Pitfalls on path to profits

Most financing options available to you if you are not using your own money have advantages and disadvantages, so consider each carefully.

Most financing options available to you if you are not using your own money have advantages and disadvantages, so consider each carefully.

Sometimes you can combine two options. For example you can form a partnership with someone who has experience - and banks consider experience an important criterion for loans.

Even if you borrow start-up money from a friend or relative you cannot be casual about it. Treat the loan as you would one from a the bank. Family and friends also do not want to lose their money if your business fails.

Make sure everything is written down. This will help if a misunderstanding develops.

Above all, pay back the borrowed money as soon as possible. Failure to repay loans from family or friends has ruined many relationships.

If you can't make a payment, inform your creditors. Don't keep quiet, for you might need their help in future.

If you finance your business with partners, agree how much each will contribute to working capital, the money you use to start operating until the business makes a profit.

But before you proceed with the arrangements make sure that you know the personality, character and behavior of any potential partner. A bad partner will often lead a business to failure.

Does the partner gamble? Is he bankrupt? Has the partner had previous business failures? Does the person do drugs? Is the person inclined to engage in fraudulent activities? Has the person been jailed for violent behaviour?

If the answer to any of these questions is yes, think again about going into business with that person.

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