Working With Outside Investors When Starting Your Own Business

Since starting a business can be overwhelming both emotionally and financially

, some people turn to outside investors to help with start-up costs. While this may seem like a good idea when you have a lean budget, make sure everyone understands their role before you take any money. Because those who invest in your business may want more of a say in the day to day operations, limiting their power through official documentation is the best way to start a business and maintain it on your terms.

Since your outside investors will probably be family or friends, you may feel more secure asking for their help than taking out a loan. While most people are willing to lend you the money without trying to take over your business, but others will want to have a say in how you spend it and even in how you structure your business. Before accepting any loans, even from family or friends, you need to make it clear that they will not have any say in how your business is run. Depending on the amount of the loan, you should set up a repayment schedule so you can quickly repay the loan. This shows that you are reliable and worth investing in.

If you are borrowing a large sum of money from an outside investor, hiring a lawyer to create documentation that explains how the loan will be allotted, what it will be used for, and how it will be paid off can help make borrowing the money much easier. Once everyone is comfortable with the loan agreement, it can be signed. It is important to adhere to payment schedules and other stipulations in the documents so everyone will be happy with the agreement.

With the money you borrow, you will be able to start your business. Depending on the type of business you want to start, you will have enough to buy equipment, materials, and pay for advertising and other expenses. Creating a budget in order to use the loan properly is also important. It may take some time before you start generating a profit, so it is important to have enough to purchase additional supplies if necessary. Once you start generating a steady profit, you can begin to repay the loan and create another budget that takes into consideration your new monthly income.

Before taking loans from outside investors, make sure everyone understands what their responsibilities are so you don't end up having to give the loan back, repay it early, or lose a friendship. While many investors have the best intentions, they may overstep their boundaries and try to take over because they have a vested interest in the success of your business.

Working With Outside Investors When Starting Your Own Business

By: Jess Shaw

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