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Family Feuds and Financing

If you read my previous blog, we discussed how family reunions are one of the best places, as painful as they may be, for funding new business ventures. Many small businesses have been funded by eccentric aunts, retired uncles, and infamous family spinsters who protect the family fortune like hound dogs under the front porch.

The problem with family funded businesses is that they can easily and quickly become the dumping ground for family misfits. When it’s time to hire a sales manager, the uncle who invested in your business just happens to have a son who lost his 14th job, and he’s confident he’s the perfect candidate…he just needs a chance.

Your aunt, who is also an investor, has a niece who just graduated with a degree in Parks and Recreation and needs that first break for her resume. But the breaking point is when the family members act like they know more about growing your business than you. It’s like receiving hunting tips from someone who cooks.

No doubt, you get the picture and now it’s time to delicately extricate your family from the business. This must be done with the greatest of care, but not before you’re confident of securing a new source of capital.

If you can answer yes to the following two questions, then you have an excellent chance of jettisoning your relatives and trading them in for a bank:

  1. Has your business been profitable for at least three years?
  2. Do your revenues exceed expenses by at least 5 to 10%?

Before you get too excited there are a few more tricky situations, but compared to the family feuds you’ve been refereeing, this should be as easy as eating country ham with red-eye gravy.

Normally the best place to begin is a local or community bank that may already be familiar with your relatives as well as the economics of your business.  Let the bank know you’re planning a family exit strategy. They can help design a reasonable plan, and make sure you pay off the relative who is the biggest pain first.

Depending upon your answers to the two previous questions, the bank may ask for a couple of other items including:

  • A claim to your business assets, which could include your office furniture, copiers, computers, etc., as well as the inventory of your business.  Other collateral could be a second mortgage on your home
  • You may be asked to guarantee the loan or find a friend or family member to guarantee the loan
  • Your credit score, both business and personal
  • A background check
  • Finally, and probably most important, a solid business plan

Expect the bank to take about ten days to two weeks before rendering a decision. If for some reason they say no, ask why and take their guidance.

If this doesn’t work, then your next recourse is group therapy, and the thought that, “Families are like fudge, mostly sweet with a few nuts.”

And remember, UPS Capital, the financial services arm of UPS, offers a variety of products and services that are designed to help your company at its various stages of life.

To learn more about UPS Capital and how we can help you finance your business, visit our website

Category: Business Insights
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