If your child wants to start a business, do you have any idea what you’re getting into? Do you have anyone that can give you advice on the subject? It’s an uncommon occurrence, so here is our advice from our Goofus and Gallant analogs CEO and CFO.
CEO’s son comes to him and asks him for some money for a business. It sounds good so CEO chips in, and his son starts right away! However, more and more issues pop up in the first few weeks. A lot of the vendors are asking for more money than CEO’s son first planned, and everything is taking twice as long as it should. There’s also the lack of a business plan, which means that CEO isn’t exactly sure how things are going.
CFO’s daughter comes to him and asks him for money for a new business. It sounds good, but CFO worries that she doesn’t have a solid enough plan right now. He gives her some suggestions on what she needs to look into and asks her to write up a full business plan.
Six months later, CFO’s daughter comes back with that business plan. She can answer CFO’s questions backward and forward, and has clearly tested the waters by contacting vendors and getting quotes. She has been working part time several nights a week for the last few months, and has only gotten more involved in her field.
CEO knows that not everything works out right away, so he decides to dole out cash when his son asks for it, even if he’s too busy to write everything down or ask what everything is for.
CFO is careful to make sure that he’s not the only source of financial support for his daughter’s business, and also makes sure that all of his terms are written out before any money changes hands. He makes it clear to his daughter knows that he’s only offering a specific amount and that’s all he can afford.
CEO knows that his son will pay him back eventually, at least for all of the loans that they remember. Probably with interest, or something. They’ll figure it out.
CFO has already figured it out, having clearly established what kind of capital he’s supplying (in his case, it’s mostly for a minority ownership stake in the company with part being a loan collateralized by some of the more expensive office equipment she needs to buy).
CEO has forgotten about taxes, but everything is such a financial mess anyway he figures that he’ll just give it to his accountant to figure out. He wonders why he’s been losing so many accountants, they all seem to quit after a single tax season.
CFO makes sure that he’s allocated taxable income to his daughter, and because it’s clearly set out as an investment he’ll be able to write off his investment if things don’t work out. He also makes sure that he gets timely paperwork for all transactions and teaches his daughter to do the same thing.
Weirdly, CFO’s daughter has a small but profitable company at the end of the year. CEO isn’t quite sure how his son is doing, but CEO feels like he’s invested more money than his son’s books show, he just can’t prove it.
If you’re thinking about getting involved financially with your child’s business, try to be more like CFO than CEO, and come talk to us about the specifics and we’ll help you figure everything out.
Tags: ceo and cfo