Finance A Business With The Help Of Family And Friends

Organizations specializing in entrepreneurship, such as the Center for Business Innovation and Finance from the ITESM and the network of incubators of the National Polytechnic Institute (IPN) , indicate that the primary source of funding for entrepreneurs is called FFF (Friends, Family and Fools) , This is because for someone who is just starting operations, it is difficult to get capital.

If you are about to join the world of entrepreneurs and your family and friends will accompany you on the adventure as investors, take note of these recommendations with which you will avoid conflicts, misunderstandings and, above all, you will keep your good relationship intact .

  • There are no games between investors

Forget about kinship and years of friendship and be a professional . To do this, you will have to develop a business plan that is clear and transparent enough so that your investors know exactly how their money will be invested, what are the growth expectations and in what time each goal will be reached . Remember that they are believing in you and your project.

  • Long friendships clear accounts

Don’t assume that everyone will remember when they will receive their earnings or invested capital. For this reason, it is recommended that everything be in writing – amounts contributed, percentage of profits and ROI -, because this way everyone will be aware of the conditions and response times . In addition, this will force you to commit and work in order to return the capital on the indicated date.

  • Neither good nor bad

The fact that your family or friends are your investors does not mean that you or your business are obliged to operate as they want. Along with the business plan , it draws up a section in which both the rights and obligations of both parties appear , it also includes the conditions and terms in which an investor can withdraw their capital.

  • All or nothing

Before embarking, the balance is in the middle and just as you can succeed, you should also consider the possibility of failure. In that sense, it is recommended that together they reach an agreement on what they will do in case the business does not work out : Will you return the capital with an extra penalty? Will they only accept the investment or will they forgive your debt?

  • New communication codes

In this agreement you are the one who knows about business; therefore, you should always be open to answering questions and listening to your investors . Plan quarterly meetings to update them on how the company is going, if there are problems make no secret of it and celebrate when there is profit. Finally, Randy Myers, editor of CFO magazine , recommends not bringing work problems to family or friends gatherings.

As you will see, asking for support from family or friends is not forbidden, nor does it have to become the prelude to an endless war; on the contrary, with clarity, honesty and everything in writing, it can be an excellent means of financing.