Talking about money, especially with friends and family, can be an awkward affair.
We’re conditioned to keep our business and private life separate.
That might not be the best move, though, if you’re just starting out.
Yoco is an African technology company that builds tools and services to help small businesses get paid, run their business better, and grow. According to their stats, 27% of new South African small businesses tap family and friends for start-up capital.
In fact, getting funding from close acquaintances is often a crucial moment for a new venture – it signals to potential future investors that the people who really know you, trust and believe in you.
To help you navigate this tricky process, Yoco put together a step-by-step guide to asking friends and family for financial support:
Who To Ask?
Start off by considering all of your options.
Make a list of the people in your life who would be financially able to help you out. Anyone who is financially vulnerable should be immediately excluded – no matter how much they believe in you or may want to support you, it’s an unnatural pressure to place on the business and the friendship.
Next, exclude any volatile family members – you can reconsider later if needed.
When looking at the people who remain, remember to also consider their particular areas of expertise or network of connections.
How To Approach Them
You need to strike a balance between letting your friends and family know that you take them seriously, and not coming across as too formal or stiff.
Yoco’s advice is to look at each “pitch” on an individual basis and tailor your approach to your chosen audience. Most experts agree that no matter who you approach, always be prepared with a concise document on hand outlining: evidence of your research, how you plan on spending their money, and a key summary of your business plan.
No matter what your pitch looks like, always start with a conversation. Be ‘real’, connect, and make sure that your passion shines through. If you believe in what you’re doing, they will, too.
How Much To Ask For
First, you need to know how much you need to get your business off the ground.
Divide this between the friends and family that you’re asking for help.
This figure should include all your start-up costs, plus working capital (for at least six months), less your own savings contribution – and always with a modest emergency buffer.
Again, approach each “pitch” on an individual basis: from what you know about them, how much could each person reasonably afford to contribute? Think carefully about what makes the most sense for each personality and unique circumstance and be open to discussion.
What Do They Get Out Of It?
Here you need to focus on managing expectations.
Everyone on board needs to know what they are in for, what the risks are, and what they’ll get (at every possible eventuality) – whether that is the interest they will receive on their loan, some equity in the company, or a product named after them. Whether you write an email every month to keep all your proponents in the loop or accept specific help from a few close friends with expertise, take care to hold onto your sense of operational independence.
If someone contributes to your business, they might feel entitled to give you advice or interfere in your operations. Make sure you have an array of suitable repayment options on the table so that everyone ultimately feels satisfied.
What’s The Worst That Could Happen?
For starters, limit the physical role that any of these beloved contributors play in the running of your business – this means clear boundaries being set from the beginning, and only accepting the help that you really need. The goal is to be vigilant about protecting your personal relationships from any business-related pressures, wherever possible, and making sure you have done everything in your power to avoid disaster.
You need to take some time to think about the possible problems that you could face. Your business could fail or adversely impact your personal relationships.
In other words, the most important thing to do here is to make sure that everyone is protected from the outset.
Now, go forth and prosper.
This information was provided by Yoco – helping power businesses since 2013.
[imagesource:twitter/news24] The man once dubbed a "psychopath" and "wife-killer" by Pa...
[imagesource:libertyuni] There is not a weekly news cycle that does not include a mass ...
[imagesource:guidable/canva] In 2021, around 80 000 people were reported missing in Jap...
[imagesource:thedailymail] Harry Styles has moved on from Olivia Wilde and all the dram...
[imagesource:instagram/satc] The Johannesburg leg of the South African Tattoo Conventio...