2.02 – Tapping Into Friends & Family
Many entrepreneurs start their businesses using personal savings, credit cards, and other personal assets like proceeds from second mortgages or stock sales. Why? Despite the availability of venture capital and private investor money, your new company is often considered too risky—it’s unproven, and market acceptance is uncertain. At this early stage, the only people likely to invest are you and those who know and believe in you.
But what if you don’t have friends and family willing to invest, or you prefer not to take money from them? One approach is to bootstrap—beg, borrow, and barter for everything from products and services to office space. Here are some practical bootstrapping tips:
- Shared Office Space: Look for office suites where you can share facilities and equipment with other tenants.
- Co-Location with Compatible Businesses: Share office space with an established company compatible with yours. You may even be able to barter or trade services.
- Lease Equipment: To reduce cash needs, consider leasing rather than buying equipment.
- Barter Services: Trade services with established companies to save cash.
- Quick Customer Payments: Encourage customers to pay quickly. Sometimes, a new company can get customers to pay a deposit upfront, providing capital for raw materials.
- Favorable Supplier Terms: Ask suppliers for favorable payment terms and always pay on time. Building strong relationships with suppliers is crucial as your business grows. Initially, you may need to request smaller amounts of credit from several suppliers until you establish your business.
If you decide to accept money from friends and family, do so professionally. Have an attorney draft a contract to protect both parties. Investing in a business venture is risky and should only be undertaken by those who can bear the potential loss. Remember, family money is the most expensive money you’ll ever use because you’ll pay for it in more ways than one for the rest of your life!
By taking a strategic approach to funding—whether through personal resources, bootstrapping, or friends and family—you can ensure your business gets the support it needs while managing risks effectively.
