Everybody wants to see their child succeed in life. As you see your little one grow into a driven, hardworking adult, it’s natural that you want to nurture their determination. If your child has plans to start a small business, one of your first inclinations may be to help them get started financially. Take a moment to consider the situation first, however.
A small business requires a huge number of resources to get started. Protecting your assets when investing in anything is critical, even when it’s your own child’s business.
A boost from the parents
You may not know it, but the Mexican grill chain Chipotle, the action camera company GoPro and the monolithic online retailer Amazon all exist because the founders’ parents gave them the money they needed to get started. These startups took off, but not all businesses are so lucky. Before you get your checkbook out, ask yourself these questions:
What can I reasonably lose?
Consider your own bank account first. As a parent and investor, you need to walk the line between protecting your bottom line and helping your child reach their dreams. If a $50,000 investment going up in smoke means you won’t be able to retire when you’d like, think twice before committing.
There are more ways to support your child’s business than major financing; consider helping them draft documents, help them by taking calls or do their scheduling. Every little bit helps.
What‘s the plan?
Successful businesses rarely happen by accident. Be sure your child has done their research and has a sound business plan to back up their dreams. Knowing key markets, strategies for reaching those markets, specific financial needs and a firm argument for why the business will thrive is the least someone can do to lay the foundation of their business before asking for money.
Are you more than a checkbook?
Make sure you have some level of ownership if you are investing in a business. There’s no shame in expecting to be recognized as an investor or lender. Will you see a return on your investment? Will you have voting rights in the company?
Setting up operating agreements isn’t complicated with the right guidance. An attorney experienced in business planning can assist you in creating the proper legal documents and advise you on the best course of action for you and your child’s specific circumstances.
One of the toughest, most demanding and possibly most rewarding endeavors someone can pursue is starting their own business. You want to be there for your child, both as a supportive parent and investor in their goals. Get them started on the road to success without sacrificing the success you’ve worked for.