How do I define my role in my daughter's business, that I will be funding?
My daughter wants to start her own business in a field in which she is not only certified, with 5 yrs. experience, a solid client list, but has some excellent ideas in which to grow the clientele. She has no credit, so my husband and I would be taking out the loan on her behalf. How do we ensure that we get our ROI? She has already asked me to help her with bill paying and such. I have read the posts about silent partners, but I'm unsure that is what I'll be.
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Apr 17, 2018
To move forward, make an agreement as being an investor, you and your husband become the shareholders of the company and will handle the financial side so you can assist where she is not able to be full time in admin and then hold regular meetings to update each other of the going one in the company.
Apr 11, 2018
Hi Cynthia,
I am the Community Manager for Business.com, so I see this question come up all the time. The Business.com team wanted to find the definitive answer for how to approach going into business with family. They shared their findings in a recent article, Tips for Keeping the Peace When Working with Family that I think you will find helpful.
Walking the line between both a professional and personal relationship can be difficult. My advice to you is to treat the loan for your daughter as you would a loan for a non-relative. Make sure you define the terms of the loan beforehand, and you both agree. Contributing money to the company would make you a shareholder. As a shareholder, you can decide how often you would like a report on the progression of business.
Believe it or not, many entrepreneurs will often do a 'friends and family' round first when seeking funding, before speaking to outside investors. So, I don't think it is out of the ordinary to invest in your daughter's business. The real challenge will be maintaining a work-life balance among your family. Good luck!
Jan 30, 2017
If she is asking for help with bill paying, you might want to take a closer look before you invest. If she doesn't want an "advisor" on board, then this becomes as matter of signing a contract and agreeing upon the terms of payment. She is trying to make it on her own, which is admirable but unrealistic, we all need help. As Oprah would say, "Don't lend if you can't afford it."
Jan 25, 2017
To move forward, make a agreement as being investor, you and your husband become the shareholders of the company and will handle the financial side so you can assist where she is not able to be full time in admin and then hold regular meetings to update each other of the going one in the company, the let her concentrate on building and implementating solutions to improve business building and clients as they are the main building blocks of a successful business.
Jan 20, 2017
Hi Cynthia, Family is Family, however Business is Business.
Its great that you are keen to help your daughter.
There are a few missing parts.
a. What is the size of the load.
b. Can you underwrite to full financial exposure.
c. How much would need to be paid each month to service the load.
d. Can the business in its current form meet the repayments.
If not how much extra would you need to put in to keep the business afloat.
The thing is the business needs to be viable. you can't trade as an insolvent business.
Another consideration is. what additional assistance will your daughter need in terms of manpower and man hrs, in order to free her up to do what is needed to make the business grow.
Like any start up, it is always a great idea to put together a business plan and develop a business model for growth. look at the next 2-5 years. work out what is required to grow the business along with what is required to sustain the new growth volume.
As business are business you should look at this unemotionally, and ask questions like how is that going to happen.
BTW you should be prepared to accept a very low or even ZERO ROI for the first 1-2 years, unless the business is sustainable now, which is doubtful considering she is already asking you to pay for bills.
You are welcome to contact me should you want further advice.
Good luck. George.
Jan 18, 2017
It's great that you want to set it up in a legally appropriate way.
I don't think a loan agreement is necessarily enough, nor is a silent partnership, although depending on how the shares are split, it could be.
But in that scenario controlling interest will entitle you to the majority of the profit and that doesn't sound like your goal.
Since it's your daughters business and area of expertise, she should be the CEO and therefore have total control of day to day operations.
I think the role you are looking for is Chairman of the Board. That way you are not involved in day to day operations but remain the only person who can fire the CEO. With this arrangement you can bring in someone to right the ship if need be without taking the company ownership away from her. Set out in the contract a clear reporting schedule. Perhaps monthly reports for the first year and quarterly reports after that. As long as those reports are meeting your repayment schedule or the reasons for falling short are acceptable, you will not need to intervene.
There are plenty of nay sayer opinions already posted here, and I don't disagree with them. My main concern with this proposition is that banks are involved. If you could loan her the money and afford to lose it, without the bank, it would be a much better situation. If you are choosing to use a bank because your money is making a better return than the cost of the loan, that may be different. But either way, if you cannot personally afford for her to fail, it's a hard NO - don't do it.
Jan 18, 2017
I would suggest that you work with a Score Counselor in your area to develop a business plan..... The most important issue here is for EXPECTATIONS to be understood by both parties so TRUST is established. Doing a business plan with a Score counselor will get you started in the proper direction...
Once a business plan is written up, you will have a guides as to what expect from the business based upon projections and then be able to compare the projections to actual---By week, month, quarter. annual etc. Once you have a plan with revenue and financial projections, you can discuss your mutual roles. It will be like your being her banker/financial person/ administrative assistant.... CFO
Jan 17, 2017
When someone plans to start a business, one of the basics is business plan creation, legal and financial input from professionals, and thorough review of roles and responsibilities.
It sounds like you may have skipped all of these steps and went to agreeing to lend someone money with no written agreement. Not good.
This is basic, but you've disregarded all of it. Not good.
As a banker I question your capabilities if this is the type of questions you are asking a group of strangers and not your professional consultants.
Jan 17, 2017
I'm not going to add to the comments that doing business with family is risky. I will say that investing in any business is risky, and she should have a business plan your accountant and attorney can review. They are impartial and objective. If asking for a business plan causes an issue with your daughter, then you really shouldn't invest. It should be a loan that she signs a promissory note to repay, either straight up or out of her inheritance. And then have her find her own bookkeeper because it's best if you stay at arms length and not have intimate knowledge about how the business is doing. That will cause stress for everyone.
If you do decide to invest, and she knows doing the books is not her strong suit and that's why she would like you to do it, you should be paid the going rate for a freelance bookkeeper. The business can then pay you for your work and she can issue a 1099 for the work.
You haven't mentioned what kind of business this is, but the cardinal rule of starting a business is to not commingle your personal funds with business funds, as this can open her (and through her you) to a lawsuit and you could be personally liable. Which is why she needs to give you a business plan so you can have your accountant and attorney review it, and if you decide to work in any capacity for the business you do not get paid under the table. Document everything.
Jan 17, 2017
Well Still you didn't"t mention clearly what you want - Are you helping her or you want to be a partner with her If you are helping her then take the loan & ask her to pay back the installments or take the loan & make agreement with her to be a partner sharing with her your percentage of profit . Silent partner or working partner accordingly .
Wow, David has told it like it is. In our sometimes genteel society, we look for the positives and don't frankly state the negatives.
Asking this forum is a good starting point. With the advice you have received, this can get you to the next step which probably will involve hiring advisors. Or, if your money is not that precious to you, do your best with your due diligence, lend the money and anything can happen including losing your money.
Friends and family are usually the only places to find funding. Such loans as you are discussing often become gifts. Create a repayment plan if you want the money back. Or, receive equity for some it. But, this should be documented with a stock/membership certificate. Or, choose debt convertible to equity at your discretion