One of the most common sources of capital for massage practices is family. It is easily accessible, possibly abundant, and most of the time free, but it’s not always as good as it sounds. Asking family and friends for money can add unneeded and unwarranted stress to massage entrepreneurs who are already in a high state of stress due to the starting of a practice.
Unfortunately, money is also the culprit in many ended relationships. So is money from family and friends always bad? No. There are different circumstances and changes you can make so that borrowing money from someone close can be as painless as possible.
Never take free money
It is too easy for family and friends to just hand over money because they believe in you and want to help. Insist that they are compensated for their money like a true loan. Without compensation then the loan is a big favor and favors tend to have a way of hurting rather than helping in the long run. Agree on an interest rate and set up a payment schedule.
Keep all equity
Many times you family will ask for a percentage of the practice in exchange for the money that way you won’t have to worry about paying the money back. This is great until decisions have to be made or until your family disagrees with decisions you are making in the practice. It is best to remain in complete control of your practice and compensate with interest payments opposed to equity.
Explain the risks
It is easy to paint a picture of your dream massage practice and show revenue and profit projections to family and friends when looking for money, but remember that it is not all guaranteed. You need to explain to your potential lenders that there is a chance you will fail and their investment will be lost completely. Making sure they understand the risks can ironically make both parties more comfortable.
Letting your family and friends know when they will get their money back is even more important than the actual loan. Set up a payment schedule with the amounts they will receive, including interest. This will eliminate any phone calls asking for their money back.
Have a written agreement
Even if you have agreed upon the above topics with your new lenders, it all needs to be in writing. Make sure the agreement is written and explained in a way that is easy to understand. Include sections relating to the payment schedule and what happens in the event of business failure or a missed payment. Depending on the size of the loan I recommend consulting an attorney who can easily help you draft the agreement.
As a side note, many people may feel insulted at first that you are requiring a written agreement. Explain to them that this is a business transaction, not a personal transaction, and should be treated as such. As an added benefit, the agreement is mainly to help them, not you.
Separate Business and Family
Once you have received the money, signed the contract, and the practice is running, separate business and family issues. Don’t bring up business issues at family functions, if there is something that needs to be discussed relating to the business loan then you can schedule a separate time to discuss the matter. This separation is the only hope in the event things go awry in the practice.
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