Friends & Family As Sources of Business Funding

As a budding entrepreneur, it took a lot of hard work and diligence, but you finally have your business idea squared away and things are starting to make sense. While visions of success circle throughout your mind, there’s probably one haunting fear that remains: how on earth will you come up with enough money to fund this whole thing? That’s usually not an easy question to answer, but it remains critical that we find an answer if we ever want to turn aspirations into achievements.

One of the first places that entrepreneurs look for funding is from family and friends. Sometimes an entrepreneur may be so lucky as to have family and friends come to them before they even ask for funding themselves! But while the sentiment should be appreciated, a wise entrepreneur will consider drawing funding from these two groups of people very cautiously. And while many people draw a hard line on fundraising from family and friends, doing so isn’t always necessary. Yes, these sort of business transactions can have horrible consequences if they sour, but if entered into wisely and with enough analysis, it’s possible for great things to happen. And although the range of things to be considered when entering such an agreement is vast and nearly infinite, I’ve distilled the subject down to three important considerations to ponder when you think of starting a business with the help of family or friends. To emphasize, these aren’t the only considerations that need to be made, neither may they be the absolute most important of any consideration – my aim is simply to provide a few pieces of food for thought.

1. Will the investment dramatically hurt or imbalance the lifestyle of your family member or friend if the deal goes wrong?

Consider how financially stable the prospective investor currently is. For example, if your friend is living with unpaid student loans or other debts, she may not be the best candidate for a round of financing. Even if she is enthusiastic and willing to contribute cash, the risk that this transaction results in if your business fails are simply too high. This isn’t to say that she cannot still provide other types of capital, however. Even though financial investments are out of the picture, personal capital of labor or social capital of contacts may still be desirable!

2. What level of control, if any, does your family member or friend desire?

Some people will contribute money to your cause merely because they want to help you achieve your dreams, and without a second thought to having a role in the business aside from financial backing. On the other hand, other people will expect some role or control in the company. The level of control could range anywhere from having free products and services for life, or a paid position in the upper levels of management. When probing for their desires, be sure to recognize that giving some level of control to the individual may not always be a bad thing. If he is qualified and brings talent or experience to the position, it’s worth considering.

3. What is the payout for your family member or friend? Will it be financial gains or simply goodwill?

Aside from control in business, a second big motivator for investors is the result or “exit strategy,” and family members and friends are no exceptions. Ask the interested investor what her expectations are for the future. Would she like to see her investment double? Or would she simply like her money back after a certain number of years? Either way, planning for the future by evaluating the expectations made today can be instrumental in reducing tensions down the road.

Tips for Strategic Fundraising Planners

Fundraising may sound like a simple event with small activities aimed at attracting people to chip in for something you believe in. In reality, fundraising can be anything but simple. Any professional fundraiser would tell you how detailed and intricate the whole process is. For a fundraiser to be a success, it must come with its own strategic plan.

A strategic plan is a thorough study of the goals of the fundraiser and how to reach them. Professional fundraisers say that an unplanned fundraiser is not as effective or as sustainable as a planned fundraiser, since a plan has already covered the ups and downs, theoretically. Therefore, if a calamity does hit them, they are better prepared to withstand it and go around it to be efficient (Perry, 2007).

A strategic fundraising plan would incorporate four main points

1. Goal: The amount the organization strives to raise in the identified year

2. Mission: The organization’s mission statement and how the funds go in line with the statement

3. Method: How the money will be raised

4. Timeline: Time bound goals and methods to measure effectiveness (Sargeant & Jay, 2010).

Here are a few tips for strategic fundraising planners:

Make a Strong Case

A fundraiser always has a purpose. Ensure a solid specific case statement for the people. This would describe the organization, the purpose of the campaign and how the plan of the fundraiser is in line with the mission of the organization. The fundraising plan needs to have actions that would drive the campaign to achieve specific goals from a large group of investors or money sources (Sargeant & Shang, 2010).

Choose the Right Team

A reasonable team for the fundraiser is important. Gather experienced nonprofit workers who have knowledge of the proceedings. The team will be responsible for research, looking for prospects, sending out invites, etc. (Burnett, 2007).

