Monday, 23 July 2018

Information and commentary for the small business banking industry

Tips on taking family money

30 Jan

When new businesses are just starting out, one of the first places many of them turn for start-up funds is their family. Which, for the most part, is a good thing. However in order to ensure family harmony and make sure that everyone’s clear on the terms, there are some ground rules that should be observed. So if your small business advisors are being asked by their small business customers about the pros and cons of taking family money, it’s a good idea to sit them down and advise them.

It’s unlikely that someone’s mother will ask to see their business plan before she writes them a check. That can be a mistake, because their plan – and the ensuing conversation surrounding it – will help to define investor or lender expectations. So they should show it to her anyway, and make sure she understands it.

The more casual nature of family financing can create two very different sets of expectations. For example, someone’s dad may not be experienced in business matters and might simply assume that they’ll pay him back when you can – which means he’s expecting a check the next time your business secures a sale.

Your customer, on the other hand, may define ‘pay back when you can’ to comprise smaller, monthly loan repayments to begin when their business achieves positive cash flow.

That’s why it’s important to sit down right at the beginning and work out the terms of the loan. Getting a lawyer involved is essential, because they’ll make sure that everyone understands what’s expected of them and will lay it all out in a legal document.

Taking family money is just one aspect of going into business with family, as the below article demonstrates.

Read the full article at:

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