Most small business owners are finding it very difficult to find financing for their business. Because of the economic downturn it’s a challenge to get any credit through cards or banks. Banks have tightened up on their lending so much that even small businesses that have been successful for years have failed to get financing when submitting applications for loans and lines of credit. As a result this has left small businesses and our economy in even worse shape. Therefore many small businesses have turned to bootstrapping, which is a creative way to generate alternative financing.
Well, what bootstrapping strategies can you use in this overwhelmingly challenged economy? You can’t expect your business to grow if you just sit and try to wait it out. You have no other choice but to use alternative sources of financing. Let’s look at a few sources that involve family and friends. One caveat you should ackcnowledge when involving family or friends in your business is: do your due diligence. Find out if they are the type who will agonize if payments are behind. Find out if they are the type who will try to duplicate your business ideas. Find out if they are the type who will want to take over your business. Find out if they are the type who will try and force you to hire their unqualified friends to work in your establishment, just because they gave your upfront capital. Interview them and share some of your ideas as well (not all of them) so they can get a feel for what you are doing now and what you are trying to accomplish in the future. Discuss with them where they may fit in and see if this is something they are willing, able and committed to do.
I have had the opportunity to work on some projects with both friends and family. Because I have been very cautious it has been a good experience for all involved. There have been some cases where things went awry but I was able to bring things back into order, while also maintaining the relationship. These experiences helped me to make even wiser choices later, when involving family and friends. You must also remember that you will always need to do ongoing check-ups, just like a doctor’s appointment. As your business grows, you may need to transition out of agreements or contracts with certain individuals because they may not be suitable for your business any longer. Be sure to set up expiration dates on contracts when necessary, and pay individuals what you owe them, so that it doesn’t appear that you are kicking them off of the bus just as you are about to take off. You can always review options for them to partner at another time if necessary.
Family and friends as business partners may be the route for you to go. This choice can work out to be a marriage made in heaven if you choose wisely upfront. Some individuals will have more cash to give than expertise and vice versa. Some will have both. Set up an agreement to give them some percentage of the profit as it comes in. For example, I offered a friend the opportunity to co-author one of my books and receive a certain percentage of the sale of each unit. As a result she invested heavily in the printing, publishing, marketing, editing and other costs associated with getting the book in stores and in the hands of the public. Of course, she is an English professor with two doctorates.
You can do the same type of deal with those you involve in your business. A partnership doesn’t have to mean a formal legal entity, it can just be a simple agreement to barter services
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