At the end of last year, my parents came to visit. They are always interested in our business and how we are doing. They want to come to market with us and experience the market community but they are only able to hang out for an hour or so because it is very hard work.
During their visit we were talking about the business and the expansion that we wanted to do. They were excited for us and offered us a loan to fund some of the expansion. I’m way too old to get a loan from my parents. I mean really? I moved out of the basement decades ago. I turned it down.
Not to be assuaged, they changed the terms from a loan to an investment. Yes, I know that on the surface it is almost the same thing, but there are some differences. Instead of having to pay them back, I would have to treat them as part owners just like me and Monica. Of course they would be minority owners with a 10% stake. Of course, they wanted dividends. This year it might be as much as $100 check they get!
I am also the executor of their estate. They won’t be with us forever and they have already started to plan for the eventual actions that will have to be taken. Part of their will states that assets are divided among the siblings and the grandchildren. Their investment in our business would survive at their passing and be inherited by their kids and grand kids. This is the part that affected me most regarding their investment proposal. Instead of building something for me and Monica, I would be responsible to the entire family. Oh, they don’t know any of this at least I don’t think they do.
Monica and I took their investment in exchange for a 10% ownership stake in our business. We invested this in equipment to allow us to expand our display. Our display is now far more grand and attracts a lot of attention and compliments.
However, their investment has also had an interesting side effect. That side effect is me and how I think. I’ve noticed that my attitude toward the business is more business like instead of hobby like. What I mean by that is I no longer purchase items for projects that would be cool to work on but am more focused on delivering a core set of products first and then consider expanding into other things. I want to deliver certain items at the highest quality, more reliably, and more profitably. I’m not chasing projects that look “fun to build” as much. I’ve become a better steward of the business’s money.
I believe that a big reason for this is that in the back of my mind I’m always thinking about the best use of their investment. Yes, their money has been spent, but I still have an obligation to them and to their estate. Because decisions have a bigger effect than just to me and Monica, I think I’m making better decisions.
They did promise to be silent partners, but even though they haven’t said a word about promised dividends, their voices can still be heard in the back of my mind.
Having a business partner who invests in your business may not be the best solution for you, but if you enter into the agreement with the right mindset and focus on stewardship of their investment, it may work great for you.