases the conversation goes something like this. “Hi…. Mom, Dad, Uncle Bob or my best mate Jimmy, I have this wonderful business idea that will make me filthy rich, but I need money to make it happen. Can you give me $10,000 for 5% of my brand new company and when it succeeds over the next 6 months I will be worth billions and you will be worth millions. How about it?”

To Be Continued Tomorrow…….(Why Am I Seeing This On A Financial Website?)