62 | HOW TO WRITE A BUSINESS PLAN
particularly important for new businesses.
If you arrange credit and can only pay a
part of your first bill in 30 days, pay that
amount and ask the supplier for a short
extension.
Some suppliers may offer extended pay-
ment terms to get your business. Occasion-
ally a supplier will ship merchan dise in a
slow part of the season and let you pay for
it several months later, in the busy season.
Before you try any of this, check with
your suppliers’ sales reps about company
policies. Your suppliers are invaluable to
your business, and you want to keep them
on your side.
Friends, Relatives, and
Business Acquaintances
The type of financing provided by close
friends and relatives does not normally
vary much from that provided by strangers.
The help may be in the form of a gift, a
loan, or an equity investment. The big
differences are usually the availability of
money in the first place and the interest
rate or investment return.
With friend- or relative-provided
financing, however, the commercial model
isn’t the only one. A common alternative
is the loan-gift hybrid. Here a relative
or friend lends you money at either a
low interest rate, or with no interest at
all, telling you to pay it back when you
can and to treat it as a gift if you can’t.
Obviously, this type of help is invaluable
if it’s available. It gives you time to get
your business established with a minimum
of pressure. If you’ve any doubt about
your angels’ financial position, make
sure they consult their banker, attorney,
or financial advisor before advancing
you the money. Also, check with a tax
advisor if you receive a substantial gift
in one year from any individual, since
there may be tax implications. Generally,
property you receive as a gift, bequest, or
inheritance is not included in your income.
However, if property you receive this way
later produces income such as interest,
dividends, or rentals, that income is taxable
to you. For additional information, refer to
IRS Publication 17, Your Federal Income
Tax. You can find this publication online at
the IRS website http://www.irs.gov.
Finally, write down the terms of the loan
or transaction and make sure everyone
thoroughly understands them. After all,
you want to feel like you can go to family
reunions even if your business fails.CAUTiON
Think twice before you accept.
Think about what a business reversal could
do to your personal relationship, even if your
relative or friend says they don’t need the
money. I know families that have been torn
apart because a borrower didn’t meet the
agreements she made with a lender. Besides, a
loan from a relative or close friend that comes
with emotional strings probably isn’t worth
the cost.