Asking your family for a financial investment for your business is pretty tricky business. Nobody likes asking for money, but if the reasoning behind the monetary request is sound, a small investment from family members could be well worth it.
On the other hand, seeking investments from your next of kin could get you in hot water with loved ones if your business is already fledgling or your business idea isn’t fully imagined.
With this in mind, here are a few pros and cons of acquiring business funding by way of the family tree:
Asking your family for money isn’t the end of the world and, in some cases, it can actually be a much more pleasant experience than asking for an investment from an outside source.
You know your family better than anyone does, so you’ll know exactly how to approach your family with the investment opportunity.
In addition, if it’s a new business idea you want to share, you’ll already have a clear understanding of which family members might be interested and, more importantly, you’ll know which family members aren’t interested.
Another benefit of asking family members for an investment as opposed to outside investors is the honesty factor.
Not only will you be relaxed, upfront, and honest about the investment details, your family members will show you the same respect by telling you how they truly feel about investing.
Outside investors have an advantage in that you don’t know how much they’re willing to offer. Chances are you already know your family’s financial standing and therefore can ask for an appropriate amount without offending anyone. Additionally, if your family is under financial strain, you’ll know to pass on the investment opportunity altogether.
If and when your business does succeed, both you and your family will benefit. Depending on the agreement, family members that invest in your business are technically shareholders and should receive shareholder rights.
This isn’t true with every case, but chances are family members that help out financially don’t charge interest. After all, your family wants you to succeed, not go into debt on their behalf.
Even with the best intentions, family investments can turn a happy home into a financially stressed and frustrated environment.
Business becomes personal
If you lose an outside investor’s money, it affects your finances, but not your family life. Unfortunately, losing your family’s money could ruin relationships as well as your wallet.
Some family members might be inclined to give you their business opinions and feel the need to pry into details about your business when their money is involved. Likewise, some family members might consider themselves part of the business due to their investment. This could lead to unqualified members of your family trying to make executive business decisions.
Even though it’s family, contracts and other documents still need to be written and signed, which could offend family members and lead to skepticism.
When you are ready to ask for a business investment from family, the first and best thing you can do is to tell them that regardless of their decision, they’ll always be loved.
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