Reasons Why not to get Family to Fund your Startup

Image courtesy of Howard Lake
Image courtesy of Howard Lake
If you start a business it is likely that you will want to look for investors. You may be able to fund it yourself, but many companies need some extra funding of some sort. This can mean looking around in different places such as lenders, crowdfunding etc. Many people will consider asking family members to help out as well. Although they may be keen and you might see it as an easy option, it can be a complete disaster so think hard about the points below before doing it. It is also important to note that some of them may also apply to having funding from friends or acquaintances as well.

Repayments
The family may have a different idea of if, how and when they will get their money back than you. They may see it as a loan and expect repayments, perhaps in full or instalments by a certain date. They may be happy to wait until you start turning a profit and want it back then or they may be happy for you to pay it back when you want or perhaps even keep it. It is so important to make sure that you all know what is expected and that you have a written agreement so that you can refer to it should there be any misunderstandings at a later date. It sounds formal, but it could make a huge difference.

Guilt
If the family member suddenly needs money and they gave some to you, which would have been helpful to them, it can make you feel very guilty. Even if they do not expect it back or are happy with a specific repayment scheme that you put in place, it can still be really hard to deal with this sort of situation. Some people will be more affected by this sort of thing than others, but it is worth thinking through whether this could apply to you. You may not even know if you have not been in the situation before and you need to decide if it is a risk you are willing to take.

Control
You may find that if a family member invests some money into your business then they will expect to have some control over the way that it is run. If they are experienced, this could be really useful, but you may find that it is not something that you would welcome. You may have a clear idea on how you want to run things and not want anyone else interfering. It is wise to therefore make sure you know how they expect things to work before you start.

Relationships
It is possible that this could have a big effect on your relationship with the person. Whether you have disagreements over repayments, they have financial problems and need the money, they want control and cannot or there could be other problems that crop up. It could change the relationship between you and that family member for the rest of your lives.

Comments

comments

Rachel Henderson is a professional freelance writer from the UK. She writes on many subjects but specialises in personal finance. As well as contributing to various blogs and websites she has her own website tracking her own money making process http://www.turnonepoundintoonemillion.com and sells her books through http://www.bowbridgepublishing.com.

Leave a reply:

Your email address will not be published.

Site Footer

© Copyright 2011 - 2016 MakeMoneyInLife.com