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Thread: Borrowing money from family member to purchase existing business. Best approach

  1. #11
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    Quote Originally Posted by Multimediatech View Post
    Starting a business on a loan is just a perfect recipe for a disaster.
    Unless you're Facebook, Twitter, You Tube, Google, Apple, Microsoft, General Motors, McDonalds, and just about every other successful business on the planet.
    Yes, it's risky, but it's not always a recipe for disaster. The reality is that most people don't have the cash needed to start a business just laying around.

    The abilities of the person running the business, product, market, and a solid plan have more to do with it than whether or not you're borrowing money.
    Pretty much everyone borrows money in business. Even people who already have it.

  2. #12
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    If I were to start up a business again, I would advise not to lend money from people who are friends or family members. I used my old accumulated loan for university studies which had a very low interest rate, to fund my first start up. But this was in Europe, not the US, so it might not work out so smoothly depending on where you live

  3. #13

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    I agree, I wouldn't also borrow money from my family and aquaintances. I would rather collect money every month, and then start my own business. All the best

  4. #14
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    First, never borrow that type of money from a family member. Because until that loan is paid off, every family event will be strained. There will be questions about every minute that you are not working or taking a vacation. Also, should the business go bad, are you willing to live the rest of your life knowing that you lost $30,000 of your sister money. If she is struggling in retirement, are you willing to accept that???

    I am assuming that she is an average person, if she is so rich she can just give away that type of money then the rules change.

    I would also do whatever possible to prevent getting a loan. While that is not always possible, it is the best way possible. Don't listen to people that say only the rich start without a loan, that is BS. You may have to start smaller or wait a little while you build up the amount needed. But it is possible. Being debt free will also allow you to withstand market forces much, much better. People make foolish decision when under the stress of having to repay loans.
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  5. #15
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    Quote Originally Posted by nealrm View Post
    First, never borrow that type of money from a family member. Because until that loan is paid off, every family event will be strained. There will be questions about every minute that you are not working or taking a vacation. Also, should the business go bad, are you willing to live the rest of your life knowing that you lost $30,000 of your sister money. If she is struggling in retirement, are you willing to accept that???

    I am assuming that she is an average person, if she is so rich she can just give away that type of money then the rules change.

    I would also do whatever possible to prevent getting a loan. While that is not always possible, it is the best way possible. Don't listen to people that say only the rich start without a loan, that is BS. You may have to start smaller or wait a little while you build up the amount needed. But it is possible. Being debt free will also allow you to withstand market forces much, much better. People make foolish decision when under the stress of having to repay loans.
    I agree with all of that. Sometimes you have to wait. Build. Plan. Save. Get yourself in a better position to get started. Maybe start smaller.

    Don't get caught up in the lie that all you need is a good idea and the rest will take care of itself. Too many people rarely think about what happens after you open. A month later. Year later. 3 years later.

    MOST people who aren't in business for themselves, have no understanding of what it takes to create, run and grow a successful business. What they think they know is unrealistic. Taking loans from people who can't afford it, are looking for immediate returns, and do not understand that it's a risk and it may fail altogether is a disaster waiting to happen.

  6. #16
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    Quote Originally Posted by Harold Mansfield View Post
    Don't get caught up in the lie that all you need is a good idea and the rest will take care of itself. Too many people rarely think about what happens after you open. A month later. Year later. 3 years later.
    That needs a line of exclamation points behind and change to bold 16 point text. Good ideas are a dime a dozen, maybe even cheaper. Doing the hard work of turning a good idea in something the turns a profit and you can live off, is a completely different point. Those willing to do that are few and far between.
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  7. #17

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    In most of the cases, yes, it's a terrible mistake. But I think that if you have a very small business with a year running from your own money, you are ready to recive a loan and you could manage it very well. I think that a business with 1 year old can be considered still a "start-up business." In my own opinion.

    But yes, If you start a business with 0% knowledge and with a 100% loan = disaster/failure.


    Greetings.

  8. #18
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    I don't think borrowing money to finance a business will succeed. There's a lot of risk in venturing into a business, and a lot of risks when the money came from a loan or a member of your family. I think you need to think more than twice before entering into it.

  9. #19
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    Ally,

    As an Outsource CFO - I would recommend looking at this very very carefully.

    You are asking somebody to put in $48,000. Without knowing more - I am going to assume this doesn't have any working capital built into it.

    The business has the potential of making $65,000 annually (is this Net Gain or Revenue?). I'm going to assume it's revenue and be conservative - which means the ROI on this business would be around 3%-5%. In short - not a great business acquisition.

    A few other things you should be attentive to when purchasing this business - what are the relationship it has with its vendors/customers? Has the current owner neglected it to the point of no recovery (2 months of neglect can create 9 months of cash flow problem). Realistically, I would recommend getting an accountant to review this before you pull the trigger.

    And remember - always be willing to walk away from a deal. If it's not a good fit, it's not going to be a good fit. Let me know if you would like my help on this one.
    Tran Nguyen
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    Tran'sActions Accounting, LLC

  10. #20

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    I would definitely not recommend borrowing money from a family member without being 99,9% sure that it will succeed (you can never be 100% sure). Getting a loan may not be the perfect option, but probably slightly better. Remember to think twice (and maybe even few more times) before investing money and be sure that you know all the costs and risks that may come in your way.

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