Rule #1: Family and Friends Are Not Banks: Don’t Treat Them Like OneBankers and investors expect to be asked for money, family and friends do not. It is always a bad idea to catch someone off guard and ask them for anything, especially money. If you were being asked to invest in something, you would want information, and the time to think things over. Your family and friends deserve this same courtesy.
Rule #2: Think About What You Need Before Bringing Up MoneyBefore you approach the person, be sure to thoroughly think through what you want to ask them for. Have an amount in mind, repayment terms, and any other conditions you feel are needed. You should also think about what is not acceptable, and be prepared to negotiate, or politely decline an offer that does not meet your business goals, or that might sour a personal relationship.
Rule #3: This is Business: Set up a MeetingBefore you ask for something specific, broach the subject in advance. Give the person you are planning to ask for money time to think about whether or not they are interested – before you even ask. Set up a business meeting, or invite them to lunch (you pay) and tell them you want to discuss a business opportunity with them.
Rule #4: Prepare a Sales PresentationIf you have a business plan (you should before asking anyone for money), promotional literature, or financial reports, give them this information before the meeting takes place. Just because the person is a family member or friend, do not expect them to be excited about offering money without being “sold” on the idea, first. Prepare, and deliver, a marketing strategy or sales pitch, just as you would do for an investor or lending institution.
Rule #5: Put Everything in WritingFew things can sour an otherwise good relationship faster than a misunderstanding over money. If you are asking for money for a business purpose, make it a business transaction. Even if the lender says that formalizing the loan or investment capital is not necessary, it is. Not only to protect the person giving you money, but to protect yourself and your business.
Insist that the terms of borrowing, or investing, and any repayment terms, are clearly spelled out in a contract or agreement. Have all parties involved in the transaction sign before you take the cash.