Should I Invest in My Child’s Business?

StartBusiness.jpgParents are generally willing to make sacrifices for, and support their children. When a child is thinking about starting a business, a parent may be asked to invest. Depending on your specific circumstances, investing could be a considerable financial sacrifice, so it is crucial to think through your decision carefully.

Below, we offer some suggestions on what you should consider before investing in your child’s business.

Can you truly afford it?

Wanting to invest in your child’s business is one thing; having the means to do so is quite another. Look at your financial situation to determine not only whether you have the money to invest, but whether you have the money to lose. If the business is unsuccessful, you could lose your home, retirement, and end-of-life care resources. This is an enormous sacrifice, so do not make the decision lightly.

Is it a wise business decision, or strictly personal?

If your child wants you to seriously consider investing, he or she should be prepared to take the situation seriously, as well. As this recent article from the Associated Press recommends, insist that your child has a solid business plan in place. This plan should include budgets, operating details, and an estimate for when you can expect to receive a return on your investment. This may feel like an uncomfortable conversation to have, but it is far better than the emotional fall-out between parent and child when the business goes unexpectedly belly up.

Are there other ways you can show your support?

Starting a business requires more than financial support. If you can’t or don’t feel comfortable investing money, consider other ways to help your child. You might offer to help write up marketing materials or to manage administrative details. Even agreeing to babysit your grandchildren while your child attends business classes, meets with clients, or consults with financial and legal advisers can be helpful.

Assessing the situation wisely

You and your child can benefit from approaching this delicate situation carefully. Don’t feel pressured to make hasty decisions; take the time to understand your legal and financial options. Doing so can help you and your child avoid missteps that jeopardize your future, the child’s business, and your personal relationship.