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When junior seeks parental funds to help launch a business

If, as noted in a recent business-themed article, a select investment “is going to be concentrated, illiquid and with high risk of total loss,” would you make it as the person being asked to pull the trigger?

Many proven business principals wouldn’t.

If the individual asking for money is an adult child, many mothers and fathers would.

A few words to the wise on that, as offered up by financial columnist Liz Weston: Tread carefully if you’re mom or dad, resisting the urge to visit the bank before doing comprehensive and dispassionate due diligence. Parents who act out of love without being clinically logical are likely pouring bucks into “doomed enterprises, sometimes endangering their retirements and family relationships in the process.”

Subject matter linked to parental investing in kids’ business dreams is necessarily going to be somewhat of a slippery slope. Judgment can easily become clouded. Emotion can supplant clear thinking concerning things like business plans, customer sources, company structure, profit expectations and more.

Weston wades into some of that territory in an article underscoring that funding a child’s start-up enterprise is a tandem concern embracing both core business matters and potential estate planning headaches. After all, if a large chunk of money handed over to a child with business aspirations quickly disappears without benefit and can never be repaid, previously firm retirement plans can turn to quicksand.

Weston has some solid advice to offer to parents who hear the intimate pitch from sons or daughters concerning a money plea to fuel a business idea. We’ll take a look at it in our next blog post.

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