Family Investment

[ThaiPauly]

My Son is 29 and has been a successful real estate agent most of his working life which has been spent entirely in this field in the UK

He wants to start up a business with a partner with similar experience now the market there is starting to recover

He does not want me to be an investor, he wants it all for himself. That being the case I have told him that in principle as long as I don't lose out on interest I am currently earning (around 4% pa) I can do it.

He has said he would put his house up as collateral although he only has half as much as he wants me to invest, but I am loathe to take up the offer. How could I possibly eveict him...thats just not in me to do that. I could not punish him if he failed.

He is my boy, he has the experience, drive and ambition and I trust that he will succeed, but as he does not want me to invest I cant see any way round charging him interest which would amount to about 6k over the next 5 years, I would be losing this if I gave it to him interest free, and as I am retired I can't afford it.

I don't know what a bank would charge but I think it would be higher than 4%pa, but that much is pretty much guaranteed to me.

Does anyone know what a bank would charge?

Obviously if his biz goes down I will lose the lot...well I suppose thats the chance I have to take. Am I being fair? If I could afford to give it to him, no strings I would...but I can't, it will take a massive chunk out of my savings, I am only 55 and hope to be around a bit longer yet. He has said he is happy to pay the money back with interest in 5 years, but would it be subject to any tax? He would already have paid tax on it so I am supposing not? Would I be correct in that assumption?

I would just like a few other of you educated investors or anyone who has done anything like this before out there to give me any advice they feel relevant

PS I know its not a Thai related subject, but maybe I would have to leave Thailand if I lost it all, and go back to the UK to work until I made up the loss should he fail.....I'm not at all saying thats the case ,but who knows?

Thanks in advance

TP

PS. No smartass cracks please, its a legitimate post I think

[liveinlos]

Everyone that ever starts a business says the same thing.

I have experience, drive etc and will never fail

One look in the news tells you that is not true at all with failed businesses in every field at an all time high.

First of all a bonafide professional business plan would prove the percentage of success instead of my son has this idea concept.

Never take anyone's word or idea over a bonafide professional business plan

Better to lose a few bucks on the professional business plan development than everything you own later on

Secondly, if he does not make it your life is essentially over here.

It is not worth the risk in my opinion.

The problem with todays youth is they forget all about the essentials of business 101 which is a bonafide business plan.

Too many people have the notion, "Gee I will go into business and when it fails they have no clue what when wrong when in fact the business plan would have pointed this out before they even got started.

If real estate is that hot a market in the UK and your son is as good as he thinks he is, he should be able to make enough money selling houses to have the cash to start his own business

Since he has not done that, the risk to you is way too great.

[jackdawson]

He does not want me to be an investor

u should listen 2 ur boy

[Morden]

My son came to me a few years ago with a very similar request. I approached it as anyone should with any request to provide funds for a new venture. I asked him about his own financial contribution, read and commented on his business plan (if no plan, no help anyway), played devil's advocate, questioned him about his IT and other specialist service suppliers and many other things. He's my son but the business bit had to come first.

Like you, I would not pull the rug from under my son. But neither would I do the same to myself. Money, or the loss of what one can't afford, can ruin family relationships. I decided what I was willing to risk losing and offered it on the condition that I had some shares in return. Shareholders can lose all of their investment in a business and that is fair enough. I would not consider providing a loan that might not be satisfied because I wouldn't call on the collateral because of the potential for damage to my relationship with my son. There would be resentment, anger, guilt and so on hanging around for a long time. I would rather just give him the money than do that.

And what is the other partner putting into this? Would you be risking your capital for his benefit too? Have you seen any plan from these two? A successful estate agent is not the same as a successful businessman so you may need to look closely at their business plan and question them hard. Having a partner in the business makes it a worse proposition for you. He could screw up the business in a number of ways and leave you and your son at loggerheads over the failed business. You might give the partner a grilling all to himself; if he can't take it he's no good with your money. Even if you eventually decide not to provide funds in some way, your son will benefit from going through this process with you - you will be gentler with him than will any v.c. in the future when he wants really big money!

I could go on about this but, in short, decide what you can afford to lose and offer it. Don't just give it, insist on something real in return. The least harmful thing to your son would be for the business to give you shares. That would also teach the two kids that if they want to own and run a business they had better stand on their own two feet and do it properly. Treat it as a deal between professionals and they might learn something useful about business into the bargain.

Usually you shouldn't invest in a small business, especially a start up, that you don't understand. You might consider your son's business an exception to that rule, I suppose. I didn't know anything about the market that my son was in but I knew he already had the technical and management skills needed.

Good luck to you and your son!

[traderDM]

90% of new businesses fail and successful entrepeneurs fail in their first 3 businesses on average. Professional investors in ventures like the one your son is interested in starting usually form a fund together and spread their risk out across as many new ventures as possible. In the current environment my guess is that even one of these "angel investor" venture capital funds would pass on your sons idea, and they understand that 9 out of 10 of the investments they make may go down to zero.

I imagine your posting was was probably to get some success stories from othes out there to make you feel better abut going ahead, but I would say don't do it. If the business plan, business model, and your son's background warrant funding, then he will find the capital some other way (assumng he really does have the enormous amount of drive and ability to withstand all the inevitable set backs and hardships which are involved running a business).

It requires a completely different skill set and mindset to run a business and be successful than to be successful as an employee even in the same industry. I think this learning curve is why it usually takes a few tries before one starts the business that they can make a go of. Let your son learn on someone else's dime. Aquiring capital will be the first test of his determination and creative problem solving.

[ThaiPauly]

There are some very good responses here, I thank you very much for them.

The reason he has no mony of his own to put in is because he and his girlfreind were both made redundant 2 years ago. His G/F has started her own biz which is now in profit, and my son was re-employed by the company that made him redundant 2 and a half years ago when he was the manager of a very small branch that closed down and has never been re-opened, and has done very well

He said that if I did not give him the money he would re-mortgage his house. He could raise half what he needs that way.

He is in the process of putting the biz plan together now, I wont give him anything till I see it.

His Partner comes from a super-rich family, he will be putting in his half from saving he has already got as he is older than my boy.

If I asked him for shares in the company how do I value them ?

He said he would rarther get the money some other way than have investors, he is an independant guy and I respect that, but I can see that I am taking all the risk for no gain.....I don't and won't turn down helping him out here, and if I lost it all, to be honest...I could survive..might have to sell the BMW, but that would not be the end of the world.

What is fair?

Thanks once again

TP

[Morden]

I still hold that he should be prepared to sacrifice a stake in the company in return for your funding. It would a better deal for him than mortgaging the home in the sense that, should the business fold, you lose your investment and he keeps his house. That's something you and he both would want if the worst happened. He has to understand that it's not appropriate to expect his old man to tip up cash for no return now that he's no longer in short trousers.

If the partner is putting up half and you are putting up half, then you should ask for half the shares. However, your son will want some naturally, so you could divide your shares with him. You need to discuss shareholders' voting and dividend rights, the whole matter in fact, with an accountant or solicitor. Perhaps you also need to have a contract with your son regarding future disposal of the shares should he repay your debt or you die. Consider the terms of your will too. It must all be done in a way that hold up in law should you pop your clogs.

Partners in a business can be a nightmare. It would be in your interests to make sure that your son has a good legally binding agreement in place with his partner and that bank balances and funds are well protected. I assume that your son knows his partner well and no background check is needed.