Raising Money From Friends and Family – How to do it Without the Drama

The old saying goes that you should never mix friends and business
The old saying goes that you should never mix friends and business, with the logic being that it will only lead to arguments and place a strain on those relationships; and you might think that this would go double for getting friends and family to fund your project. If all goes perfectly to plan then this can be a great way to get the finance you need without signing away your life and putting yourself in debt, and you’re sure to find that your loved ones are eager to help and excited to play their role in the creation of a new product or service.
But it’s when things go wrong that this can become a serious problem. You’ve asked your friends and family to take a risk on something that you believe in, and if that goes down the pan they’re sure to feel resentful – why didn’t you gamble with just your own money or go to a bank? Why should they take the fall for your pet project? And if you can’t pay them back this will only get worse – and even if they are relaxed about it you’ll probably find yourself getting stressed through the whole ordeal and dealing with feelings of guilt and shame. Even when things go well you can sometimes find yourself arguing about shares of profits or ownership and the direction of the business. Is it worth it?
Well that’s a decision that only you can make, but there are certainly a few precautions you can take to try and improve your chances of things go smoothly – even in the face of a problem.
Choose the Right Friends: Some friends are certainly going to make better backers than others. Of course you need to find people who have the funds and you shouldn’t put this kind of obligation on someone who is already struggling financially. Likewise, you need to find friends who are able to detach themselves and who have proven themselves to be level headed in the past.
Treat it Like a ‘Real’ Loan: Also important is simply to ensure that you are treating the loan like any ‘real’ loan. This means that you need to draw up a contract, and it means that you need to come up with a ‘repayment plan’ or a plan for how you are going to share profits. By sticking rigidly to this scheme you can make sure that everything stays fair and that there’s no ambiguity in the situation.
Ownership: If you want to keep your new backers positive and excited about the venture you’re launching, then it’s important to make them feel involved. Show your appreciation and respect by asking for their opinion on various matters, and make sure that you credit them wherever possible.
Put Your Friend First: It’s easy to get overexcited when you’re launching a new business venture and to prioritise everything to do with your company.  Your relationships should always be your priority, and particularly if someone has gone to the effort to help you out. If you can’t afford to pay back your friend, then take out a loan and pay them back that way. Don’t make your burden theirs.
Raising Money From Friends and Family - How to do it Without the Drama tweet this

This entry was posted in Financing. Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.