Like many of my peers, I held many jobs in college. My work in bars was among the most interesting. We were bartenders then, not mixologists. For a student, it was hard to beat the pay.

I learned a lot of things. For instance, financially good jobs tend to come with a cost. In this case, the hours were terrible and not conducive for academic excellence. I found people love you when you are pouring drinks but can have little regard for you when you change roles to break up a fight. Most importantly, I learned owning a business is totally different than being an employee and involves a lot of hard work. Running a bar is particularly tough.

So, the first time a client of mine told me they wanted to help a child start a business, the business was, of course, a bar. I had some concerns. I knew the son was an experienced bartender but it wasn’t the good kind of experience. In the five years, I had known the family, his longest stint at any one place was eight months and he hadn’t been switching jobs by choice.

He had a problem showing up on time. He had stolen money from the till, given away too many drinks to his friends and female patrons he liked, and he allowed other employees to do the same. In their minds, these behaviors were acceptable because the owners were bad bosses that just collected gobs of cash for not doing much more than being stern with employees.

He thought buying a bar and hiring his co-conspirators was a great idea. He couldn’t get fired, his friends would have a boss they liked, and he’d collect plenty of money. 

Mom, my client, liked the idea too. Junior hadn’t shown any enthusiasm for much of anything in years but he was excited about this idea. She put more emphasis on the quantity of his experience than the quality. By the time she talked to me about it, she had already said she would do it. “Her boy” (age 47 by the way) just needed a boost.

From my seat, this was a disaster waiting to happen. Junior had no appreciation for what it takes to run a bar. He also never thought that if his would-be employees would steal with him, they might steal from him.   

I tried showing her that most small businesses failed, especially bars. It all fell on deaf ears and ended as I feared. The bar had a good opening month then faltered and died. She lost every penny she gave him.

I was crushed. She was fine. To her it was just the latest cost of being a parent. She told me, “If having kids was a financial decision, there wouldn’t be so many people in the world.” 

Despite my failure that first time, I’ve since had more success working through the issues surrounding my clients’ inclination to fund businesses of their offspring.

The first thing I want to do is make clear that I am genuinely part of the team to help Junior succeed. Some kids do just need a boost and some of their businesses do work. Everyone wins when that happens and I point that out.

The next thing I want to discuss with my client, is their capacity to take on the risk of a business start up. I approach the matter from this perspective; it doesn’t matter why the business fails, when a small business fails, the funders lose everything they invested. I want my client to consider their financial condition should there be a complete failure. Hopefully, this will lead to a limit on the potential funding.

This is a huge issue because additional funding requests are common and need to be discussed with the parents. “If I can just keep it going another couple of months, we’ll make it,” the kid will say. The parents want to believe this and don’t want to feel they pulled the plug on the dying business so they pour more good money into a bad situation.

Importantly at this point in the discussion, I try to stay away from the viability of the business in question. The client and child will make that judgment. More on that in a bit.

For now, I try to get my client to think of good local businesses that closed down. There are always many examples. If I am lucky, one of these extinct entities will have been in the same business being considered by Junior.

If they can recall that these places had nice people working within the business providing good products or service, it can be a reminder that bad things can happen to good people.

I have had little success speaking with the kids about the parent’s capacity. They are often too overconfident to think they will fail. 

If the kid is going to pull it off, he or she has to be committed to becoming a hands-on business owner. Not a hobbyist or a passive owner. Being an owner doesn’t mean you don’t work.

Almost every time, the budding entrepreneur will say they have such a commitment. They can easily prove it by tangibly demonstrating that commitment. One of the easiest ways to do this is for the funding parent to say they will provide the funding once Junior provides a good business plan and proper documentation is in place.

It is rare to find anyone that will argue having a good business plan is a waste of time. If Junior is truly ready to be a business owner, he’ll do the work to produce a good plan.

Funding is sometimes done through gifting but usually a loan is used. Few kids want parents as equity partners. Asking for a loan seems more palatable than asking for a hand out.

The reality is many are approaching their parents for a loan because they can’t get a loan at a decent rate, if at all, from a traditional lender. It is amazing to me how many families view this as unfairness in the system rather than a reflection of the risk.

I go over the elements of both a good business plan and a bad plan. The work involved in putting together a good one usually ends the matter for those less capable or less dedicated children. The presentation of a bad business plan highlights the risk for clients. They may still loan the money but they are more likely to charge a decent interest rate and limit the size of the loan.

In some cases, the business plan was pretty good. Some worked out some did not but everyone at least felt better about the whole endeavor.

I am pretty adamant about getting good loan documents in place. Part of my insistence is that for many kids, it highlights the seriousness of the transaction and the business. It also provides a good document to have should the business fail and my clients wish to deduct the loss.

The business-plan approach works pretty well for most situations. One in which it does not is when the child is up to no good. The business pitch is sometimes just the story to get money out of the parents.

Like many fraudsters or abusers, they will seek to put a wedge between the client and those looking after the client’s interests. They may try to erode your credibility or convince the parents a business plan is not necessary because they or some other partner “knows the business.” It is also likely that some urgent news will arise such that there “is no time for a business plan. We have to move now or we will miss our opportunity.” Such is the language of the ne’er do wells. 

Sometimes the kid means well but they are themselves being pitched by a crook. We’ve seen a few shady franchise deals over the years with ready-made business plans.

It is natural for parents to want to help their kids. When these business startups work, it can be transformative but those cases are the minority.

Protecting a client’s interests when they are keen on funding a new business for a child can be challenging. It requires a balance between being supportive and providing the cold hard facts of life for small businesses. If owning a business were easy, fewer small businesses would fail.

Dan Moisand, CFP, has been featured as one of America’s top independent financial advisors by several publications, is a past president of FPA and is a popular speaker on all things related to retirement advice and the profession of financial planning. He practices in Melbourne, Fla. You can reach him at www.moisandfitzgerald.com.