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How to Turn Your Loved Ones Into Your Business Backers

No matter how many investors you take on, Arora says you'll need official documentation for each of the investments -- even for mom and dad.

"You will need contracts for every single investor that are black and white. They need to know what they are getting into, because there don't need to be any surprises down the line," he says.

Contracts will help make investors more confident in you and your business plan, he says. You'll seem well prepared, and your friends and family will see that you're treating their money with respect.

If your company is a corporation, Barbash recommends issuing stock certificates.

"Demonstrate to them that even if they are related to you or your best friend from college, you are taking their investment seriously and documenting it appropriately," Barbash says.

No matter what kind of company you're starting, Michael Sherrod, professor of entrepreneurship at the Neeley School of Business in Fort Worth, Texas, says to come prepared to any investor meetings with an exact figure of how much money you need. Although you might love to get $500,000 from a wealthy aunt, you've got to be realistic.

"At a minimum you must know how much you are asking for and how the money will be used," Sherrod says. "Negotiation will definitely be required, and it is important you have a clear notion of what you will accept or decline. It's much better to decline than to get stuck in a deal that won't work for you -- and kills your relationship."

No matter how the negotiations develop, Sherrod says to keep in mind that your family and friends come first. Nothing -- not even your business -- is worth ruining lifelong relationships.

"Never stop caring about your family and friends -- no matter how things turn out," Sherrod says. "The single most important thing in life is relationships."

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