A trend in wealth transfer has been making the news of late: investing in a new business and your child in one step; essentially, buying your child a business. Where parents in the past may have merely put in a good word or even called in a personal or professional favor to help their child secure a position after graduation, these days an increasing number of parents are taking it a step (or five steps) further by investing their own funds in a franchise or start-up and putting their child in charge. Observers say that it’s just another effect of the continued recession. With jobs remaining hard to find, even for college graduates, parents in a position to do so are getting more proactive in their efforts to see their children gainfully employed, even if they have to become the employer to do it.

There are many factors to consider before investing in or purchasing a business and handing it over to a son or daughter. Besides the question of whether you can afford it financially, a parent must understand that by becoming, in effect, their child’s boss or, at least, a silent partner, the relationship between parent and child takes on a radically different dynamic. Furthermore, if the parents’ retirement savings are being used to fund the start- up, a whole new pressure is put upon the child in his or her new role as the maker (or breaker) of mom and dad’s chances at a happy and secure retirement.

A child’s chances for success in the new business, however, can be increased by some serious consideration of the following issues at the outset:

• Make sure your child understands the level of commitment the endeavor will require of him or her. If your son or daughter views the enterprise as an experiment or as a means to kill time until the economy improves, and does not fully understand the investment at stake, you should be prepared that they may not also take the responsibility of running the business seriously.

• Be mindful of your child’s particular interests, abilities and business acumen before deciding on a business plan. A child without much experience in managing a business may not be a candidate for a solo start-up. He or she may be better suited overseeing a franchise with an existing brand and built-in support and resources. In addition, you should not expect your child to fully commit and invest in a business in which they have no personal interest or skill.

• Be prepared to act in your role as investor to an employee, rather than as parent to a child. You cannot be afraid to critique your child and hold him or her to the consequences of poor performance or inaction when it comes to protecting your investment.

Should you decide to forge ahead after careful contemplation of these issues, seek out the advice of a business attorney and an accountant with experience in start-ups and franchises. These professionals will provide invaluable help in structuring the legal and financial details of the venture such as how much control you and your child will have relative to each other in the operation of the business, and, when and how you can expect to start seeing a return on your investment. For more information, please contact Justin L. Galletti (jgalletti@brodywilk.com).