Parents ideally love their children and will do nearly anything to help them out. This can lead to problems, however, if your child has announced that he or she wants to buy a food truck or launch a tech start-up that focuses on video games. Nevertheless, just as many businesses have started in the garage, there have been many successful businesses funded by parents, including Amazon, GoPro and Chipotle.
Unfortunately, success stories are not the norm when it comes to starting a new business. Parents need to understand this and see their child as a business partner rather than the 12-year-old with a lemonade stand on the corner. Things never go as planned, but worst-case scenario for a failed business can put you in serious financial difficulty as well as put immense stress upon your relationship. An article discussing many of these issues offers some sage advice to the parent investors. Below are some highlights:
Tips for parent of aspiring entrepreneurs
Don’t give money you can’t afford to lose: Parents are accustomed to making sacrifices, but losing your nest egg, money needed for retirement, or home is a serious problem. If you cannot afford to provide financial support, offer to provide help with a business plan or push them to seek out people who provide knowledgeable guidance.
Insist on a business plan: Treat this like any other business opportunity. Ask them to create a business plan that includes goals, target audience, growth potential, analysis of the competition and why they will succeed, expected costs, and targets on when the business will become profitable. Their willingness to do this will illustrate their commitment.
Determine your role: Are you partner, lender, investor or something else? Will you have a say in how things are run? If so, how much? If there is considerable investment of money, there should be a formal operating agreement that outlines your roles and liability. Many entrepreneurs want to have complete control, which can lead to conflict if you are trying to protect your investment.
Consider the impact it has on the other kids: Kids will be kids and there is likely to be jealousy. Helping a child start a business can inflame a range of negative emotions in the other children.
A business law attorney can help
Working with an attorney experienced in business and corporate issues can help the success of a business. Not only can they help ensure that everything is compliant with the laws and adhere to safe business practices, legal professionals can also provide important guidance based on years of experience. They can even offer advice that wouldn’t necessarily be accepted if it comes from a parent just trying to help.