“I’ve got a great idea for a business, but I don’t have any money to get it started! Where can I get money from the government or find investors to help me start my business?”
If I had a dime for every time I’ve been asked this question, I’d be wealthy enough to establish my own small-business loan company. Almost every person with a start-up business wishes he or she had money—or more money to grow an established business. In fact, many people use their lack of funds as an excuse for not starting or expanding their businesses. Here’s what I tell them: You must not really want to make it happen! Successful entrepreneurs realize there are many ways to bootstrap yourself to success.
One of the most popular ways to find the business funding you need is to ask your family and friends. However, mixing money and relationships can be a recipe for disaster, but it doesn’t have to be that way. The Limited, one of my favorite trendy clothing stores, was started in 1963 by Leslie Wexner, who borrowed $5,000 from his aunt to open a small women’s retail shop called Leslie’s Limited. The Limited now operates in thousands of cities across the United States and boasts revenues in the billions. So there are a number of success stories that involve family/friend financing. However, there are many sad tales as well.
Most of the relationship problems occur because the transactions were handled poorly. Therefore, to avoid a relationship disaster, before seeking funds from family and friends, you have to do the proper preparation—it is vital. You need to approach a family/friend loan as professionally as you would any other source of funding. You need to be prepared with your business plan and a professional presentation. Demonstrate to your potential investors that you have a well-thought-out plan with defensible strategies and projections.
Even before you begin dialing for dollars, make a list of potential investors—people you know, including family, friends, and business associates. At this stage, you don’t worry about whether you think they’ll be interested, you just make the list.
Once you have your list, you can narrow it down. Here are some things to consider:
• Affluence. Can this person afford to lose the money? Remember, there is a high degree of risk involved in investing in a small business, so consider the individual’s financial well-being.
• Business experience. The best investor is someone who understands the entrepreneurial process and can evaluate your business prospects. Often successful entrepreneurs are interested in learning about new ventures and helping new businesses succeed.
• Emotional baggage. Avoid asking someone with whom you have had conflict in the past. A precarious relationship could lead to problems in your business. Additionally, don’t ask someone who may have to deal with repercussions from others in the event he or she loans you money. For example, a spouse who might become angry about the investment could create serious problems, and you don’t need additional issues to deal with when you are trying to get your business off the ground.
Once you have narrowed your list down to the top potential investors, schedule meetings with them to discuss the opportunity. (Don’t ambush them at a cocktail party or family gathering and ask for the cash.) After you meet with them and review your plan, give them time to review the information and think it over. Never put pressure on anyone to make an immediate decision. Ask when would be a good time to follow up.
Be careful about getting your hopes up just because someone agrees to meet with you. People will often say no regardless of their feelings toward you. Don’t take it personally. There may be issues in their lives of which you aren’t aware, and those may make them uncomfortable loaning or investing at this time. Never get angry or make someone feel guilty, and don’t resort to emotional blackmail. Maintain your integrity. Things may change and you never know when you might need to approach someone again in the future.