FROM - firstname.lastname@example.org
19 November 2014
Dear Mr T Dresdon,
In reply to your email I will be covering the issues that you have brought up to setting up your own business, in conjunction with the materials that you will need, you will also need some financial assistance. We can offer the advice on either internal or external financing for your future business.
Investing your own money into your business is vital, especially if you are looking to raise the chance of getting other ranges of finance into your business; if you are not prepared to place some form of investment in your own business then you will not usually secure funding from elsewhere, personal investment will be seen to be an act of commitment. In most cases this will be true for any person including you, trying to borrow from financial institutions to finance your new business. If you are not prepared to make your own investment then why should anyone else risk their money? There are several different ways that you can raise money to invest into your business. However for each financial solution there are advantages and disadvantages, the options could be: • Using personal savings
• Borrowing from members of family and friends
• Selling personal assets and any investments such as stocks and shares
With self financing the main advantage will be that you will have more control over your business, you will then not be placed under any pressure by investors. In some cases investors will want to see a return of their money and may set time limits on when this money is to be returned, and sometimes may even want a percentage of the new business; in terms of stocks and shares and may want to have some say in how the business is conducted. There will always be a risk when investing your own personal savings and seeing your own investments to raise financing for your business.
However, any risk can be scaled up against the opportunity to make your money work for you and earn more with a new business, with a lot of profit being made. There are many advantages to using your own money due to the fact that none of it will have to be paid back and adding to that the income that the business receives will be yours but a percentage will possibly be spent back into the business.
You may want to ask relatives and friends for support when you need additional business funds. This can work well, but often arrangements with family and friends are informal and based purely on trust assurances. But any confusion about the agreement could possibly damage personal relationships, so therefore it is vital that both parties are clear about what any of the investments will involve. You will have to consider whether you will also need a loan or take on an investor. If you decide to accept a loan or investment from either family or a friend then you should approach the funding as if it were a formal finance deal, which would possibly involve:
• Presenting your business plan
• Preparing a business case
• Taking professional advice
• Creating a formal, written agreement
You should both get professional advice if the amounts are substantial. This will later help you both consider factors objectively, without feeling under pressure and to reach a decision that you and the other person feel comfortable with. You may find it a good idea to draw up and agreement and then if agreed to proceed, finalise it with a written agreement. This can then prevent future misunderstandings and provide a solid basis for the business relationship. There are many pros and cons with the funding from family and friends being that that the plus to this funding provides a more flexible loan or investment that other lenders, they may offer the funding without security, less than would occur with a bank, the funds they do lend may be interest free or at a low rate.
But adding to these advantages there are several different disadvantages to family and friend funding being that…