There are many ways to ask for funding, but it’s important that you make sure your idea is sound and can be implemented. If you’re unsure of what type of business to start, there are plenty of resources available on the internet to help you decide.
The how could you convince family and friends to support your new business launch? is a question that many entrepreneurs have. There are several ways to do so, but the most effective way is through word of mouth.
This post is part of our Business Startup Guide, a selected collection of our articles that will help you get up and running quickly!
Asking for assistance is one thing; asking for financial assistance is a whole other beast. Despite this, many small companies and startups rely on family and friends for funding.
Many entrepreneurs self-fund or bootstrap their businesses. That isn’t to say that every entrepreneur puts money aside, takes out a line of credit, or looks for a bank loan. For others, it makes sense to seek financial assistance from friends and relatives.
Many entrepreneurs turn to friends and family for financing, according to Tom Scarda, a business consultant who helps potential entrepreneurs locate the appropriate franchise via FranChoice.
“Most friends and family members would say yes to a person who asks for financial assistance to start a business,” he adds. “Until it’s time to write a check,” that is.
If you want your loved ones to invest in your company, you must overcome the awkwardness of asking for assistance and persuade them that you are serious about it and have a strategy to make it a success, according to Scarda.
To do so, use these suggestions for asking friends and family for starting funds.
1. Have a well-thought-out company strategy.
Whether you’re asking your closest friend or visiting the Bank of Mom and Dad, you should approach the conversation as if you were speaking with a banker. You wouldn’t obtain a bank loan without one, and you shouldn’t expect relatives and friends to invest in your business without one, either. Financials, milestones, and metrics that show how you intend to make your company successful should all be included in your business plan.
Need some assistance putting up a strong business plan? It’s no issue. Try LivePlan, our business planning software, or look at these example business plans.
2. Make sure you have adequate money.
When it comes to asking friends and relatives for money, your natural inclination is to ask for as little as possible, but Scarda believes this is the incorrect approach. It will not succeed if you do not have enough money to start the company. According to Scarda, there are three money pools to consider:
- Initial investment: funds required to get the company up and running, often known as starting expenses.
- Working capital is the money required to keep the company running until it reaches break-even.
- Home capital refers to the funds required for personal survival while the company is being established. You’ll need money to pay your own expenses, so don’t overlook this section! According to Scarda, a six-month reserve is a reasonable rule of thumb.
3. Set up a payment schedule.
How do you intend to reimburse your investors’ family? If you’re not intending on giving investors stock in your firm in return for cash (as many angel investors and venture capitalists do), you’ll need to come up with a way to repay everyone, with interest, much like a business loan. The first payment should be made six months after the company starts, according to Scarda.
“What ifs” should also be included in the plan: What happens if you are unable to make a payment one month? So, what’s the plan? You’ll avoid difficulties in the future if you sort out these concerns ahead of time. Also, put everything down on paper. The best option is to use a legal document.
4. Expect aggressive participation from investors.
Friends and relatives who have invested in your company may desire a voice in how things are run. It’s something you should talk about before asking friends and family for help. Even your parents, who are investors, will want to safeguard their money. Expect them to check in with you, ask you questions about your company, and offer you unsolicited advise. Scarda advises not to take it personally; it’s a business relationship, and you should handle it as such.
Above all, you want to demonstrate to your family that you are prepared and professional. Show them you’re ready for the big event by having all of the required papers on hand and addressing any questions they may have. Prepare your proposal ahead of time, and consider how you’ll respond to any possible objections.
All of this being said, there are many reasons to avoid combining work and family life when considering your company financing choices. There are many hazards to be aware of, and the Young Entrepreneurs Council has provided some suggestions in this article.
When it comes to walking away from a company, Tim Berry, creator of Palo Alto Software (makers of Bplans), warns that including family and friends in your financing strategy may make it difficult to pull out.
Susan Solvic believes it’s essential to remember that adding a new kind of professional connection to a difficult personal relationship won’t make it any easier. Whatever method you choose to finance your company, consider the long-term implications—both of your success and the possibility of slower development than you anticipated.
This post is part of our Company Funding Guide: Bplans can help you fund your business now.
Do you need assistance in obtaining a loan? Take a look at Bplans’ Loan Finder.
When you are starting a business, it is important to know how to ask for money from family and friends. It can be difficult to get people to fund your business so here are some tips on how to do it. Reference: how to ask for money for a business.
Frequently Asked Questions
How do you ask someone to support your business financially?
I do not understand what you mean by support your business financially.
How do you ask someone for funding?
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How do I ask my family and friends to support my business?
To ask your family and friends to support your business, you can do this in a variety of ways. You can send out an email or social media post asking them for their support. You could also host a live event where people can make donations or come out to see what you are selling.
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