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2018-08-03 00:09:37Starting a Business: Funding and FinancingEnglishIf you decide to take startup financing from family and friends, spelling out terms of such an arrangement is important. It is key for... Tips For Soliciting Startup Financing From Family and Friends

3 Tips For Soliciting Startup Financing From Family and Friends

2 min read

Start-up capital can be difficult to come by, especially when your business is still at the idea stage. Usually, it’s your family and friends who are most supportive of your entrepreneurship goals. Should you need financial boost to get your business running, consider asking your friends and family for the money. If you decide to go this route, spelling out terms of the startup financing arrangement is important. It ensures you’ll stay on good terms with the people who matter most in your life. This is key for success in business.

Create a Business Plan

Every new company needs a business plan. Writing down your business goals  is vital for any company’s financial success. Your business plan should show the methods you plan to use. This is done to become profitable and increase the value of your company. To boost investor confidence, your business plan should include the following parts:

  • An executive summary detailing your company’s purpose and goals
  • A description of your company showcasing consumer needs it intends to fulfill.
  • Details about your products or services. These include wholesale costs and retail prices, vendors, patents, or other trade secrets
  • A market analysis discussing the size of your target market and your competitors
  • A financial forecast offering realistic earnings projections

Your business plan should include a section on how you plan to set up your start-up legally. Would it be a sole proprietorship or partnership. The plan should also provide details on your marketing and pricing strategies. To ensure the success of your start-up fundraising efforts, you might schedule meetings with each of your potential donors to go over the plan.

Put Your Promise to Repay in Writing

Your family member or friend may invite you to discuss your funding needs over tea, but the informal setting doesn’t mean they don’t take lending you funds seriously. To show good faith, it’s a great idea to draft and sign a promissory letter detailing your intention to repay any loans. The letter can include details such as:

  • Length of loan term
  • Payment dates
  • Payment amount
  • Interest rate

Keep Track of Your Finances

You can make good on your promises to repay loans and ensure the company grows for the benefit of your shareholders by tracking your finances. Doing your own bookkeeping and accounting is easy with cloud accounting software like QuickBooks. From day one, you can use the software to track every financial activity, including your business expenses, sales, and accounts payable and receivable.

For friends and family you owe money to, you can even use cloud accounting software to set up recurring payments to ensure they get paid on time, which makes you look very professional. Cloud accounting software can be accessed 24/7 from any device including your smartphone or tablet. You can easily create financial reports showing your company’s growth with a few clicks or screen taps and review them with family and friends after hours.

Your closest friends and family members might give you start-up funds and ask for nothing in return — as might be the case with a best friend, parents, or grandparents. Even when this is the case, sharing details about your company’s progress has the power to make them very happy that they took a chance on you.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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