How to Turn Your Loved Ones Into Your Business Backers
NEW YORK (TheStreet) -- While you may not mind asking mom and dad for tuition funds or begging friends to chip in for gas money, asking loved ones to fund your business is a different story.
Even if you're a responsible investor and a wise entrepreneur, money can cause serious problems in relationships. Before you ask a friend or family member for business capital, experts say it's best to go in with a game plan and make sure you treat every investor -- even grandma -- with respect.
"Friends and family are typically the first place people look when they are starting a business, because those are the people who already have faith in you and your abilities," says David Barbash, managing partner at Boston law firm Posternak Blankstein & Lund.
People who have confidence in you will be more likely to contribute to your business, but Barbash cautions that they still need to see a business plan and understand your corporate vision. In other words, treat them like you would any other investor.
"Don't approach them any differently than you would an average investor who you are meeting for the purpose of asking them to invest," he says. "Even though they already believe in you, boost their confidence even more by telling them how you're going to generate revenue, how you plan to grow the business and what your strategies will be. They'll walk away even more excited to help you."
Never assume that prospective investors understand your professional expertise just because they know you -- don't be afraid to tell them stories about your vision for the company and your experience, says Jerry White, director of the Caruth Institute for Entrepreneurship at the Cox School of Business.
"Tell them an interesting story about how you, the entrepreneur, recognized an unfulfilled need, your approach to solving that need and your current plans for making your business viable, including your search for financing," White says. "If they show real interest then that will lead you to be able to discuss execution of the plan."
It's great to go into as many corporate details as possible, but avoid discussing exit strategies or plans to sell the business, says Rohit Arora, co-founder of Biz2Credit, a small-business lending service.