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BY RUSS ALLRED Contributing columnist
Twenty years of observation have revealed a disturbing fact. Adult children who can't keep a job aren't prepared to be the boss.
Yesterday a fellow broker called me regarding a business I represent for sale. She said her clients were interested in buying it for their son to run. Immediately, I recalled the pizza shop, and the deli, and the clothing store, and the home care, and other businesses that parents were trying to sell after the adult-child for whom it was purchased had run it into the ground.
Mom and Dad were left to clean up the mess and try to mitigate their losses. The image of a child in a toy store comes to mind, but a tantrum-terminating toy is much different than a business.
Businesses are expensive. They often employ other people who are dependent on their earnings to live. They have vendors who need their sales to stay in business and pay their employees. There are customers who need the product or service. They reside in communities that need tax revenue to fund schools and other public services. The consequences of a failed business go much further than the damage of a spoiled child.
That is not to say that a second generation manager is incapable of running a family business, but the first generation should vet their offspring like any applicant for that job. Does the applicant have appropriate education and experience for the position? Have they demonstrated continuous employment with progressive responsibility? Do they understand and use income statements and supporting financial documentation? Do they have a personal network of advisers and industry experts? Have they demonstrated leadership in overcoming difficult obstacles? Do they really want the job or just the perks of the job?
The parents of an aspiring entrepreneur can hedge their investment in a business by requiring their daughter or son to prepare and submit a business plan as due diligence for a business purchase. Any venture capitalist will require a business plan before investing and so should you. The plan should include a conservative cash flow projection, a study of market trends, resumes of the management team, the amount of investment capital needed and a strategy to repay the investment in a given time period.
This expression of earnest should also include an amount of interest. Some parents consider their gifts as expressions of love, but the greater gift will always develop a better person.
-- Russ Allred, MBA, is a business consultant and author with Sunbelt Business Brokers & Advisors. These are his opinions, not necessarily those of The Californian.