I will discuss how to protect yourself when it comes to bootstrapping your business through accepting money from your friends and family. Let’s first determine what is bootstrapping, according to the Business Dictionary; bootstrap funding is when individuals use their own money to fund their start-ups, interesting enough the money can come from their income and the savings they may have in accumulated. Finding money for your startup is sometimes tricky, so you may want to consider asking family and friends. To take money from those close to you could be an added stress, however in the process of obtaining the funds, you should remain professional, informative and consistent. By being professional, informative, and consistent about your start-up, you provide all that invested with a sense of ease and assurance. I will explain three ways that can be a guide to handling affairs with your family and friends.
According to Beesley (2016) 3 ways to properly obtain funding from friends and family is as followed:
1. Demonstrate Passion and Due Diligence- In this example, it is important for entrepreneurs to be passionate about their business. You should be able to provide a sound explanation of how your business operates, as well as to help your family and friends understand the sustainability and profits of your business. By presenting a business plan that has a research-based analysis would relieve some anxiety on both sides.
2. Come up with an Agreement with a Repayment Plan- Even though you may have an excellent relationship with your friends and family you need to keep it that way. The best way to help you remain in good standing is to treat every encounter with your friends and family like a business. Always have a detailed plan on the finances, the progress of the company, and a detailed repayment plan. The plan that you present should have every detail of the business so that they will not have any reservations and if they do have any they can opt out if they want.
3. Use a Peer-to-Peer Lending Service- This tip will help you keep your business free from emotions. To keep the peace, you may want to consider using a peer lending company. This concept is when you and the person that have loaned you the funds, use a mediator or middleman to handle the repayment of the loan. Both parties will come up with the agreement, and the peer lending will make sure that the rules are followed. The Peer-to-Peer concept keeps the process clean and provides a confidence of the lender that the loan will be paid in full, and for the service there is a small fee applied.
In conclusion, remaining professional, informative, and consistent with your lenders will help you grow your business. The three tips above will guide you in your business endeavors, as well as build your name for being a reliable and trustworthy borrower. Keeping a good name is critical for all business owners and especially for the new owners.