Is It Ever a Good Idea to Take Money from Family and Friends?

Transcript:

Hi, I’m Syama Meagher, CEO of Scaling Retail. And today, we’re talking on the topic of fashion fundraising. In fact, the main question today is, is it ever a good idea to take money from friends and family? Now, guys, the VC world has made it seem so apparent that a fashion startup should always be getting fundraising and capital from outside resources before they actually launch their fashion business. And to be honest guys, I do blame the tech startup community for making it seem as if there can be an MVP or minimum viable product in the fashion space. It’s just not possible, right? You need to have startup capital, you need to be able to build a brand, build a voice, and build a product before your company is really ready to get outside funding. Now, not everyone’s going to have a great story like Glossier. In fact, Emily Weiss when she went to do her funding, she already had a lifestyle platform, she already had thousands of engaged users who are using her blog, and contributing, and writing, and really expressing needs, and interests, and passion.

She was able to raise funding based on what she had, which was a community and traction. But that is a very different story than a lot of the fashion startup businesses out there that are launching based on having great products, or great ideas and that need that startup capital in order to get going on their first production, their first photoshoot, or even their first pop-up shop. So if you’re not in a position, guys, to leverage your community, like what was happening with Glossier, then you need to start to look at your savings as a first resort and then start to tap into other different modes of financing. And so today, we’re going to talk a little bit about credit card limitations, making a business plan and the interest trap, right? What exactly does it mean when you start talking about interest? The borrowing funds and using a credit card can seem like the easiest thing to do when you’re launching a business, it can actually be a little bit misleading.

Well, you have a credit card that might have a limitation of $50,000 and that might seem like a lot of money, you do have to look at your startup costs and say to yourself, “Okay, well, that $50,000 is only going to take me so far. How am I going to make up the rest of that $50,000 or $100,000 in order to cover my operating costs? So, looking at credit cards as a possibility, or line of credit is not always my preferred method because you simply usually need more money than what you have access to. That compounded with the fact that over time, the interest that you’re going to be spending on credit cards is going to be substantially higher than those that you would acquire from let’s say, friends and family loans at the beginning stage of your company. So, borrowing from friends and family is a lot better than looking at credit cards, is a lot better than getting an outside business loan. Because friends and family are going to be people where yes, you will want to start off by writing certain contracts, making sure that if it is a loan, that there are repayment terms in there, but it’s going to be a lot more flexible with lower interest rates and easier opportunities to pay back than let’s say than trying to do it all on your own through using a credit card or through using a line of credit.

So, are you going to get money from friends and family? When we think about getting money from friends and family, the three things that you have to make sure you have in place are a business plan. Now, it doesn’t have to be the most complex business plan, it doesn’t have to be so thoroughly built out as maybe you would if you were approaching a potential real VC or an investor. However, it should be something that is really detailed and thought out, so that your friends and family who may not have any idea what it’s like to run or manage a fashion business will be able to understand how much capital you need, when you might need another round of capital injection, and what kinds of ROIs you should be expecting as a business owner. Now again, friends and family are going to be more lenient when it comes to interest rates and payment terms. However, you also need to treat them as, you know, sincere and real investors in your business. If you are doing something on Kickstarter, lots of people who do friends and family raises on Kickstarter even go a step further to be able to provide people with their financial projections or where they think their business is going to be heading to and where they think the opportunity and financial opportunity is for them as investors in the business.

To get more on this topic, head on over to our blog to find out more about how to start a fashion label and how much money you really need. And do make sure that you download our free resource, the pricing and profitability cheat sheet. This is going to be your key opportunity to find out how your pricing impacts your business and how profitable you can really be. Lastly, don’t forget to leave comments below. We love hearing from you. Make sure you head on over to Instagram and follow us at @scalingretail and when you’re ready for strategic business advice, consulting and to launch and scale your business, send us an email at hello@scalingretail.com. I’ll see you later. Bye.

Here’s a free download to get you started- enjoy “Your Pricing & Profitability Cheat Sheet”!

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