My Dad opened his business on a hope and a prayer. He was dissatisfied with his job because he made so much in money in sales for the company he worked for that they didn’t want to pay him a commission based on their commission formula. Why he would have made more than a vice-president for the company, and they didn’t want to offend the vice-presidents.
But my Dad said they made one mistake; they taught him everything he needed to run his own company. The problem was that he needed capital because the terms of his contract when he left this company forbade him from doing business with any client from his old job for one year.
He went to the bank and got nowhere. There’s a saying in the banking world that basically goes like this,” It’s a great idea and a sure money maker. That’s why we can’t loan you the money.” So my Dad went to his best friend for a loan.
Now Tim was a wounded World War II veteran. He wore leg braces because of shrapnel wounds. He,; therefore, had a disability pension form the government which he well deserved. He also was very good with money. As my Dad told the story, when he saw Tim, it took Tim 15 minutes to find a CD small enough to break. (They made over 20% interest back then.) When he found one, he took my Dad to the bank, and they cashed the CD. Tim then told my Dad, “We’re going to lunch and you’re buying.” My Dad said, “I’m Buying! “ Tim said, “Sure. You’re the one with $ 25,000 in your pocket,” a lot of money in the 70’s.
The lesson is that if you have an idea for a business, and you think it is a winner, you’re going to have to find capital, and don’t expect it from traditional sources. However; the amount you need also depends on what your company idea deals with and your circumstances. You can be capital short if you grow too big with no plan and take on too many customers you cannot service. But if you start out small, you may need little capital.
To assist you, here is a link on the subject of capital and finding it: http://www.inc.com/guides/finance/20797.html
Now one of the capital sources this link discusses is raising capital from family and friends. This is a very touchy subject. If you ask family for money, they may think you’re a sponge. If you don’t ask and found a dynasty, you’re a cold hearted being who didn’t even give your family a chance to make money on your great idea.
One thing is for sure, owing money changes relationships, so know the person you are dealing with on this matter. My Dad and Tim had no problems because it was set up strictly as business transaction. Too, Tim had faith in my Dad’s character, and he also made sure that he was compensated for his investment when the investment panned out in a great way.
The big thing I can write about in all of this is to have a drawn up business plan before you talk to anyone about borrowing. Make sure your life partner, such as a wife or husband, is on board and knows that there will be sacrifices in time and maybe lifestyle. I have seen a wife or husband sabotage a new business out of jealousy over loss of being the center of attention. Then if you get the capital, work, work, work.