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Investing_In_Sons_Business_Could_Cause_A_Real_Family_Feud
| Investing In Sons Business Could Cause A Real Family Feud
Q: My youngest son wants to borrow $5,000 to start his own
business. My wife is afraid to tell him no. She thinks we should
just give him the money and not expect anything in return. I
disagree. He doesn't have a very good track record with money,
so I'm a little worried that my investment will be lost. Should
I loan him the money and hope for the best or just tell him no
and hope he doesn't get too upset?
A: The first thing you need to do, Jeff, is determine if this
money would be offered to your son in the form of a gift, loan
or investment. The very wording of your question tells me that
you have not yet made that all-important distinction.
It sounds like your wife wants to make a gift of the money,
expecting nothing in return but the undying love of her last
born son.
You, on the other hand, don't know if you should offer the money
as a loan (should I loan him the money) or as an investment
(worried that my investment will be lost).
Until you can make that distinction, your money should remain in
the bank.
I have a very simple rule when it comes to loaning money to
relatives: NEVER, EVER loan money to anyone you might have to
sit next to at Thanksgiving dinner.
"Son, pass me that dressing and tell everybody the story of how
you blew your old dad's retirement money..."
A loan from a relative is no different than a loan from a bank.
You, Mr. Banker, are giving your son, Mr. Borrower, the use of
your money for a specific period of time and you fully expect
the loan to be paid back under specific terms, even if his
business goes south. Sure, you will probably be a little more
forgiving than a bank when the loan goes unpaid, but the damage
to your personal relationship could be extreme and hard to
repair.
In the most basic of terms if you loan your son the money you
become the creditor and he becomes the debtor. Have you ever
heard of a creditor and debtor having a very good relationship?
Has Visa ever called you up just to ask how you're doing? Has
your mortgage company ever named a kid after you? Probably not.
The same rule applies with investing in a relative's business. I
have raised money for several business ventures and not once did
I ever think about asking my relatives to chip in. The last
thing I'd ever want to do is lose my mother's yard sale money.
I'd never hear the end of it!
An investment is made with the understanding that your money is
totally at risk with no guarantee of return. Even under the best
of conditions an investment in any business is a gamble. You are
betting your money that the business will be successful and that
you will get a payback at some point in the future.
Hug your money real tight before making the investment, because
if the business doesn't make it, you will never see your money
again.
You and your wife also seem very worried about making your son
mad, which raises another huge red flag for me. If your son
isn't mature enough to take the word "no" without getting upset,
he's certainly not mature enough to start and run a business.
Unless that business is a bicycle paper route, and even then I
wouldn't put my money on his chances of success.
The bottom line is this: if you can afford to give your son the
money and can do so without attaching strings to it, then by all
means give him the money and wish him well. Encourage his
entrepreneurial spirit and support him as a parent should.
Do not, however, expect anything in return and never bring up
the money again, especially if he's the one carving the turkey
on Thanksgiving Day.
Here's to your success!
About the author:
Tim serves as the president and CEO of three successful
technology companies and is the founder of
DropshipWholesale.net, an online organization dedicated to the
success of online and eBay entrepreneurs http://www.prosperityand
profits.com http://www.dropshipwholesal
e.net http://www.30dayblueprint.com<
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