Everyone wants to assist their children in achieving their goals. Many people feel that the best road for them is the one they took in the first place: entrepreneurship. Let’s look at some cautions before you assist your children to acquire or establish a business:
1. Can You Afford The Potential Loss?
Can you afford to lose the $200,000 you’re lending your kids (make it a legal loan with loan documents, interest rate, amortization schedule, UCC filing, and so on) if none of it ever comes back? The chances of their or anyone else’s startup failing are very high. If losing the money puts your retirement or lifestyle in jeopardy, don’t do it! There are also tax implications to consider before taking out the loan.
2. Do Your Children Have What It Takes?
You probably began out on a shoestring, fought your way up, invested wisely, and postponed a lot of personal satisfaction as an entrepreneur. What about your children? Have they only experienced a simpler life and are oblivious to your sacrifices? Not everyone is cut out to run their own business and pay their employees with a Visa advance.
3. Are They Skilled Enough?
Do they have any knowledge of the restaurant, vehicle wash, or cleaning company? What is their educational and professional history? Is it possible for them to read a Balance Sheet or an Income Statement? Will they be able to seal the deal with a crucial, must-have customer? You care about your children, but a deeper love prevents you from setting them up for failure.
4. Is It The Right Business For Them?
Why will banks lend to almost everyone who wants to acquire a renowned franchise, even if they have no prior expertise in the industry? As a safety net, a franchise provides them with an established method and business strategy. On the other hand, if someone wants to receive an SBA-insured loan to buy a non-franchise firm, the lender will prioritize the borrower’s industry experience above his or her personal credit.
Furthermore, a fantastic franchise in a bad location will result in a failed business. In this difficult economic climate, many well-known retail franchisee sites are failing. Prepare yourself and your child to devote a significant amount of time and money in due diligence in addition to the initial expenditure.
Your children may accomplish amazing things with the money you lend them, but prevention is better than cure, and a lot of family strife may be avoided with some careful preparation and evaluation. Remember that there is no greater love than not setting your children up to fail.