Have a Realistic Goal

Know that fundraising is not an easy job; it is laborious and it takes time. Keep expectations realistic so motivation isn’t lost. Goals should be long term and be focused since there are a multitude of non-profit companies fighting for similar grants (Burnett, 2007).

Know the Target Audience

Most large institutional foundations are usually one-time donors. This is mostly because they wish to have a larger impact and wish to help more people. Therefore, individual donors need to be celebrated and met with similar enthusiasm. Second-time donations need to be highlighted, since they show the effectiveness of your organization. Search for donor prospects and know your supporter base. Focus on places where funding is most probable (Sargeant & Jay, 2004).

Be Creative

Going to donors and simply asking for checks is the old way. Get creative. Think of ways to negotiate the deal and keep it for your benefit. Asking the donor to give small amounts in a spread out manner is a good way. Or, make a deal that a certain benchmark achieved would be the key to release of funds by the donor. This develops trust and would be more beneficial to raise funds (Perry, 2007).

Being prepared for anything you desire to do is one of the key standings for guaranteed success. Highs and lows always need to be taken into account to ensure that the road to success is not blocked. Yes, unexpected things happen and plans fail, but statistics show that a planned fundraiser captures a bigger market and has a greater sustainability than unplanned fundraisers. Moreover, employees across the organization understand the goals, keeping them motivated and organized for greater benefits. It does take time and probably even double the time of the task to make a plan. However, in the end, the results will be worth the trouble (Sargeant & Jay, 2010).

References

Burnett, J. (2007). Nonprofit marketing best practices. Hoboken, N.J.: Wiley.

Perry, G. (2007). Fired-up fundraising. Hoboken, N.J.: Wiley.

Sargeant, A. & Jay, E. (2004). Building donor loyalty. San Francisco: Jossey-Bass.

Sargeant, A. & Jay, E. (2010). Fundraising management. London: Routledge.

Sargeant, A. & Shang, J. (2010). Fundraising principles and practice. San Francisco: Jossey-Bass.

How Lack of Fundraising Strategy Harms Your Personal Finances

I held a candid conversation with a soon-to-retire sports personality (name withheld for ethical reasons but let’s call her Jane) about her future after years of active professional sporting. She was concerned about how to sustain her charitable activities without blowing her savings.

Influential individuals, including celebrities and athletes, are very active in charitable activities. The strong influence that communities have in supporting ‘one of their own’ or backing their home team help fuel these relationships. Some of the successful athletes are also beneficiaries of community driven non-profit programs. Therefore, athletes are more likely inclined to returning the favor through engaging in community empowerment activities. But at what cost?

From my conversation with Jane, she told me that despite having registered a non-profit under her name, her donations to other charities were made using her personal account (nothing wrong). However, as someone who wants to engage more in charity work, the problem then becomes how does she solicit for funds using your personal account? And how does she manage her personal finances separate from the charity work?

Like Jane, there are other individuals passionate about charity work but lack strategies to raise funds from their networks and hence end up blowing their savings just to keep up with the spirit of giving back to the community.

Without following a solid plan, it is easy to veer off your goals. And without a strategy, lack of financial prudence creeps in and this becomes a liability to your personal and non-profit accounts.

Once concerns about financial management and accountability set in, the risk of harm to your brand and person escalates. The impact is devastating to both your non-profit activities and to your personal life, including financially. The negative publicity damages your reputation and credibility. It might also attract punitive action from government and professional enforcement agencies.

Some of the disciplinary actions from professional regulators and government (federal) include; deregistration, freezing of personal and the organization’s assets, or imposition of fines to serve as a warning.

Luckily for Jane, her case was quite straight forward as so my input was technical. We set up the technical structures for her non-profit and developed a strategic, operational plan. The strategic operation plan will act as the policy guideline for the non-profit in the midterm.

I am also glad to have met Jane and worked with her to develop a prudent plan on how to solicit and manage funds from donors in her network. Most importantly, I am glad to have worked with Jane in separating her personal financial activities from those to do with her organization.

There might be other people with similar concerns like the ones that Jane experienced. Others might have unclear strategic fundraising plans. I advise you seek professional assistance to straighten up these concerns. They not only stifle your organization’s growth potential, but also exposes you to self-inflicted reputation or financial harm.